Why Canada’s micro-condos are losing their appeal

Maggie Hildebrand’s first apartment in Toronto included a kitchen, dining table, work space and bed, all in the same 300 square foot room.

At first it was a decent house, close enough to his job downtown and with everything needed for daily life.

But it didn’t take long for the 28-year-old to feel locked in. “It was so isolating in that small space,” she told the BBC. “It really feels like it’s just a place to put worker bees at night.”

Ms. Hildebrand lived in one of the city’s micro-condos, a once-rare sight in Canadian real estate that has become ubiquitous over the past decade thanks to the rapid growth of high-rise buildings in major cities like Toronto and Vancouver.

But – as the Canadian condo market falls to levels not seen in decades due to a series of market pressures – the value of these micro-units is collapsing faster than that of all others.

The condo market is experiencing an unprecedented slowdown since the 1980s, with thousands of move-in ready units sitting empty and unsold in and around Toronto. Over the past year, an unprecedented 18 condominium projects have been canceled in the city, and experts expect that number to rise as demand continues to fall.

The economic downturn has reignited debate over whether developers have over-accommodated the needs of real estate investors by building smaller, more affordable housing, minimizing square footage to keep prices low in areas with high land values, and which were often designed to be rented or turned over for profit.

Investors own the majority of condos under 600 square feet in Toronto, according to the national Statistics Canada database. Construction of these small units skyrocketed in 2016 and they now represent 38% of condos built in the city, up from just 7.7%.

These units haven’t exploded to the same extent in the United States, where they represent a very small share of the market, although Nadia Evangelou, senior economist at the National Association of Realtors, said “their prevalence has roughly doubled over the past decade.”

With so much inventory on the Canadian market, some micro-condos that sold for half a million dollars a few years ago are now reselling for C$300,000 ($217,000; £163,000) or less – a price recently unthinkable in downtown Toronto, often cited as one of the most unaffordable cities in the world.

“It’s a race to the bottom to sell these things,” said Shaun Hildebrand, president of Urbanation, an organization that has tracked Toronto’s high-rise market for decades. (Shaun Hildebrand is not related to Ms. Hildebrand.)

The condo crisis is not unique to Toronto, with Vancouver experiencing a similar – albeit milder – downturn since 2024.

There are several reasons for this, experts tell the BBC.

First, there is an oversupply. Thousands of units have been built over the past two years, in part to accommodate an unprecedented increase in Canada’s population, driven largely by immigration, Mr. Hildebrand said.

But the number of new arrivals fell sharply following a change in Canada’s immigration policies, partly to address the housing crisis. A report released in December by the Bank of Montreal shows that Canada’s population in 2025 saw its largest decline on record since the 1940s, with the exception of the 2020 Covid pandemic, mainly due to new immigration caps.

This is a turnaround that developers could not have predicted and which has enabled the construction of more than 60,000 new units in recent years to meet a demand that no longer exists.

Simply put, “the market has gotten way too far ahead of itself,” Mr. Hildebrand said.

The second reason is price.

Canada’s central bank lowered interest rates during the pandemic to stimulate the economy, and investors, looking to buy into a real estate market that seemed like a safe bet for decades, assumed prices would only continue to rise.

For a while, they did, reaching “a level that really made no sense,” Mr. Hildebrand said.

Then the Bank of Canada began raising rates to combat post-pandemic inflation. Combined with oversupply, this safe bet has become less certain.

Now, some investors are having trouble closing on units they purchased pre-construction at these inflated prices. Many were forced to try to resell them at a loss. Others are too scared to enter the market or are waiting for prices to fall even further, Mr. Hildebrand said.

Some speculation suggests Canada’s 2022 freeze on foreign home buyers, put in place to help combat the housing affordability crisis, also played a role. Figures show they represent only a small fraction of homeowners — about 2 to 6 per cent — but Hildebrand said it’s possible it sent a signal that Canada is closed for business.

Renters like Ms. Hildebrand are the clear winners from the downturn in the condo market, as they now have more options thanks to more supply and slightly better rent deals.

Ms. Hildebrand paid CAN$2,200 per month for her micro-condo. She has since moved to a larger, 700-square-foot one-bedroom apartment in an older building with a leafy courtyard for just CA$200 more. She attributes this move to a great improvement in her quality of life.

“My birthday is tomorrow, I’m having a party and I’m having 25 people over,” she told the BBC in December. “A year ago, this wasn’t possible.”

Mr. Hildebrand said the crisis will likely change who developers consider their primary customers, from short-term investors looking for quick profits to longer-term investors and people who plan to move into the condo they buy.

“We learned our lesson here,” he said. The units won’t be removed completely, he stressed, because there is still a demand for affordability, “but we’ve gone way too far.”

Some buyers also benefit from this. Alex Cruz, a Toronto-based real estate agent with Ari Zadegan Group Realty, told the BBC that smaller units were being bought by those looking for a bargain.

“If there’s a good deal per square foot, people will buy it,” Mr. Cruz said, adding that this had given some “an opportunity to get into the market.”

This crisis comes as Canada grapples with a housing crisis that has become a central policy issue for all levels of government. Prime Minister Mark Carney has promised to double the rate of new housing construction over the next decade.

With construction of thousands of units now suspended or canceled, there will be fewer units entering the market by the end of the decade. That could exacerbate Canada’s housing crisis, Hildebrand said, as condos are heavily relied upon to increase supply in big cities.

And Mr. Hildebrand and others warn that the price weakness will be short-lived.

“The question now is how long are we going to be here and what will the implications be for housing supply over the next decade?” » said Mr. Hildebrand.