This week, Urbanation released its condominium market update for Q1-2024. And I'd like to point out two data points. Firstly, across the Greater Toronto & Hamilton Area (GTHA), there were 1,461 new condominium sales for the quarter.

This is the lowest quarterly total since Q1-2009 (the global financial crisis) and the second lowest total since the mid-1990s. (Remember when we spoke about right now being the toughest market since the early 90s?)

Secondly, during this same time period, 2,361 new condominiums began construction across the region. This represents a 52% annual decrease. So all in all, fewer people are buying new homes and fewer new homes are starting construction.

What is obvious is that the market is slow right now. What is not obvious is what happens next. It's unknowable. There’s risk. My gut is that the market will come back more slowly than many people are expecting, or perhaps hoping. There’s inventory that needs to work its way through the system first.

But ultimately it will come back. Toronto is one of the greatest cities in the world and there remains a need for more homes. Which is why I continue to believe that, if you are in the market for a new one, now is arguably a wonderful time. You get to buy when most others aren’t.

The Globe and Mail published this headline today: "Developers building more small condos, despite people clamoring for more space." It's behind a paywall and so some of you may not have read it. But the data looks something like this. Of all the new condo project launches that happened this year in Toronto, studios and one-bedroom suites accounted for 61% of all new inventory, according to Urbanation. This is a higher percentage than what the market saw in 2019 and 2018, and this is despite the fact that many/most people are still working from home and would probably appreciate a bit more space.

The short answer as to why this is happening is affordability. For years I have been clamoring for a dual aspect oceanfront penthouse on Miami Beach, but that time hasn't come for me yet. Things cost money. And the downward pressure on unit sizes is a direct result of developers trying to ensure that their inventory is within the reach reach of buyers (there's a sweet spot somewhere in the range of $500-700k right now). Developers are heavily incentivized to build what sells and rents, both quickly and at the highest price. That tends to be smaller units, especially early on.

Where this goes in the future is anybody's guess. But with the dramatic price increases that we have seen on the low-rise side of the market, I suspect that we'll see a subsequent surge in demand for condos -- maybe even larger condos.

Shane Dingman's recent piece in the Globe and Mail about shrinking lot sizes raises two interesting points.

One, new low-rise lot sizes seem to be shrinking and that's probably a normal market outcome. Similar to the way in which average unit sizes have been generally coming down for mid-rise and high-rise product, it is a way to maintain some semblance of affordability in the face of ever-rising costs.

The average price of a new condo in the City of Toronto last quarter was nearly $1,300 psf. That means that if you had an average unit size of 1,000 square feet, you'd have an average selling price of $1.3 million (to state the obvious). Not everyone can afford this ticket price, and so there's downward pressure on unit sizes in order to get the face prices down.

Two, developer margins aren't increasing just because home prices have been going up. At best, they've remained constant (Shane provides a quantitative example in his article). But there are also many cases where margins are getting squeezed as a result of rising costs.

All of this to say that I think we can continue to expect downward pressure on lot sizes and unit sizes as the Toronto region continues to grow.