Shrinkflation in Real Estate: Redefining Affordability and Living Space
July 12, 2024
By Allwyn Dsouza, Senior Analyst, Research and Insights, REIC/ICI
By Allwyn Dsouza, Senior Analyst, Research and Insights, REIC/ICI
We’ve all noticed it over the past few years: the price of our favourite cookies or snacks stays the same, but the package size or weight decreases. This phenomenon, known as shrinkflation, involves reducing a product's quantity or volume per unit while maintaining the same price. Shrinkflation happens when companies keep prices steady but offer less of their products. Now, imagine the same scenario with our homes. Although it’s not as obvious because we don’t purchase new houses frequently, it is a real and ongoing issue.
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On average, Canadians have the third-largest living spaces. However, averages can be misleading. Over the years, the trend in home sizes has diverged depending on the type of housing. In the condo market, there has been a notable decrease in home sizes.
Figure 1.0
Source: https://shrinkthatfootprint.com/how-big-is-a-house/shrinkthatfootprint.com/how-big-is-a-house/
The Municipal Property Assessment Corporation (MPAC), reports that from the mid-90s to early 2020, the average condo size decreased by 35%, shrinking from 1,100 square feet to just 700 square feet[1]. In contrast, detached homes in Ontario have increased in size, growing from approximately 2,000 square feet to roughly 2,500 square feet over the same period. In 2002, the median square footage of a two-bedroom apartment in Metro Vancouver was 980 square feet, but by 2018, it had dropped to just 880 square feet and has remained flat since then.[2]
Figure 2.0
Source: Statistics Canada, Table 46-10-0028-01
As seen in Figure 2, the main decline is the size of condominiums started post-2000, as per data compiled by Statistics Canada.
Shrinkflation redefines the concept of affordability, making it even harder to attain without compromising the standard of living. We examined apartment prices on a per square foot basis to account for the decrease in average apartment size. Our analysis revealed that for the same size apartment that a first-time home buyer could afford in 2005, a buyer in 2024 is actually paying 59% more than the current prices suggest. This discrepancy has widened even further post-COVID. Consequently, marginal buyers are being squeezed both by rising prices and shrinking apartment sizes.
Shrinkflation redefines the concept of affordability, making it even harder to attain without compromising the standard of living. We examined apartment prices on a per square foot basis to account for the decrease in average apartment size. Our analysis revealed that for the same size apartment that a first-time home buyer could afford in 2005, a buyer in 2024 is actually paying 59% more than the current prices suggest. This discrepancy has widened even further post-COVID. Consequently, marginal buyers are being squeezed both by rising prices and shrinking apartment sizes.
Figure 3.0
Note: Index created (starting 100 in Jan 2005) using actual prices and average apartment size
Source: CREA, Statistics Canada, REIC analysis
Source: CREA, Statistics Canada, REIC analysis
Municipal policies also contribute significantly to shrinkflation, promoting smaller apartments to enhance affordability. For instance, the City of Vancouver introduced maximum unit size requirements for rental projects seeking a development cost levy (DCL) waiver. To qualify for this subsidy, developers must keep two-bedroom units under 830 square feet and three-bedroom units below 1,044 square feet. [3]
Demographic shifts further drive this trend, with smaller family sizes and a higher number of migrants who prefer smaller living spaces. In the late 1980s, developers viewed condos as replacements for traditional houses, building multi-bedroom units with the expectation that families would live in them. Now, single-bedroom units (or even smaller) have become the norm.
Shrinkflation in real estate isn't unique to Canada. An analysis by RentCafé shows that the average size of newly built apartments in the U.S. decreased by 54 square feet over the past decade, from 941 square feet to 887 square feet in 2022.[4] While 54 square feet might not seem significant, apartment dwellers, especially during the pandemic, know that every square inch matters when spending more time at home. The most substantial decline occurred post-pandemic, with 2022 seeing the largest year-over-year decrease in apartment size in a decade, down 30 square feet. Despite the pandemic emphasizing the need for more space, the trend continued, with only minor increases in 2020 and 2021. Similar post-pandemic data on average apartment sizes for Canada is not available.
Nevertheless, micro-apartments are viewed as a solution to the affordability crisis. Tiny units are not a new concept; densely populated places like Japan, Korea, London, and New York have been building them for years. These micro-apartments require a Swiss army knife approach to design, similar to the interiors of sailboat cabins or camper vans.
But who are the target buyers for these tiny apartments? Initially intended to provide affordable options for first-time home buyers and professionals, many senior citizens are now choosing tiny apartments as they downsize from larger homes or use their home equity for retirement expenses.
Micro-condos also enable builders to offer more units in central urban locations where land prices have skyrocketed. These units provide not only affordable living but also affordable living in highly desirable areas. As more Canadians face housing affordability challenges, both reluctant renters and hopeful homebuyers are accepting the trend. The micro-condo trend is gaining momentum as buyers and renters recognize that spacious living is no longer feasible within their budgets, leading to a new generation of homeowners interested in micro-condos.
One might wonder, how small can a dwelling unit be while still providing sufficient living space?
A survey by Point2Homes.com found that when asked about the ideal home size, the largest proportion of Canadian respondents chose the 1,001-1,500 square foot category—smaller than the average Canadian home. [5] Nonetheless, significantly smaller units are gaining popularity.
Toronto developer Urban Capital built Canada's first micro-condo, Smart House, a 25-storey complex on Queen Street West, with the smallest unit measuring just 289 square feet. The smallest apartment in Toronto is around 184 square feet, renting for $720. Many people are also familiar with Hong Kong's 'Coffin Homes,' compartments measuring three feet by six feet, renting for around $300.
In London, new minimum space standards have been introduced as part of the London Plan[6] . For new flats, the minimum standards are 37 square meters (398 square feet) for one person, 50 square meters (538 square feet) for two people in one bedroom, 61 square meters (657 square feet) for three people with two bedrooms, 70 square meters (753 square feet) for four people in two bedrooms, and 74 square meters (797 square feet) for four people in three bedrooms.[7]
But is simply stipulating size limits enough? What about prices? This is where social housing becomes crucial. Changing zoning regulations and Floor Space Index (FSI) limits to facilitate affordable, dense living communities is essential. Upgrading infrastructure to support dense living and adopting a new approach to urban planning, particularly in developing city centers like Edmonton, Calgary, and the Greater Toronto Area, is also important.
At REIC, we strive to lead in real estate education and keep our members updated with the latest industry trends. Our professionals are adept at evaluating all aspects of real estate purchasing decisions, considering factors that affect a buyer’s overall quality of life. Our members can assist clients in making precise comparisons between the different available options to ensure informed choices.
Demographic shifts further drive this trend, with smaller family sizes and a higher number of migrants who prefer smaller living spaces. In the late 1980s, developers viewed condos as replacements for traditional houses, building multi-bedroom units with the expectation that families would live in them. Now, single-bedroom units (or even smaller) have become the norm.
Shrinkflation in real estate isn't unique to Canada. An analysis by RentCafé shows that the average size of newly built apartments in the U.S. decreased by 54 square feet over the past decade, from 941 square feet to 887 square feet in 2022.[4] While 54 square feet might not seem significant, apartment dwellers, especially during the pandemic, know that every square inch matters when spending more time at home. The most substantial decline occurred post-pandemic, with 2022 seeing the largest year-over-year decrease in apartment size in a decade, down 30 square feet. Despite the pandemic emphasizing the need for more space, the trend continued, with only minor increases in 2020 and 2021. Similar post-pandemic data on average apartment sizes for Canada is not available.
Nevertheless, micro-apartments are viewed as a solution to the affordability crisis. Tiny units are not a new concept; densely populated places like Japan, Korea, London, and New York have been building them for years. These micro-apartments require a Swiss army knife approach to design, similar to the interiors of sailboat cabins or camper vans.
But who are the target buyers for these tiny apartments? Initially intended to provide affordable options for first-time home buyers and professionals, many senior citizens are now choosing tiny apartments as they downsize from larger homes or use their home equity for retirement expenses.
Micro-condos also enable builders to offer more units in central urban locations where land prices have skyrocketed. These units provide not only affordable living but also affordable living in highly desirable areas. As more Canadians face housing affordability challenges, both reluctant renters and hopeful homebuyers are accepting the trend. The micro-condo trend is gaining momentum as buyers and renters recognize that spacious living is no longer feasible within their budgets, leading to a new generation of homeowners interested in micro-condos.
One might wonder, how small can a dwelling unit be while still providing sufficient living space?
A survey by Point2Homes.com found that when asked about the ideal home size, the largest proportion of Canadian respondents chose the 1,001-1,500 square foot category—smaller than the average Canadian home. [5] Nonetheless, significantly smaller units are gaining popularity.
Toronto developer Urban Capital built Canada's first micro-condo, Smart House, a 25-storey complex on Queen Street West, with the smallest unit measuring just 289 square feet. The smallest apartment in Toronto is around 184 square feet, renting for $720. Many people are also familiar with Hong Kong's 'Coffin Homes,' compartments measuring three feet by six feet, renting for around $300.
In London, new minimum space standards have been introduced as part of the London Plan[6] . For new flats, the minimum standards are 37 square meters (398 square feet) for one person, 50 square meters (538 square feet) for two people in one bedroom, 61 square meters (657 square feet) for three people with two bedrooms, 70 square meters (753 square feet) for four people in two bedrooms, and 74 square meters (797 square feet) for four people in three bedrooms.[7]
But is simply stipulating size limits enough? What about prices? This is where social housing becomes crucial. Changing zoning regulations and Floor Space Index (FSI) limits to facilitate affordable, dense living communities is essential. Upgrading infrastructure to support dense living and adopting a new approach to urban planning, particularly in developing city centers like Edmonton, Calgary, and the Greater Toronto Area, is also important.
At REIC, we strive to lead in real estate education and keep our members updated with the latest industry trends. Our professionals are adept at evaluating all aspects of real estate purchasing decisions, considering factors that affect a buyer’s overall quality of life. Our members can assist clients in making precise comparisons between the different available options to ensure informed choices.
[1] https://www.mpac.ca/en/News/PressRelease/Condosgettingsmallerdetachedhomesgettingbigger0#:~:text=The%20most%20recent%20MPAC%20data,Chief%20Valuation%20and%20Standards%20Officer
[2] https://openhousing.ca/2022/05/10/shrinkflation-vancouver-apartments-shrunk-over-the-decades-even-as-prices-skyrocketed/#:~:text=In%202002%2C%20the%20median%20square,during%20the%20same%20time%20frame
[3] https://openhousing.ca/2022/05/10/shrinkflation-vancouver-apartments-shrunk-over-the-decades-even-as-prices-skyrocketed/
[4] https://www.globest.com/2023/02/17/apartment-sizes-are-shrinking/?slreturn=20240703181211
[5] https://www.rew.ca/guide/articles/canadians-enjoy-second-most-living-space-per-person-global-survey-1.9905436
[6] https://www.london.gov.uk/programmes-strategies/planning/london-plan/new-london-plan/london-plan-2021
[7] https://shrinkthatfootprint.com/how-big-is-a-house/
[2] https://openhousing.ca/2022/05/10/shrinkflation-vancouver-apartments-shrunk-over-the-decades-even-as-prices-skyrocketed/#:~:text=In%202002%2C%20the%20median%20square,during%20the%20same%20time%20frame
[3] https://openhousing.ca/2022/05/10/shrinkflation-vancouver-apartments-shrunk-over-the-decades-even-as-prices-skyrocketed/
[4] https://www.globest.com/2023/02/17/apartment-sizes-are-shrinking/?slreturn=20240703181211
[5] https://www.rew.ca/guide/articles/canadians-enjoy-second-most-living-space-per-person-global-survey-1.9905436
[6] https://www.london.gov.uk/programmes-strategies/planning/london-plan/new-london-plan/london-plan-2021
[7] https://shrinkthatfootprint.com/how-big-is-a-house/
Allwyn Dsouza is REIC’s Senior Analyst, Market Research and Insights. He can be reached at [email protected]. Media enquiries can be directed to [email protected]