The Decibel - Why the condo bubble burst could lead to better housing

Episode Date: November 6, 2025

For more than a decade, Canada’s condo boom was on. Investors, at home and abroad, drove the craze over reselling preconstruction units. Rents skyrocketed, all while the condos themselves shrank in size. Today, the bubble has burst and the housing crisis continues. New condo sales in markets like Toronto and Hamilton are at 35-year lows and prices are driving potential homebuyers out of the city core. Is this actually an opportunity for developers to course correct to find “the missing middle?”Erica Alini, personal economics reporter for The Globe, explains why shoebox condos have been so appealing for North American developers, why the market for them has cratered and what needs to change to build cities with higher density at a liveable scale.Questions? Comments? Ideas? E-mail us at [e-mail] Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

If you've paid any attention to the real estate market lately, one story becomes increasingly clear. In Canadian cities, the condo market is crumbling. For example, in the greater Toronto and Hamilton area, condo sales fell to a 35-year low in the third quarter of this year. And condo developers have scrapped 18 projects as of mid-October. That's a new record for cancellations. I grew up in Italy and grew up in an apartment, you know, 1,500 square feet, family of four, and until I started living in Canada, I never had a concept that you raise a family in a house. The Globe's personal economics reporter Erica Alini has been thinking about the way we build condos and apartments for 15 years, ever since she first moved to Canada.

And then I, in 2010, I moved to Canada and with my. Canadian husband, we started renting out a one-bedroom plus den condo in downtown Toronto, and I was shocked. I thought it was a small apartment. We could hear the neighbors all the time. There was no storage space, and it was still quite expensive. And so in the back of my head, I always had this question of why do we do things so differently in Canada and what would it take to build a kind of apartments that I grew up in and that you still see in Canada in places like Toronto and other cities that they are older apartments in older buildings and they are much larger and they seem to be built with the idea that that can be somebody's home

for the long term. As we reckon with how to fix Canada's housing crisis, Erica is here to talk about why we haven't built larger apartments and condos and what experts say needs to change if we want density at a livable scale. I'm Cheryl Sutherland, and this is the decibel from the Globe and Mail. Hi, Erica. Thanks so much for being on the show. Thanks for having me. Erica, before we get into why we have so many shoebox condos in our big cities, let's talk about the state of the condo market more broadly. Tell us what's going on right now. Yeah, so the condom market is in crisis, and I would say Toronto is the center of that crisis. And the crisis really started in the spring of 2022 when interest rates started going up.

And we saw prices start to move sideways, and then the climb. And that scuttled the calculus that a lot of investors made when they decided to buy a condo. For a lot of people, it was a sort of a speculative play. People would buy condos pre-construction, and often here in Toronto at least, they would flip them before the building was even completed or at completion or shortly after. And at the height of the condo craze in Toronto, they didn't even care if, you know, they were like hemorrhaging cash every month because the real calculus was, even if I can't cover my monthly. expenses with rent, I'm just going to make so much money when I sell the condo because prices keep going up and I'm just going to sell it at a profit. And that came to an end sort of in that spring of 2022 is when we started seeing that sort of narrative not really being true anymore. So that was the

hype, but we're in a different position right now. Can you tell us how bad is the condo market at this moment? It's pretty bad. So in the greater Toronto and Hamilton area, area, for example, data shows that newly built condos, the sales are the lowest levels since 1990. Wow. So it's a 35-year low. So when condo prices stopped going up and up and up, right? That's when the methods started not working very well. Interest rates were going up, which means the mortgage costs were going up.

The cost of building these condos, like costs for builders went up. And then also shortly thereafter, we started having curbs on immigration. A lot of tenants are newcomers or students, immigrants. So, you know, we tamed a rental demand at the same time that we tamed immigration. And then we also had a lot of newly completed condo projects that came online, sort of increasing the supply of potential rentals, as well as a bunch of rental buildings that have been, you know, finished in the past few years. So you've had a decline in rental demand at the same time as

supply went up. And so rents started the clining, which is much needed great news for tenants, but that really sort of sealed a deal on trying to invest in a condo and made it so much, so much harder. People wanted to get into the market are kind of like, this is not the place to go right now. Exactly. And I don't know about you, but I've definitely heard about people trying to sell their condo right now. And it's just like they're having a hard time. Like it's just flooded with so many different condos being up for sale right now. Yeah, and especially small units are having a hard time moving. There just isn't that much demand or that much interest.

And so there are a lot of people stuck with sort of what was supposed to be a starter home and that they're not quite sure what to do with it. Yeah. Let's talk about these small units, which we call shoebox condos. What are they like? Can you paint us a picture? Tell us about the size and also kind of the layout. Yeah, so particularly in the past 10, years or so, is when we started seeing the size of condos really shrink. And there is a correlation

with growing investor presence. So when we're talking about shoebox condos or microcondos, we're talking about, you know, something that is less than 450 square feet. There's even units are less than 300 square feet. And like you said, like this isn't always than the case, right? Some of the older builds are not this small. Can you give me a sense of how much smaller they are from, say, the 1990s? Yeah, so we have some data from Statist Canada that shows that in both Vancouver and Toronto, in the 1990s, we used to build apartments that were just under a thousand square feet, which is not a huge house, but it's pretty comfortable. Like, you can even fit a family in, you know, around a thousand square feet. And, you know,

In the past 10 years, we've been building, like, the median size of an apartment is right around 640 square feet. And can you talk a little bit about this idea of pre-selling and how that kind of works its way into this conversation around why we have such small units? So here in Canada, when a developer wants to build a condo building, they need to know that a large percentage of the units that they're going to build already have a buyer. And so those are so-called pre-construction sales. And they have always attracted a lot of investors because not a lot of people are thinking sort of that far into the future, you know, are thinking of buying a house before it's even built. Yeah, if you want to move, you kind of want to move in a, you know, a couple of months, not like years down the line. So there's, there has always been sort of a certain, a certain degree of like an investor interest, an investor presence in the condo sector. but this has really sort of really grew in the past 25 years and even more so in the past 10 years.

One of the reasons why condo sizes have shrunk so much is because, you know, these pre-construction sales tend to attract mob and pop investors. So people who had some money to invest in real estate, but not a huge amount of money. And so they tend to have a preference for smaller units because the smaller units means a smaller down payment. if you're going to hold on to the condo a smaller mortgage and also they tend to get higher revenue per square foot. A one bedroom, a two bedroom

tends to rent or sell for more per square foot compared to a three bedroom. That's interesting. Why? In part, sort of you have this dynamic often where the smaller units kind of subsidize the bigger units

because real estate is already so expensive that there's a little bit of a cap on how much you can charge for a three-bedroom. There's only so much people are willing to pay for a three-bedroom. And then for a long time, there was less demand for three-bedrooms. And condos were really thought of as sort of this housing for singles, you know, for young people and who didn't need the three-bedrooms. Okay. So let's look about what experts say that we need more of right now.

Of course, like these small units are made for some people, but we also need other types of living spaces, right? The elusive missing middle. What kind of housing should we be building for this? Yeah, so the missing middle is sort of the term that experts used to describe a lot of the housing that cities in North America really haven't been building very much, at least for the past several decades. So there's a lot of single detached homes and a lot of high rises, but there's very little in between. And so we're talking anything from townhomes to multiplexes to small apartment buildings, you know, with, you know, a few apartments, but not a hundred or more. We'll be right back.

So what would it take to have bigger units? then. So that was a driving question, right, that I had when I started reporting on the story. And one of the interesting answers that I heard is that it's actually easier to build larger apartments in smaller apartment buildings. It's a bit of a challenge, even from a design point of view, to put a three-bedroom in a high-rise, whether that's a condo high-rise or a purpose-built rental. Just the size of the building, it's so big, right? makes it difficult to make sure even that every room has a window. And if you look at, you know, some of the older buildings that we have here in Canada, there isn't so much a problem with

every bedroom having a window because the apartments are smaller. And so a lot more of the unit is exposed, you know, to the sunlight. So it sounds like it's very challenging to build these bigger units in, like, very tall buildings. So then, of course, we should talk about this missing middle, which are these multiplex units. And that also seems to be challenging in cities like Toronto and Vancouver. So let's talk about these obstacles that are in the way for these multiplexes to be built. Let's start with regulation. What's going on with that?

Yeah, exactly. So one of the big takeaways was, if you want larger apartments, ironically, build smaller buildings, right? Why aren't we, why haven't we been building these sort of? of buildings, and that's when you get into restrictions, rules and regulations and guidelines. So cities in Canada and North America in general have really discouraged this kind of middle density. So anything between a detached house and a high rise, the way that regulation has evolved in cities across North America has discouraged this kind of middle density. And so discourage the kind of buildings that could house larger apartments.

Can we ask very quickly why? Why has this been discouraged? Apartments, I think, have long being seen as second-rate housing. So there was this sort of, okay, so we're going to permit apartments, but only in certain areas, and we're just going to add a lot of units in these very small pockets of the city. And, you know, even if when people think about apartments, still, we're thinking mostly either second-rate housing or it's temporary housing for well-off people, right? And it's a bit of a vicious cycle where cultural prejudices against apartments and resistance to having apartment buildings being built in areas that were dominated by detached houses, produce these regulations that were aimed at in history. the construction of multiplexes and small apartment buildings in residential areas.

And then by virtue of that, that kind of like perpetuated the cultural stereotype against apartment buildings, right? It's kind of a bit of a self-fulfilling thing. Yeah. Okay. So, but now, luckily, things are changing. And we have governments that are approving kind of these multiplex buildings that will be in residential areas. But there are still things that are kind of getting in the way of these bigger units, right? Can you talk a bit about that? So the wind is changing. Things are changing. There's so much pressure, right, on cities, on all levels of government to address the housing crisis.

And really one of the imperatives is to create affordable housing that is also for families, right? Hence the urgency to come up with livable apartments that can be forever homes. We're starting to see cities and provinces loosening up, zoning rules about where you can build multiplex buildings, where you can build small apartment buildings. But one of the other things that's sort of become a bottle line, there's a bunch of building code guidelines and provisions that have also become controversial. And stairs, exit stairs is one of them. And the issue with stairs is that here in Canada, for the most part, you need to have two sets of exit stairs for any apartment building taller than two stories. And the reason is mostly fire safety. Yeah, there are important reasons why we have these codes in place.

Exactly. But the thing is, an additional set of exit stairs takes up a huge amount of space. and it tends to sort of break the design of the building. So in a very small building, you might have the two exit stairs right in the middle of the building and then with a common hallway in the middle. And then you can only fit two relatively small apartments on either side of the building. But if you had only a single set of stairs, then those two apartments can suddenly be connected. You free up a huge bunch of space.

What was the common hallway becomes the hallway of the apartment. And suddenly you can fit, you know, on a single lot, perhaps an apartment of, you know, a thousand square feet or more, right? That's enough, you know, at an 1,100 or so square feet. You can fit two bathroom and three bedrooms. And that starts to be a good starter home for a family. What about safety then? So the thing is, you know, the way we build today, so if you have things like sprinklers or smoke-sealed doors or, you know, advanced fire alarm systems, there's a wealth of studies that show that the level of safety would be equivalent.

So you don't need to sacrifice safety to move to a single stair design, which is what is predominant all around the world. the vast majority of countries. Canada is one of the countries that has the most restrictive regime when it comes to, you know, dual existerre requirements. You know, in Seattle, for example, even in the U.S.,

which build things the same way that we do, in cities like Seattle and New York, they've allowed single exit stairs in buildings, you know, in small apartment buildings for a long time. It sounds like the zoning is changing a bit. here in cities. But is it enough? Is that helping to have these multiplexes being built in certain areas of cities? You're starting to see a lot of headlines about provinces and cities loosening

zoning restrictions. So now you can build multiplexes of various sizes in every residential lot in several cities. Certainly, Toronto and Vancouver going that way. But then you talk to builders. People would specialize in building Menway homes and who would be the kind of the companies that would build these multiplexes. And you still hear

like, oh, we still can't. It's not enough. And I really wanted to dive deep and understand like what is not enough. Like where would we need to be to be able to build multiplexes everywhere? Like if they're allowed, why aren't they sprouting up

all over the city? Yeah. And And so I talked to Lane Fab, this sort of design and build firm in Vancouver, and I asked them to really give me an example, break down the math in very simple terms. Why do you still find it so difficult to build multiplexes with larger apartment buildings in Vancouver where you can now build a multiplex of up to six to eight units on a single lot? And so that was a really interesting conversation. They walked me through the math, and they sort of have an idea. There's a maximum floor area that they can build, and they know what they're going to get per square foot. So they know more or less how much that project is going to bring in. And then they sort of calculate the construction costs, financing cost, a minimum profit that you have to have.

because lenders want to see that in order to give you money. And then the last thing is, okay, so what do I have left? And that's the pot of money that I can use to buy the land. And so when they do that math, and then they go and they look at, you know, what are, there's not a lot of vacant. Not a lot of vacant land in Vancouver. Not a lot of vacant land in Vancouver. So you're looking at me or maybe an old bungalow, right, somewhere in Vancouver. And people are selling it.

And can you buy that for what you will have left? That's your budget for the land. And given the sort of density limits that we have now, even though a multiplex is permitted, what this firm showed me is that the amount of money that we would be left with is barely enough to buy the land in some of the cheapest lots. And it's really not enough to build in majority of residential lots that are for sale. On the other hand, though, if the city allowed slightly higher density, so not a huge building by any means, but a very small apartment building, maybe four stories high, a few units, then that would bring in enough money that they would have a much larger, a significantly larger budget for the land. And then that would allow them to start being able to buy land to buy properties that actually are the amount of money.

Exactly. A lot more properties around the city would fit that budget. So Erica, it sounds like there's some progress here, but there are still barriers. And I mean, you've been thinking about this for a long time. And I just wanted to know, like, what is your big takeaway from reporting on this? Like, how far are we from achieving our missing middle dreams? It's funny because I sort of asked a question to a bunch of people I interviewed for the story. And you'll find some people who are still very frustrated that they can't build missing middle housing, especially on single lots.

And we'll tell you, like, we need to go further. We need to go further. And it has to be zoning. And it has to be also building code changes. But I also talk to some people who were starting. to feel quite optimistic. Okay, that's good to hear. Now, you know, we're inching forward and their feeling was that we're at the cusp of

finally getting to enough inching forward that we're going to be able to build sort of missing middle housing and these larger apartments as part of that in enough of the city to really make a dent and really start to address this demand for not just more. More housing, which is, well, we've been trying to address for years and years and years, but better housing. And what about these shoebox condos? They seem to be sitting on the market right now. Do you have any idea what could happen to them? Like, are the ones that can't sell?

Are they just going to sit empty for a long time? Well, I'm not going to make any predictions. I understand that. But I will say that there is still tremendous demand for any. kind of housing. Right now, we're in a tricky situation where we have still very high cost, construction costs are very high in a shaky economy so that a lot of people are worried about there's a lot of youth unemployment, a lot of young people are actually leaving with their parents. There are a lot of people who don't want to pull the trigger on buying because they're worried

about their job security. But what I can say for sure is that because of the recent challenges with rising interest rates and rising construction costs and falling rent, a lot of condo projects have been canceled. And so one of the concerns is that we're going to have another bit of a housing crunch in a few years when suddenly there isn't that much housing coming online. not much housing in the pipeline. So I'm certainly not going to say that these units will sit empty forever and no one will

ever want them. I think eventually they will be absorbed. Kind of an ebb and flow again with this thing. Yeah. Housing is always ebb and flow. Erica, it's been so great to talk to you today. Thanks so much. Thank you so much for having me.

It's been great. That was Erica Alini, the Globe's personal economics reporter. That's it for today. I'm Cheryl Sutherland. Our producers are Madeline White, Mikhail Stein, and Ali Graham. David Crosby edits the show. Adrian Chung is our senior producer,

and Angela Pichenza is our executive editor. Thanks so much for listening, and I'll talk to you soon.