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A key to the development puzzle lies in the gap between the stated preferences of these young renter professionals (“Wouldn’t it be nice to start a family downtown?”) with the revealed preferences of young households with children (“The suburbs it is”).

On a per-square-foot basis, a three-bedroom condominium downtown will always be significantly more expensive than a similar-sized townhouse in a suburb. Why? Land prices.

Downtown land is in huge demand because it is scarce, which leads to high prices and high-rise buildings. Condo sizes are smallest in places with the highest land prices. Contrarily, places with less expensive land attract larger units, as per the first axiom of urban economics: Prices adjust to achieve locational equilibrium.

For economic efficiency, scarce and high-priced land must be used for high-density office and residential land uses. Smaller sized units, and not three-bedroom condos, are a more efficient residential use of scarce land that permits more workers to be near their jobs in the financial core.

So, what to do with the unmet demand for large condos?

Well, if there really were an unmet economic demand, builders would have responded to it. Evidence of actual pent-up demand for owner-occupied three-bedroom condos, it turns out, is rather elusive.

Recent Environics surveys found young professionals complained of a lack of three-bedroom condos (a stated preference), but did not necessarily show an interest in owning large condos themselves. In fact, 81 per cent of respondents said that they did not want a condo at all, with most desiring a detached home. Environics found that young professionals were predominantly renters and that 83 per cent did not have children.