Will Micro-Condos Allow Millennials to Save the Housing Market?

micro condos

Can millennials save the housing market over the course of the next several years?

The real estate market in the United States in recent years hasn’t exactly been red hot. In fact, the federal government has attempted to bring about another bubble by reducing the down payment to three percent while also decreasing the Federal Housing Agency (FHA) insurance rate. All in the name of boosting the housing market.

Meanwhile, homeownership among the millennial demographic is at a record low and has significantly fallen since 2004. With immense student loan debt levels, weak wages in the labor market and inadequate future prospects, millennials can’t be blamed for not jumping into the housing market prematurely.


For years, we have been told that bigger is better, but today’s generation is thinking quite differently: bigger isn’t always better. The popular trend in the housing market is the introduction of urban center micro-condos, units that are fewer than 500 square feet, though the average size is 300 square feet.

Essentially, these shoebox apartments permit occupants to eat, sleep, shower and that is pretty much it. 

In addition to being convenient and giving millennials the opportunity to live and work in the downtown core - 40 percent of U.S. adults between 18 and 36 want to live in metropolises instead of suburban areas - they’re also somewhat more affordable than the McMansions that have engulfed most neighborhoods that have priced this age demographic out of the marketplace. 

In Canada, the average micro-condo unit is listed for under $200,000, particularly in Toronto and Vancouver, two markets that are in the midst of a housing bubble and experiencing exponential property values. In fact, micro-condos have been spreading across the country over the last couple of years, and property developers are betting they’ll be snatched up quickly. 

"The Great Recession has had a disproportionately large impact on millennials, with unemployment among the under-30 set nearly double that of older members of the labor force," states the non-profit the Urban Land Institute’s 46-page report entitled “The Macro View on Micro Units.” 

"Gen-Yers have significantly lower incomes and much higher student loan debt loads, and therefore less disposable income to spend on things like expensive apartments. All of this has contributed to delayed household formation and delayed marriage among members of the millennial generation. Many of these same factors are what make micro units so attractive." 

There is one caveat, however: banks are troubled by micro-condos. 

According to the Financial Post, investors are the ones driving up the demand in the Great White North. With 3,000 micro-condos currently built in Toronto alone, more could be constructed if investors buy them up rapidly. But applying for a mortgage may be the biggest challenge.

Industry experts purport that the nation’s five largest financial institutions are reluctant in allocating mortgages for units that are below a certain minimum of square footage. In other words, if the housing market begins to tumble will investors simply sell off the properties?

"If there’s a downturn in the housing market, is the lender going to be able to sell and recover the mortgage financing they provided?” said Christopher Molder of Axess Mortgage in an interview with the business newspaper. “Because these units under 500 square feet are relatively new, no one’s tested the market to see how desirable they are.” 

There are other concerns, too, besides square footage. Marketability and a lack of nearby amenities are other factors to consider.

Coffin Apartments

This concept of shoebox properties has been rather ubiquitous in foreign markets. In China and Japan, one solution to the housing problem has been so-called coffin apartments. Although these were designed for the impoverished, they are popular among the urban millennials who just want somewhere to sleep as the rest of the time they work, party and eat out.

What will developers think of next to accommodate the desire for tiny apartments? Perhaps squirrels’ nests will be the next big thing.