For years, Toronto condo developers followed a pretty simple formula:

Fit as many units into the building as humanly—and legally—possible.

And why wouldn’t they? The more units they could sell, the more money they could potentially make. That’s how we ended up with an extraordinary number of condos in the 350-to-500-square-foot range. Tiny units weren’t necessarily what Toronto buyers dreamed about living in. But they worked for investors.

A 400-square-foot condo could sell for a much higher price per square foot than a 1,000-square-foot condo, while keeping the actual purchase price within reach. Or, at least, within reach of someone willing to buy it as an investment. But since 2022, something has changed.

The investors who helped fuel Toronto’s condo boom have largely disappeared. Higher interest rates, softer rents and falling condo values have made the math considerably less appealing. And without investors lining up to buy 400-square-foot condos, developers have a problem. Because developers don’t just build a condo and hope people show up afterwards.

They generally need to pre-sell a significant portion of the building before construction financing becomes possible. Currently 70% in Ontario. And increasingly, the people still willing to buy condos want something they can actually live in.

The shoebox is losing its appeal

For years, the typical small condo buyer was an investor. They weren’t necessarily planning to live in 400 square feet. They were buying an asset, renting it out and hoping it would eventually be worth more.

Today, many of those buyers are goe. Which leaves end users. First-time buyers. Couples. Downsizers. Young families. And it turns out that a lot of people don’t particularly want to raise a child, work from home or spend the next decade of their lives figuring out where to put the toaster in 425 square feet. So some developers are changing their approach.

Instead of maximizing the number of units, they’re looking more closely at building larger, more functional one-, two- and three-bedroom homes.

And strangely enough, the math can work.

Bigger condos don’t necessarily mean proportionally bigger costs

A larger condo may sell for less per square foot, but developers aren’t simply paying for empty space. Every additional unit comes with expensive stuff. Another kitchen. Another bathroom. More plumbing. More electrical. More appliances. More walls. More doors. More finishing.

Take 1,200 square feet. You could divide it into three tiny condos and install three kitchens, three bathrooms and three sets of everything. Or you could build one larger family-sized home.

The second option won’t necessarily generate the same eye-popping price per square foot. But it may be considerably more efficient to build. And perhaps more importantly, there may actually be buyers for it.

Government policy is helping change the equation

Toronto and other levels of government have also started recognizing something that most people who have tried to live in a micro-condo already knew:

We probably need more homes that work for actual humans.

Policies and incentives aimed at encouraging rental housing and larger, family-friendly units are beginning to influence what gets built. The details vary from project to project, but the broader message is clear.

If you’re going to build housing, governments increasingly want to see housing that accommodates more than one person and a small dog. And that could be a significant shift for Toronto.

This might actually be good news

There is still a major problem coming. Toronto isn’t building nearly enough housing for the future, particularly with so many projects sitting on hold because current construction costs and selling prices simply don’t work.

So fewer new condos is not automatically good news. But what gets built matters too. For years, Toronto added an enormous number of small investor-oriented condos. We got very good at producing one type of housing while leaving a major gap for people who wanted something between a detached house and a 500-square-foot box.Larger condos could help address some of that missing middle.

And there may even be a silver lining for people who already own smaller units as investors. If fewer micro-condos are built in the future, the supply of those units may not continue growing the way it did during Toronto’s condo boom. Less new competition isn’t a bad thing if you already own one.

Of course, none of this means every developer is suddenly going to start building spacious three-bedroom condos with dining rooms and walk-in closets. Let’s not get carried away. Developers are still in business to make money. They will build what they believe they can sell profitably.

But for the first time in a long time, the market may be pushing Toronto’s condo industry away from how many units can we fit into this building?

And toward a much more interesting question: Would someone actually want to live here?