TorontoRealtyBlog
I had a really tough time coming up with a title for today’s blog.
Saying what I really wanted to say would have been a mouthful. Well, the title already is a bit of a mouthful, so let me say it would been even longer had I said everything I wanted to.
Case in point:
Condos are shrinking in size.
People don’t like the smaller condos.
Young people don’t like smaller condos.
Real estate is expensive.
And so forth.
Put this all together and we see the theme and question in today’s blog post: are these smaller condos showing us just how smart today’s younger condo buyers are or just how entitled they feel to not be “forced” to live in one?
And before you accuse me of gaslighting “youngsters” out there, just wait until I get to some very choice quotes from a 21-year-old who did an interview with the Globe & Mail and showed us exactly how entitled some young people can be.
But first, a history lesson is necessary…
The oldest purpose-built condominiums in Toronto’s downtown core date back to the 1970’s and 1980’s. Yes, that’s how new our city truly is. We’re really only two generations into downtown living in a so-called “world class city.”
At the time, condos were built for living. They were built for life.
Consider a building like 25 George Street which was built in 1989. This building is primarily comprised of what we would call “huge” units, by today’s standards. With only 9-storeys and 40 units, most of these are 2,000 – 3,000 square feet in size and were intended to replace houses for people who wanted a different style of living.
Go back in time even further – to 1976. That’s when 33 Habour Square was built, and while this condominium gets absolutely zero love in 2024, this was all the rage before you and I were born. It was basically a community inside a building, with all the amenities that you’d expect to find outside, contained within the walls of a 45-storey building with 536 units.
The idea of “building condos for families” may have began in Toronto in the late-1970’s, but somewhere along the way, this ceased to be the objective.
Have we ever wondered why that is?
I mean, price, obviously.
The so-called “families” can’t afford $1,400 per square foot for their 3,000 square foot house in the sky.
But when did we stop building condos like 25 George Street? And why?
I started my career in real estate in 2004 and at the time, a “small, one-bedroom condo” was thought to be around 600 square feet.
I’m sure you’re familiar with the term “shoebox in the sky,” right?
Well, back in 2004, people would use that term to describe 600 square feet. In fact, I remember one of the first ‘leads’ I was ever given as an agent was from the daughter of a colleague’s long-time client, and she balked at the idea of living in a “tuna can in the sky” that was 650 square feet.
Today, we’re routinely seeing condo floor plans under 300 square feet.
Here’s one in particular:
263 Square Feet
“The Goode” – Distillery District
By Graywood Developments
This is crazy, right?
But this isn’t the “shoebox in the sky” that people complained about in 2004.
This is less than half of the shoebox, as it was, in 2004.
I purchased my first condo in 2005 and it was a 575 square foot floor plan which I felt was more than ample. At 25-years-old, I didn’t need a “chef’s kitchen.” I was already spoiled to have a dishwasher, which was something I never had in university, and a stacked washer/dryer was an absolute luxury compared to the days of using a shared coin-operated machine in the dirty basement of a low-rise building in Hamilton, Ontario…
Back then, the average price per square foot of a condominium in downtown Toronto might have been $450.
At the same time, pre-construction condominium prices were even lower (we’ve discussed why at great length…) and as resale prices began to rise, so too did the price of pre-construction units.
There are all kinds of statistics floating around about the percentage of pre-construction condominium buyers who are investors.
I read in THIS article in December of 2023 that 80% of pre-construction condo buyers are investors, but I might argue that the number is even higher. After all, a true “user” is one who absolutely intends to live in the unit once it’s built, registered, and turned over. I have never thought that this makes up more than ten percent of the buyer pool.
If investors are financing pre-construction condominiums, and if banks won’t loan to developers until 70-80% of units are pre-sold, then it seems to reason these developers need to build the units that will sell the easiest.
That is why a much larger percentage of condominiums being built these days are bachelors or 1-bedroom units.
But why have unit sizes been shrinking for twenty years?
Simple.
Absolute price versus relative price.
I always figured that $500,000 was the ‘breaking point’ for mom-and-pop investors who had no problem investing when pre-construction units were $270,000, or $330,000, or $410,000, but once units started to cost above a “half-million” dollars, the buyer psychology changed a little.
In 2006, let’s say that you could purchase a 575-square-foot, 1-bed, 1-bath, pre-construction condo for $450,000. That’s only $258,750. That’s child’s play!
But when prices began to rise, so too did the cost of these pre-construction condos.
When pre-construction prices hit $800 per square foot, that same 575 square-foot condo was now $460,000, and it was bordering on uncomfortable for those small-time investors, especially when you factor in the “extras,” such as the upgraded finishes, closing costs, and charges passed on by the developers.
So what did developers do?
They started building smaller condos!
Who really “needs” 575 square feet, right? It’s not like the investors are living in the units!
Make that unit 500 square feet at $800 per square foot, and now we’re down to only $400,000 from $460,000. Simple solution!
But what about when pre-construction prices hit $1,000 per square foot? What then?
Well, just shrink that one-bedroom condo down to a 400 square foot model! Then the unit still only costs an investor $400,000!
Do you see where this is going?
Do you understand where all this went?
From 2019 through 2023 when the pre-construction market was on fire, “investors” routinely lined up to pay upwards of $2,000 per square foot for these magic beans, with most downtown projects falling somewhere between $1,400 – $1,700 per square foot.
Imagine my first unit, for a moment, all 575 square feet of it. Now imagine that floor plan in one of these bougie new pre-contsruction projects charging $1,700 per square foot.
That same condo would cost almost a million dollars.
So why not just create floor plans that are around 300 square feet?
At $1,700 per square foot, that’s “only” a $510,0000 investment.
Like I said: it’s absolute price versus relative price.
It is my contention, and I would be tough to convince otherwise, that the reason condominiums have been shrinking in size is not because of a change of tastes, or a change in the way younger people live, or anything of the sort.
It is my contention that the reason condominiums have been shrinking in size is because it makes them cheaper on an absolute basis, and easier for developers to sell to investors.
It’s kind of funny when you think about it: our downtown core isn’t the result of some grand plan by the municipal government, enacted thirty years ago, nor was it overseen by city planners or a bunch of PhD’s in urban and regional planning but rather it was effectively created as a fluke by developers who needed to pre-sell units to investors, otherwise their projects wouldn’t get financed.
Just imagine a developer building a condo like 25 George Street today?
Imagine a building with only 3,000 square foot condos? Who would purchase those in pre-construction? How would a developer get to the 80% threshold to receive financing and the go-ahead from a bank?
Unfortunately, that is how development has worked in Toronto for as long as I’ve been in the business.
I’m not the only one who’s noticed, nor am I the only one who has opined.
A couple of weeks ago, I received a call from a reporter who was working on a story about “family-sized condos,” or rather, the lack thereof.
She referenced a blog post that I wrote seven years ago:
November 8th, 2017: “Should Toronto Be Building More Three-Bedroom Condos For ‘Families?’”
In the blog post, I referenced a 2009 staff report by the City of Toronto that sought to address, “the issue of housing suitable for families with children.”
Here’s that staff report:
October 13th, 2009: Final Report – Official Plan Amendment to Encourage the Development of Units for Households with Children
Since then, condos have continued to shrink in size.
Not only that, the idea that they are somehow “suitable for families with children” has become less realistic.
Here’s the Toronto Star article that ran over the weekend?
“Toronto Wants More Family-Sized Condos. Here’s Why What’s Being Built Doesn’t Work”
Toronto Star
August 23rd, 2024
I was quoted a few times in the article as was your idol, John Pasalis from Realosophy.
Everybody quoted seemed to draw the same conclusion: that developers are not going to build large condos “for families” because there’s no demand…
…at market price, that is.
Therein lies the rub, of course.
The root cause of “no suitable condos for families” is the same as the root cause of the shrinking one-bedroom condos in the first place!
Speak of those shrinking condos, I want to now explore the article that ran more than one week ago which contained those elements of “entitlement” as I saw them.
“First-Time Home Buyers Are Shunning Today’s Shrinking Condos”
The Globe & Mail
August 18th, 2024
Now, the “entitlement” isn’t apparent in the title, despite the use of the word “shunning.”
And here’s where I seek to differentiate between intelligence and entitlement.
Why are first-time buyers shunning today’s condos?
Here’s a quote for ya:
Alec Dagenais, 21, is a few years out from being ready to buy his first home, but he already knows he doesn’t want a condo.
Oh, he doesn’t?
And he knows this already at the ripe, old age of twenty-one?
Nice for him!
I assume he eats caviar in a dinner jacket in front of the fireplace every night and takes a helicopter to the office.
But is he, along with others like him, shunning condos because he can afford to buy a detached, four-bedroom home? Or is he shunning condos because he thinks they’re beneath him?
From the article:
He sees some appeal to condo living: It would be less responsibility and, as someone living alone, he doesn’t need a huge amount of space.
But monthly condo fees make the units more expensive than their sale prices suggest, he says. And living in Gatineau, a still-affordable market, a condo is “a lot of the time not meaningfully cheaper,” says Mr. Dagenais, a wealth management associate. “I don’t see the point in going for something inferior, because historically they gain value at a lower rate than single-family homes.”
He’s 21-years-old and he has it all figured out.
He doesn’t see the point in an “inferior” condo.
His first comment, presumably because he’s a wealth manager, is that condos gain value at a lower rate than single-family homes.
Yes, this is true.
But my question remains:
Can you afford a single-family home, and thus you’re passing over condominium living? Or are you simply living in an entitled dream-world where you wouldn’t have to slum it in a condo and you can find an entire house for your collection of pocket squares?
Yikes.
Tell me that I have this wrong, somehow. Tell me this isn’t about entitlement.
Actually, don’t.
Because the next part of the Globe & Mail article explains to us that, unfortunately, it is about entitlement:
There are signs that first-time buyers are souring on condo living. A recent survey of Canadian renters about their home ownership plans by real estate search portal Point2 found that – despite citing high home prices and the down payment as their top challenges to buying – 77 per cent of respondents wanted to buy a single-family home. Just 12 per cent want a condo, a figure that dropped to 8 per cent for respondents aged 18 to 24, and 9 per cent for those over 65.
(I just took a deep breath, for the record)
Okay.
77% of Canadian renters “want to buy a single-family home.”
Why that isn’t 100%, I don’t know, but I digress.
12% of Canadian renters “want to buy a condo.”
Right.
But what the hell does “want” have to do with anything?
May I please draw your attention back to the definition of “wants versus needs” as it pertains to economics?
Only 8% of young renters aged 18-24 want to buy a condo, you say?
Good for them.
They all want houses, you say?
Uh-huh.
This is entitlement at its absolute finest, folks.
And I believe that we, as a society, have created this. We’ve fostered this. We’ve allowed this to happen.
This “gimme, gimme” society that we live in today, where everybody is told (and promised) that they can have everything, has led to a generation of young people who simply aren’t interested in living in condos.
But what’s the alternative?
Where do these people think they’re going to live?
The crazy thing is, there’s a lot of good advice out there right now if people choose to listen.
Rob Carrick, who has been bearish on housing as long as I’ve known him, recently published this:
“It’s Maddening To Say, But Now Might Be A Generational Opportunity To Buy A Home”
The Globe & Mail
August 19th, 2024
Don’t take it from me, since I sell real estate for a living and I’m just a biased cheerleader and all…
I think it goes without saying that none of us want to live in a 263-square-foot condominium. But that’s not representative of the market.
I just finished dealing how I purchased a 575-square-foot condo for $460,000 last month, in a great location, and with an awesome, functional, liveable floor plan.
Leave the 263-square-foot condos alone. Those aren’t for us and they were never intended to be.
But if only 12% of Canadian renters want to buy a condo, and 77% of Canadian renters want to buy a house – and we have 21-year-old “wealth managers” saying that a condominium is beneath them, then I don’t know what the answer is…
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