Toronto Developers Shift to Smaller Housing Projects Amid Growing Market Constraints

Toronto’s real estate market is facing continued fallout from the condo crash, pushing developers to rapidly pivot to fewer-unit projects and rentals — and as a result, it’s shifting consumer demand in the near term.

 

Analyzing housing starts data shows a change in builder preferences towards rental and projects with a lower number of units, as condo presales hit historic lows.

 

Financing challenges and “a desire to reduce exposure to economic uncertainty” has encouraged developers to shift toward smaller projects, according to a new report released last week by the Canada Mortgage and Housing Corp. (CMHC).

 

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“Small projects require lower financial commitment and are quicker to deliver, reducing vulnerabilities to changes in the economy,” the Spring 2026 Housing Supply Report said.

 

In 2025, multiplex developments with three to five units outnumbered those with more than 100 units for the first time on record, and purpose-built rental starts were the second highest since 1990 exceeding condominium apartment starts in Toronto for the first time.

 

The current market conditions are making it more enticing for consumers to rent instead of buy — pushing for larger units to be built in the near to medium-term, experts said.

 

“I think it’s just inevitable if you’re not building lowrise family-sized homes with backyards and we’re mainly building rentals, we’re going to get pushed more to rental,” said John Pasalis, president of Toronto real estate brokerage Realosophy Realty.

 

“But beyond that, if you look at where the rental market is going to be moving, they’re going to be larger units; not these 500-square-foot investor-owned micro condos downtown.”

 

Typically, multiplexes and projects with fewer units can allow for bigger apartments compared to highrise condos. And while building micro-units has been more cost-effective for builders, if they decide to build smaller buildings, even just 12 storeys instead of 30 or more storeys, the timeline to build is shorter and more enticing to do in a condo market that is continually seeing values drop, Pasalis said.

 

“The supply glut (of condos) makes things a little challenging because ideally you want supply to be more in lockstep with consumers and the current market conditions and it’s having all kinds of knock-on effects,” said Jordan Nanowski, CMHC’s lead economist for the GTA.

 

Because there’s a greater surplus of micro-units that end-users don’t want, there’s too much supply of the wrong housing product, he said. Because fewer investors are buying preconstruction condos and end-users don’t want small units, it’s creating a shortage of new unit completions in 2029. The increase in multiplexes and lower-storey units isn’t enough to make up the loss of condo supply in the city, he said.

 

The pivot to purpose-built rental is being done out of necessity, not because it’s “super enticing” to builders, Nanowski said. For purpose-built rental, developers need more capital upfront and it’s less profitable than preconstruction, he added. Preconstruction condos require at least 70 per cent of the units to pre-sell to secure financing.

 

“Builders can’t get condos out at all. Right? So, anything is better than nothing,” he said.

 

While more rental stock is being built, the condo collapse — which provided the majority of the city’s rental stock — means less rental supply will be coming to market in the years ahead, Nanowski said.

 

 

“There’s a lot of factors pulling consumers to rental now but there will be kind of a reversal sometime in the future,” when rental stock coming to market begins to diminish, he said.

 

Imran Zaidi, regional manager for the brokerage Right At Home Realty, believes that consumers long-term will still hold on to home ownership and the desire to rent is a near-term shift.

 

“I do think that home ownership is absolutely still a dream and a priority for Canadians,” he said.

 

Zaidi’s bigger concern is the lack of new builds for end-users will create a supply shortage for those who wish to buy — especially as supply in the resale market for lowrise in Toronto has historically been tight.

 

“Ideally we want balanced conditions. We want a healthy rental supply and a healthy owner-occupied supply at affordable prices,” he said.

 

 

 

 

 

This article was first reported by The Star