Canada's Micro-Condo Market Faces Decline
Micro-condominium units, once a growing segment of the Canadian real estate market, are experiencing a decrease in market appeal and value, particularly in major cities such as Toronto and Vancouver. These units, characterized by their compact size, typically around 300 square feet, have become prevalent over the last decade due to high-rise developments.
Market Overview
The Canadian condo market is currently in a downturn, a situation not observed in decades. Thousands of completed units are reportedly vacant and unsold across Toronto and its surrounding areas. Over the past year, 18 condo projects in Toronto were cancelled, with forecasts suggesting this number may increase as demand continues to diminish. This trend has prompted discussions regarding developer strategies, specifically the construction of smaller units to maintain affordability in areas with high land values, often targeting real estate investors. Statistics Canada reports that investors own the majority of Toronto condos measuring under 600 square feet. The construction of these small units saw a significant increase after 2016, now constituting 38% of condos built in the city, compared to 7.7% prior to that period. In contrast, micro-units represent a significantly smaller share of the market in the United States, although their prevalence has approximately doubled over the last decade.
Impact on Pricing
The current market conditions have led to significant price reductions for some micro-condos. Units that previously sold for approximately C$500,000 are now reselling for C$300,000 or less. Shaun Hildebrand, president of Urbanation, an organization monitoring Toronto's high-rise market, characterized the sales environment for these units as a "race to the bottom."
Factors Contributing to the Downturn
Several factors have been identified as contributing to the current condo market slump:
- Oversupply: An abundance of units was constructed over the past two years, partly in anticipation of a substantial increase in Canada's population, largely driven by immigration. However, a subsequent shift in Canada's immigration policies led to a sharp decrease in new arrivals. A December report by the Bank of Montreal indicated Canada's population experienced its largest decline since the 1940s in 2025, excluding the 2020 pandemic, primarily due to new immigration caps. This resulted in over 60,000 new units completed to meet a demand that subsequently lessened.
- Interest Rates and Pricing: During the pandemic, Canada's central bank lowered interest rates to stimulate the economy, leading to increased investment in real estate and a surge in property prices. Subsequently, the Bank of Canada began increasing rates to counter post-pandemic inflation. This, combined with the oversupply, altered market certainty. Some investors are now encountering difficulties in completing purchases of units acquired pre-construction at inflated prices, leading to forced sales at a loss or a reluctance to enter the market by potential buyers.
- Foreign Home Buyer Freeze: Speculation exists that Canada's 2022 freeze on foreign home buyers, implemented to address housing affordability, may have also influenced the market. While foreign owners represent a small percentage (2% to 6%) of total owners, the policy could have conveyed a message discouraging international real estate investment in Canada.