Condo Crashes, Shrinkflation, & The Death of Homeownership?

And all the things that make Mike and Sabrina mad about the way the feds are handling the housing file

Meredith Martin

Mike Moffatt

, and

Sabrina Maddeaux

Sep 10, 2025

In this episode of The Missing Middle, Sabrina Maddeaux and Mike Moffatt dig into Canada’s condo market crash, the rise of “housing shrinkflation,” and what it all means for young Canadians chasing the dream of homeownership.

They unpack why falling condo prices, by themselves, aren’t actually fixing the housing crisis, how perverse incentives for developers and governments have fueled the problem, and why middle-class buyers are being left behind and being ignored. If you’ve been wondering whether Canada is headed for a nation of “forever renters,” this is a conversation you don’t want to miss.

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

Mike Moffatt: So, Sabrina, the other day I got to thinking how unusual it is that you and I get along so well, despite the fact that we have almost nothing in common. Our life experiences have been substantially different. I'm a fair bit older than you are. We have completely different interests outside of work. I've never asked you how many 1980s Atari computers you own, but I'm guessing it's a substantially smaller amount than what's behind me. You're right-of-center politically, and I'm somewhat on the left, yet we get along really great.

I think I figured out the secret the other day when I saw a piece you had written for the Toronto Star on Toronto's condo crash. The secret to what makes us work, I think, is that we both have a contrarian streak, and we both like to stir the pot a little bit. I think that's our common interest or our commonality.

This piece caught my eye; could you walk me through your thoughts in the provocatively titled piece, “The condo crash won't fix our housing problem. In fact, it just might make it worse.”

Sabrina Maddeaux: For sure. So the basic argument I'm making is that we're in this really weird housing moment where things that should be good news actually aren't. Everyone's seeing headlines about condo prices crashing, and you think, great, finally some relief. Housing is going to become affordable. But no, because here's the catch:

The units that are dropping significantly in price are these tiny shoebox investment condos that were designed as investment vehicles. That's what they are. Not real homes for real people and real families. Meanwhile, the two and three-bedroom units that families actually need, those prices are still completely disconnected from what people can afford. And we've got this bizarre situation where we have a condo crash and a housing affordability crisis happening at the exact same time.

The really concerning part here is that this crash could actually make our housing affordability issues worse. In particular, our supply shortage, because developers relied on investors buying those shoebox units to finance the whole building, and now they're spooked.

So things aren't getting built at all, and there's also a danger that panicked politicians will try to “fix the crash by boosting demand,” things like maybe reversing foreign buyer bans or relaxing lending restrictions, which would actually just pump air back into this bubble without creating those affordable family-sized homes we need.

The other thing is, I worry politicians will see these falling condo prices and think, “Great, the market's fixing itself. We don't need to do the hard work anymore.” They'll use it as an excuse to avoid all that politically difficult work, like upzoning or reforming immigration policy that we need; they're already pretty good at avoiding it to begin with.

Now, I noticed in your intro that you never said whether or not you actually agreed or even liked the piece; you just called it contrarian. So I'd love to get your take.

Mike Moffatt: Yeah, I did like the piece. I'm not sure I agree with all of it, but I'm definitely with you on that concern that policymakers will say, “mission accomplished, put up the banner, we don't need to do anything”. However, there was one paragraph you wrote that really stood out to me, and I'll read it here:

“What is clear is that the business model developers came to rely on no longer works, and now the industry has come to an effective halt. The best case scenario is that developers supported by policymakers, taking actions like slashing development charges, eventually figure out how to finance and build desirable housing, instead of an oversupply of shoebox units.”

Now, you're absolutely right that unit sizes did shrink down to microscopic levels. We had a great episode about this a few weeks ago with Ron Butler; we'll link to that in the show notes. But I think the shrinking of unit sizes has less to do with investors, though they may have played a role. I think it was more just an unfortunate side effect or natural response of skyrocketing costs.

It's basically a form of shrinkflation. The same way that cereal boxes and packages of cheese keep getting smaller at the grocery store, as costs go up, that same phenomenon, but in housing.

I'll illustrate with some data here: a couple of months before the pandemic, the price of a new downtown condo was hitting about $1300 bucks a square foot. Take one of those shoebox condos, as you and Ron call them, it's just over 400 square feet. 400 times 1300, you're looking at about $600,000 for a tiny condo. Now, that's a ridiculous amount of money. But the market for those is going to be a heck of a lot larger than if you're trying to sell a thousand-square-foot unit for like $1.2 or $1.3 million. Yes, that would house a family, but a lot of families don't have $1.2 or $1.3 million to throw around to live in downtown Toronto. So at the end of the day, I think it's shrinkflation.

Even at $600,000, a unit is going to be out of the reach of a lot of potential first-time buyers, which is one of the reasons why home ownership rates for people under the age of 40 have absolutely fallen off a cliff since 2011.

This well predates the pandemic. This drop in home ownership rates in the city of Toronto, for 25- to 39-year-olds in 2011, was 39%. By 2021, it had fallen to 34%. It's likely even lower today.

So, you know, what we're seeing is costs go through the roof, and you've identified reasons such as development charges. The industry has responded by shrinking the size of units. But even those smaller units, first-time homebuyers can't afford them. We're seeing them either continue to be renters, continue to live with parents or move out of the GTA to other parts of Canada.

Sabrina Maddeaux: Yeah, totally. And that's part of what inspired me to write this. Politicians aren't going to do the things they need to do, like slashing development charges that forced developers into housing shrinkflation.

Now, I know you and the MMI team are deep in the weeds on this stuff all the time. But honestly, based on your commentary in our group chat, you don't seem super hopeful that changes are actually going to happen. In fact, I think it was something that federal housing minister Gregor Robertson said recently that really set you off. What was that about? And why did it make you so pessimistic about getting real policy change?

Mike Moffatt: Yeah, I mean, that was even higher than my typical levels of Gen X pessimism.

So, once again, I was reacting to a piece in the Toronto Star, so big shout out for the star. Between your piece and this piece, they've really set me off lately. This was a September third piece, and it quoted the housing minister - we’ll link to the piece in the show notes.

Now, the minister started off by giving his opinion that there was a condo bubble, which caused overbuilding and now the market is correcting. You can agree with that or disagree with that, but I don't think anybody would characterize that as a hot take; I think that's conventional wisdom. The Minister went on to say that the government wasn't focused on resurrecting the condo market. He didn't want to do the things that you had mentioned because he didn't want to reinflate this market. So agree or disagree with that. Again, I don't think that's a very controversial take. I think it's a very defensible position.

He said, “OK, we're not going to do that,” but instead, he indicated that the federal government was going to focus on a couple of other priorities instead. The first priority, he said, was non-market housing. So, subsidized housing, co-ops, things like that. Those are good things. We need a lot more of them.

The second one is building more rentals. That's also good. We need more of that. Though there are some concerns that we are going to enter a rental bubble soon with all the new product that's coming online in the next few years, but again, it's a defensible position.

What kind of set me off was not what he said, but what he didn't say: those two policy areas don't do anything for homeownership. If we look at non-condo ownership housing, like single detached, duplexes, that kind of thing — what the industry calls freehold ownership — that's been in decline for this entire century for a variety of reasons: land use, development charges, and so on. Which is one of the reasons why the condo market boomed. If you wanted to own a home and those other options were off the table, you went to a condo. So condos largely replaced single detached and semi-detached and that kind of thing for people who wanted to own a home.

But now, if condos evaporate and don't come back, there's nothing left for middle-class homeownership. The middle class is never going to qualify for these non-market homes. We're not seeing freehold ownership starts go up anytime soon, so there's nothing left.

It's like, “I can't own a condo, but I can't own any other kind of ownership home. I'm just going to be a forever renter.” And for many people, that's fine. That's what they want. They want to be a renter. But there are a lot of young, urban, middle-class folks who really want to own a home someday. The government's doing absolutely nothing for them, other than a small first-time homebuyer's GST thing. But that pool of homes is so small; only the top 10% are going to be able to use that.

So in my view, the federal government is not taking the issue of middle-class homeownership seriously. They seem to think that as long as they create enough rental supply, it's fine that young middle-class Canadians will never have the opportunity to own their home.

I personally think that's misguided, and I'm like a center-left guy who is ideologically inclined to give the federal government the benefit of the doubt, or at least this federal government the benefit of the doubt, but they are driving me absolutely up the wall with their inability or refusal to talk about middle-class homeownership. I think they've totally lost the script. As someone who is less ideologically inclined to agree with this current federal government, I'd love to get your take. Am I completely out to lunch here?

Sabrina Maddeaux: No, you're absolutely not out to lunch. Look, I'm also for more rental supply and non-market housing. We desperately need both, but the minister's approach is missing the biggest and most foundational part of Canada's housing crisis.

The reality is that most young Canadians still want to own homes, not just for wealth building, but for stability and having the space to start a family that comes with them. And the reality is, renting isn't inherently bad, but in Canada, you don't have the ability to grow a family and have stability and know that you're going to be in a community long-term when you're renting.

So, when you focus only on non-market housing and rentals, you're essentially abandoning an entire segment of young professionals and middle-class Canadians who make too much to qualify for subsidized housing, but then can't afford anything in the actual market. These are people with decent or very good jobs who are completely priced out, but will never qualify for that non-market housing.

What exactly is the plan for them? Rent forever and just hope for the best? I don't think that's going to fly. It's, frankly, politically tone deaf. Young Canadians didn't give up on homeownership because they decided renting was better or because they're hoping for government handouts. They're being forced out of a market that used to be accessible to the middle class just a generation ago.

And you know, they're watching Canada's social and economic contract being torn up and stomped on in front of them over and over again by the Robertsons of the world, and that's going to lead to some very ugly places. The solution to all of this isn't to abandon homeownership; it's to fix it by building that missing middle housing and getting excess demand out of the system.

Mike Moffatt: Yeah, I agree that this needs to be what I call an and conversation. So it should not be having rentals or homeownership. We need both. We need lots more of both. We need to find ways that young Canadians can own a unit in that missing middle housing.

Maybe the homes of 2050 don't look like the homes of 1950. But can you own a piece of your unit in a fourplex? Could you own a larger home in a low-rise apartment? That kind of thing.

But I think it's important that the federal government articulate its vision and tell it to voters. If they truly believe that we should be moving to a society of renters, they should let people know that and let people vote on it.

What worries me is that this is going to be seen as basically bait and switch, that young people are going to be like, “Hey, I never voted for this. I never agreed to that.” And we saw that quite a bit when it came to temporary foreign workers and the big international student boom. One of the things I kept hearing over and over again is “Hey, I never voted for this. I never agreed to this. This was getting imposed on me.”

I worry that the federal government is doing the same thing on housing, where they're refusing to articulate a vision beyond just “hey, we're going to double housing starts.” Okay, great but what kind of housing? Who's going to be able to own it, and so on?

If we see three, four, five years where it's just rental, rental, rental, rental, I worry that we are breaking that social contract. And young people are going to say “this is not what I signed up for. I just think it's inherently unfair that the generations before me had these opportunities, which now you've taken away without ever asking me, Hey, is this okay?”

Sabrina Maddeaux: Yeah, for sure. And, you know, young people are already so angry and disillusioned and frustrated with the system, and they have every right to be and they're only going to get more so if this is how they're going to continue.

I think part of it comes down to the fact that if housing ownership is going to become affordable for the middle class, or even young professionals, home prices do need to come down. I think that this Liberal government still doesn't want to face that reality; they want to have their cake and eat it too, and you just can't when it comes to housing affordability.

Well, thank you everyone so much for watching and listening and to our amazing producer Meredith Martin.

Mike Moffatt: If you have any thoughts or questions about other articles from the Toronto Star that set me off, please send us an email to the [email protected]

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