Investors prefer condo projects with smaller units because the rent per square foot of living area tends to be higher
Over the years, journalists have described “the incredible shrinking condos” of Vancouver and Toronto. Now, there are federal figures to confirm the trend.
The country’s most expensive condo markets have been shaped to a large degree by investors who prefer smaller units, according to figures published Thursday by StatCan’s Canadian Housing Statistics Program.
The phenomenon is rooted in the presale of condo projects, the study noted. Investors buy presale units with the goal of making a profit when the buildings are complete — either by renting them out or selling the unit at a higher price. Developers, in turn, rely on presales to begin construction.
“These pre-construction sales are used by developers to secure financing for the projects,” the StatCan report said. “This dynamic means that investor preferences may have an influence on the type of buildings that get built.”
Ottawa defines an investor as someone who owns at least one residential property that’s not used as their primary residence. This can include secondary residence owners, residents of other provinces or countries, short- or long-term rental owners, for-profit businesses and speculators.
In 2022, about one in three condos in the Vancouver census metropolitan area were investment properties, according to StatCan.
Investors “are perceived to prefer” condo projects with smaller units because the rent per square foot of living area tends to be higher for smaller units, according to the study.
“This may have contributed to the shrinking size of condominium apartments” in Toronto and Vancouver in the last few decades.
For example, in the Vancouver census area, the median living area of condos built in the 1990s was 912 square feet compared with 790 square feet for those built after 2016.
In Vancouver, 58 per cent of new condo apartments that were investment properties in 2022 were less than 600 square feet, while 39 per cent were more than 800 square feet.
“This new Statistics Canada report highlights how real estate investors can be on their second or third helping in British Columbia, while first time homeowners still struggle to get a plate,” said Andy Yan, director of the City Program at Simon Fraser University. “While the study is at a provincewide scale, other research suggests that investor ownership intensifies significantly depending on municipality, type of dwelling and period of construction.
The StatCan report was released as more attention is on the sluggish presale markets in Vancouver and Toronto. The timeframe for the data collected precedes regulations implemented in 2023 to curb the growth of short-term rentals and return some of them to the long-term rental market. These regulations may, in the coming years, change the number of investors who purchase units to rent out since they can no longer do so as easily and lucratively on a short-term basis.
Veteran developer and president of Reliance Properties, Jon Stovell, said that in the last decade, his company dug deep into offering smaller condos, including several projects with micro-lofts that were around 250 square feet with wall beds and fold-out dining tables.
“Like so many things in real estate, it’s very dangerous to try to zero in on any one factor driving an outcome,” said Stovell.
Investors like small units — they are easier to buy and they spread the investment risks, he agreed.
But he added that investors also want units with a “safe price point” that can be rented or sold to the widest market of people who can afford them. One way to achieve this is by building smaller units. As well, there are also lifestyle trends with some younger renters and buyers willing to trade off unit size for being in a specific location.
The new StatCan figures also revealed a nuance about B.C.’s investor occupants, which are defined as an owner who possesses a single property with multiple residential units and who occupied that property. These properties aren’t condos, but duplexes or single-family homes with basement suites, said Yan.
The percentage of those in B.C. was the highest in the country at 9.8 per cent in 2022.
And it’s almost 10 times the percentage of investor occupants out of all property owners in Ontario, which was 0.8 per cent in 2022. The study looked at this for other provinces and New Brunswick was a distant second to B.C. with its percentage of investor occupants out of all property owners at just 2.6 per cent in 2022.
Yan pointed out that the high amount of investor occupants in B.C. compared to the other five provinces in the study is perhaps an indicator of how many homeowners need mortgage helpers and that there are existing investors and renters that are harder for policymakers to see.
In B.C., 72.7 per cent of owner-occupied investment properties were these properties with multiple residential units.