Baby Bust: Where Have All the 3-Bedroom Homes Gone?

Apr 30, 2025

In this episode, conservative pundit Sabrina Maddeaux and economist Mike Moffatt discuss the significant decline in the construction of the most popular type of housing: three-bedroom homes.

They explore the implications of the 'baby bust' phenomenon, where fewer families can afford suitable housing, leading to a decrease in birth rates. The conversation delves into the regulatory barriers and economic conditions that have contributed to the housing crisis, emphasizing the need for policy changes to address the missing middle in housing options.

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Below is an AI-generated transcript of the Missing Middle podcast, which has been lightly edited.

Sabrina Maddeaux: So Mike, you posted an article you wrote recently, which is providing the backbone to the segment, and it was titled The Baby Bust and the Death of the Three-Bedroom Ownership Home. Tell us about your research for this post. What exactly did you find?

Mike Moffatt: Yeah, so what we did is we looked at data from Census 2016 and Census 2021, and really tried to figure out how things have changed over time in the housing market in Ontario. And if you start in 2016, the most common type of home was a three-bedroom home. And by home, we mean everything from single detached to apartments, condos, rentals, ownership, like just everything. It was over a third of all homes that were three-bedroom homes. And what we found is that if we looked at the change between 2016 and 2021, like how many extra homes were added, it was over 300,000 over that period. Only about 40,000 of those were three-bedroom homes, so like less than 10%. And in particular, where we saw the increases were outside of the GTA.

So, Ottawa is still adding some, Eastern Ontario, you see a little bit in Southwestern Ontario, but it's basically we show that we have this type of home, which has historically been the most popular type of home across Ontario, and at least in the GTA, almost none of them got built. And we see that as a problem, because what we also look at is the number of kids who live in certain communities.

And there's a very tight correlation that the places that are building three-bedroom homes, their population of kids went up, and places like the City of Toronto, York Region, Peel Region, their number of children is going down. So, obviously, correlation is not causation, and there's a lot going on there, but there is a clear connection that the places that are building the types of homes that we traditionally think of as starter homes for families, we're seeing more kids. Places where those homes aren't getting built, the population of children is dropping.

Sabrina Maddeaux: Yeah, that's obviously a massive problem, and seems like one that should have been pretty easy to predict. So, how did we get into this situation where three-bedroom homes are the most popular type of housing, especially for families, but hardly any are actually getting built?

Mike Moffatt: Yeah, so what we need to do is kind of look at housing-type by type by type by type.

So, high-rises, traditionally, there haven't been that many three-bedroom units. It's just, with challenges around the building code, the economics of it, they've never really worked. You do have mandates in some places that you have to have so many units that are three-bedroom. But for the most part, you don't see those in high-rises. You do see them in smaller apartment buildings, your three or four-story walk-ups, but we really don't make a lot of those, particularly in the GTA for tax and regulatory reasons. The biggest one being zoning. There's many places where you can build a three or four-story apartment building, right? We tend to either build up, like huge buildings, or build out a little bit.

Sabrina Maddeaux: Some may call it the missing middle.

Mike Moffatt: Some may call it the missing middle, exactly.

That was a big theme of this thing, that the middle is absolutely missing. And for single-detached and semi-detached, because things like development charges are so large, they can run over $200,000. And land prices are so high, you're paying, five, six, $700,000 just for the land and the right to build before you build anything.

So if you can afford that, you're probably going to spend a lot of money and build something big, right? You're going to build a four, five, six, 10, 12-bedroom house, right? Like, imagine the cheapest car you could get was like $100,000. Well, if you're spending that kind of money, you're going to make sure that you get something really fancy.

So that's been the real challenge here, where on the single-detached side, because the fixed costs are so high, people tend to build very, very large things. And on the apartment side, you know, you can't really, at least [in a high-rise], you can't really build three-bedroom [units]. So that only essentially leaves you with townhouses, and there you are seeing some three-bedroom units.

Sabrina Maddeaux: Now, I want to dig a little bit deeper into your report, because it didn't just show that we aren't building enough three-bedroom homes, but that the number of those owner-occupied homes is actually falling in large parts of the GTA. How are we losing housing stock?

Mike Moffatt: Yeah, it's very rare to have a report about, you know, housing construction and housing growth with a lot of negative signs in it. But this one has it, right?

There are regions where the housing stock, or particularly, the owner-occupied housing stock, has actually fallen, that there were fewer of those homes in 2021 than in 2016. Okay, so what happened? Well, I think the biggest thing that happened was the conversion of ownership to rental, particularly in areas with a lot of international students. You had investors coming up buying those homes and renting them out to students and other groups. And I want to suggest that, at some level, that's kind of a natural market reaction, right? That we can kind of pin this on investors. But international students and newcomers to Ontario need somewhere to live as well. And they're not going to own. I mean, they have to rent. So it was this kind of condition from population growth. That's not to suggest that there wasn't speculation and things like that, because that happened, because you have a scarce asset, people are going to speculate on it. And that's a condition we had. So a lot of it was this conversion from ownership to rental. But even taking that into account, in the city of Toronto, the combined amount of ownership and rental still fell for three-bedroom homes. That's largely demolitions. And you see that all over older neighbourhoods in the GTA, right? Peopleare buying up a three-bedroom, one of the little strawberry box homes from the forties and fifties - buying that home for $1.8 million, tearing it down, and then building something that's four or five or six bedrooms.

Sabrina Maddeaux: Yeah, I see it in my neighbourhood. Entire streets are going down and being replaced one by one.

Mike Moffatt: Yeah, absolutely. And you see it here in Ottawa as well in older neighbourhoods.

So that's the other thing that's happening, right? When I say people are buying these homes for 1.8 million, actually what they're doing is they're buying the land for 1.9 million and they're buying the home for minus 100,000 because that's the cost to knock it down and put something new.

So the overall shortage of land, particularly in desirable neighbourhoods is causing this conversion. [It’s] causing families to come in, buy up these three-bedroom homes, which were already unattainable for the middle class, and then build something in the $3- $4 million price point, which is definitely unattainable for the middle class.

Here at The Missing Middle, we have a North Star that guides all of our work, that we look to when we're deciding what projects to work on and so on. It basically informs the kind of Canada we're trying to create. And I'll read it to the audience, it's as follows:

We want to create a Canada where every middle-class individual or family in every city has a high quality of life and access to both market-rate rental and market-rate ownership housing options that are affordable, adequate, suitable, resilient, and climate-friendly.

So in other words, at The Missing Middle, we don't say owning is better than renting, and we don't say that renting is better than owning. We're all about choice. We believe families should have the option to do both. But this is not a universally held belief.

I often hear from people who say, well, as long as the house is available, like who cares, right? If they can still rent, they can rent. The important thing is that there's enough homes. That doesn't sit right with me, but that might just be the Gen X-er in me talking. So as a resident Millennial on this podcast, do you think it matters that families, particularly young families, should have the option to own their own home?

Sabrina Maddeaux: It definitely matters. No, that's not just the Gen X-er in you. And I find that viewpoint, a lot of the time, comes from people who do own and have owned for a long time. And maybe they rented at one point, but it's been a long time since they did, and they were able to move off that ladder relatively quickly.

I agree with you, though, that renting doesn't have to be inherently bad, and there should always be that option. The problem in Canada is that we make renting a pretty poor experience, and a lot of that comes down to stability, especially when you're thinking about starting a family and raising kids. A lot of future parents are looking for a place they can call home for years, if not decades. And when you're renting, there's really no guarantee you're gonna be in the same place next year, let alone a decade from now.

Depending on your province and the regulations, and when your building was created, rent can go up significantly from year to year, so your costs can fluctuate quite a bit as well. And then on top of that, you just don't really have the ability to make a home your own, which is a psychological thing, right? Even getting the permission to be able to paint a wall, let alone to, you know, make a kitchen more customized to your needs. So there's this lack of freedom and control that comes with renting in Canada.

That's already painful to deal with at any life stage, but it becomes even worse when you're talking about starting a family. …Yes, you can technically raise a child in a smaller space, especially perhaps a younger one, but most people do want that little bit of extra space to live comfortably, not on top of each other. Your child can have their own bedroom. And there's also a sense of downward mobility that comes with renting and especially, you know, raising a family in a smaller space than perhaps you grew up with, because a lot of Canadians grew up in that typical middle class, three-bedroom home, whether it was in a suburb or a city or a rural community. And now that prospect just feels so out of reach when that's been the Canadian dream and the social contract. And that's why there's that level of resentment there.

So while owning might not be for everyone, and maybe not everyone wants to do it, having the option either way, I think, is really important. And then on top of offering ownership options, I do think it's also important in Canada. And this is probably another episode, but we look at how we can make the renting experience better. And part of that is also offering ways to build a successful financial future and save for retirement that's not dependent on equity, because now that's really challenging as well. So you look at your financial future and you think, if I don't own, how am I ever going to retire and have a somewhat comfortable later stage of life?

But I want to switch gears a little bit because during the election campaign, Pierre Poilievre took some heat for what he characterized as standing up for, and I quote, ‘A 36-year-old couple whose biological clock is running out faster than they can afford to buy a home and have kids.’

Now, I wasn't one of the people who had an issue with this because it's based in reality and it's just using plain language, which we don't hear a lot of in politics. So perhaps it's shocking for people, but I can tell you that when I get together with girlfriends my age, in their mid-thirties or later, a lot of the conversation revolves around the sense that people's biological clocks are running out.

People are having trouble having kids or they're worried about, ‘Should I freeze eggs or should I have a child before maybe I'm financially comfortable?’ That's a major topic of conversation and a real fear that people are talking about in a way that I don't think was discussed in the past. So to have a politician actually acknowledge that issue, in my books, is a good thing. And I would like to actually see more policies addressing this major problem rather than fewer.

Now, maybe the message could have been delivered in a slightly different way, or it would have been better to have a female conservative MP come out with this message and he would have faced less heat, but I'm less concerned about the heat than actually getting this issue solved. What do you think, Mike?

Mike Moffatt: Yeah, well, I mean, the framing felt like beyond icky to me, but I'm a 48-year-old guy, so I can't really say how it was received by women, but it was one of those things where I cringed a little bit. I look at it as a 48-year-old guy: would I say that personally? And the answer is ‘God, no!’

But if we wanna talk about the substance of the critique, we are seeing in the data, fertility rates fall faster in places where home prices are rising higher. Now, there's a lot of facts. I get a lot of blowback when I point that out because people will say, ‘Well, fertility rates are falling everywhere. It's women going to the workforce, education, all of these factors.’ And all of that is true, right? But you can have more than one cause of a thing. And absolutely, the availability of family-sized child-friendly homes does play a factor. And it's why you see, in the GTA in particular, birth rates and the number of children under the age of five absolutely cratering.

But there are a couple things going on there. One is that people are staying and they're having families later and having fewer kids or no kids. But the other one is drive until you qualify, right? You've got a couple living in an apartment condo somewhere downtown. They want to have a kid and they're like, ‘This ain't gonna work.’ So they hop in the car and they drive as far as they need to go in order to qualify for a three-bedroom home. That's always happened but in the past, they'd end up in places like Etobicoke or Scarborough or somewhere still in sight of the CN Tower. Whereas nowadays, they're ending up in Tillsonburg and Brantford and these kind of really long commutes.

So the short answer is, yes. I can see what he's talking about. I would not have framed it that way. But the data does support the conjecture that there is a relationship, a causal relationship, between home prices and the choices that families are making.

And you've mentioned that before in some of your remarks here on the podcast. So can you kind of elaborate on that again? I wasn't one of those people who had to move out to Tillsonburg to find somewhere to live.

Sabrina Maddeaux: Yeah, it does feel like you're racing against your own biological clock in that you're trying to see how quickly you can save money and what can possibly be affordable.

I've talked about before, I'm still a renter. I live in a condo, I wouldn't say it's an ideal place to raise a family or a child. And so when I think about wanting to have a child or children, of course, the thought is, ‘Well, where are we going to live?’ And whether that's ownership or a larger rental, both are out of reach financially. And it does feel like, no matter how much you save, there isn’t any way to possibly catch up because prices are just so out of line with incomes.

Before you could drive to qualify, and maybe that meant taking on a slightly longer commute or living a bit further away from friends and family or where you want to be. But now the choice is to move hours away. And even then, it might not still be affordable, at which point you're probably looking at having to get new jobs or switch careers. If there's even the ability to have the type of career you want in that community. You're going to be very disconnected from any sort of social support systems or grandparents. So it doesn't feel like that's a feasible option either. So you're very much stuck in place trying to make these tough decisions. And I know I'm not the only one feeling that way. That's very common these days.

And unfortunately, there does come a point where the ability to have children does become more difficult, if not impossible. So it's a stressful situation for sure. And I see it stressing not just myself, but my peers out. So it's something that I think really does need to be acknowledged, not just as a problem for individuals or families, but it's a larger systemic issue when you have falling fertility and birth rates.

Now, when the market can't provide something that the population wants, that is usually the time the government steps in either to change the economic environment by reducing regulations, or by stepping in to build the things that aren't economically viable. Mike, why do you think that hasn't really happened yet? And which way do you think is the right way to go here?

Mike Moffatt: Yeah, so there's a lot of discussion around this. And I find some of it, you know, I cringe a little bit at the framing here. Not your framing, but you know, other folks on the internet. The first thing I hear usually from the left is that this is a market failure, right? That's clearly capitalism doesn't work. And, you know, we need to transform everything.

And that's not to suggest that market failures don't exist. Market failures are very real. You know, things like greenhouse gas emissions are a market failure, and governments come in to correct that. But that said, the availability of products at a certain price is not necessarily caused by market failures. My local pharmacy doesn't sell over-the-counter heroin or cocaine, but that's not a market failure. This is because collectively, as a society, we've decided they probably shouldn't. So we created a regulatory and legal framework to avoid that from happening.

One of my favourites…okay, this is, I'm going total Gen X territory here. But one of my favorite toys, as a kid, was lawn darts. I absolutely love those things. They haven't been legal in Canada to sell since 1988. Because they're really dangerous. And you know, they killed some kids. So we decided like, ‘Hey, you shouldn't have that.’ So we see that just because I can't go to my local pharmacy and buy over-the-counter heroin, or I can't go to Toys R Us and get some lawn darts, that's not a market failure, right? That's the result of regulatory and legal barriers that we collectively, as a society, said are a good thing.

Essentially, that's what's happened with three-bedroom homes in the GTA. The supply of land is fixed, unless we want to become like the Dutch and, you know, start reclaiming land from Lake Ontario. But a lot of it is policy-driven. It's decisions around taxes and regulations that have made these things uneconomical. It's building code and elevator regulations that make it hard to build in missing middle type housing. It's issues around land use, like urban growth boundaries, that keep land prices high.

Some of those are there for good reasons, right? That we say, ‘Okay, we want to make sure that we don't sprawl out too much. So we'll create these urban growth boundaries and so on.’ But they have consequences, both intended and unintended. So really, we've largely legislated away the mass building of three-bedroom homes in the GTA.

Now, of course, that wasn't our intent. People go, ‘Well, the difference here, Mike, is that we intended to make sure that you can't buy lawn darts. And we intended to make sure that you can't buy heroin at your local pharmacy. We didn't intend for three-bedroom homes to become extinct. But at the end of the day, the economy doesn't care about your intent, right? The economy is going to respond, and actors in the economy are going to respond to the economic conditions, the tax conditions, the regulatory conditions, the legal conditions, and make the decisions that make sense for them. And unfortunately, because of all of those conditions we've put in place, I don't see three-bedroom homes coming back anytime soon in the GTA, unless we have a massive regulatory change.

I'm sorry about that - I know you are someone who would probably like to have one of those homes. But I think, you know, that's why you and I and the team at The Missing Middle do what we do. Because unlike the lawn darts, we want to make sure that those three-bedroom homes can come back. We want to make sure that they are accessible, both to renters and owners across the GTA.

Sabrina Maddeaux: Yeah, it's obviously not what I want the future to be, but it is the reality based on where we stand now. And like you said, you know, this isn't really a free market failure. It's that we regulated, and I would say rigged, the market in certain ways that have had, I would say, predictable outcomes, whether that was the intent or not. I think especially that we've seen for years now what the outcome of those policies and regulations are. The fact that they're not being rolled back or changed en masse shows that there is some intent there, that we always want to protect owners and investors. We want to protect the quote unquote character of neighbourhoods over offering opportunities for younger people to raise families. That's a very deliberate choice. We want to protect equity, even if equity is now lottery-like gains versus anything that was in line with historical norms. So, rather than having owners potentially take slightly less sizable profits, we just don't let younger Canadians into the market at all.

So to me, the argument that there wasn’t any intent here doesn't ring true. I think there very much is an intent to preserve the status quo of housing haves and housing have-nots in this country. And it's going to take a lot of political courage on the part of someone for us to move beyond that, because there's just so much inertia and vested interest there. So we'll definitely keep pushing from our end, though.

Thank you so much, everyone, for watching and listening and to our producer, Meredith Martin.

Mike Moffatt: If you have any thoughts or questions about lawn darts, please send us an email to [email protected]

Sabrina Maddeaux: And we'll see you all next time.