High population density and expensive real estate prices have driven the popularity of tiny, uber-efficient apartments, some as small as 200 (or even 100) square feet, in parts of Europe and Asia. These micro-units or micro-apartments appeal to city-dwellers (often young professionals or empty nesters) who value a prime location over ample space. I live in a small studio myself, and I’m quite content with it.
Now, as more than 3.3 million Canadians live alone and digital goods reduce the need for shelves stuffed with books and movies, micro-units are beginning to appear in cities including Toronto, Vancouver and Victoria.
For instance, Huffington Post reports that Smart House Toronto, the city’s first micro-condo project won two real estate prizes earlier this year, including an award for best design under 750 square feet. Units at Smart House start at 300 square feet, and the building includes amenities such as communal lounges, a large terrace and fitness facilities. Vancouver, often named the priciest housing market in North America, has several rental and condo buildings offering micro units complete with Murphy beds, bike storage and workout facilities.
In Victoria, micro condos to be constructed at the Janion will start at about 300 square feet and cost been $100,000 and $150,000, reports the Times Colonist. As of December 2013, nearly all units in the building had sold, even before construction started, according to the Huffington Post.
Empty nesters trading their McMansion in the suburbs for a micro unit in the city may be able to pay cash rather than financing the property thanks to the equity they’ve built up over the years. “Pied-à-terre” people may have the funds to pay cash as well.
But first-time buyers who don’t have this luxury may find that their financing options are more limited than if they were buying a traditional freestanding house or condo. That’s because the majority of lenders have a minimum of 500 square feet. Most lenders no longer finance very small units, perhaps because these smaller loans are less appealing and they worry that smaller units may be less marketable to future buyers if the current buyer defaults.
A handful of lenders finance smaller homes of about 400-450 square feet, but many of these lenders will require that the mortgage be insured. So, even if you are making a down payment of 20 percent or more (which would traditionally exempt you from paying for mortgage loan insurance), you might still have to pay the insurance premium. Of course, once this is amortized over 25 years, it’s a relatively small expense.
The smaller the square footage, the fewer mortgage options you will have and you may not get one of those alluring “promo” rates because you’re limited to just a few lenders. Then again, if a micro unit makes sense for your lifestyle and you don’t mind paying a bit more for insurance premiums or a higher interest rate (after all, you may be borrowing less overall than you would for a larger property), then the benefits may still outweigh the costs.