GTA missing middle housing: Costs, demand, and financing challenges

In the Greater Toronto Area (GTA), missing middle housing has long been identified as an underdeveloped segment of the market. These small and mid-scale projects, typically 4 to 20 units in the form of walk-up apartments or infill townhomes, sit between single-family homes and high-rise towers and are often built within established neighbourhoods.

Despite steady underlying demand, these projects often stall. Not because people don’t want to live in them, but because of financing hurdles, cost pressures, approval delays, or a mix of all three.

This article explores the unique feasibility challenges and opportunities in missing middle housing, focusing on demand, costs, and financing.

Demand as the population backdrop

Population growth is the single biggest driver of housing need. For years, growth in the GTA has been exceptional, averaging about 90,000 net new residents annually. In the immediate post-pandemic period, that surged to almost 300,000 per year.

That story has now shifted. Immigration policy changes have slowed growth, and the GTA recorded a net loss of about 20,000 people over the past 12 months, with forecasts pointing to significantly slower growth over the coming decade.

Figure 1 – Annual population growth, GTA, 12 months ending in June

This may sound alarming, but context matters. A year ago, the GTA was in a full-blown housing crisis. That shortage hasn’t gone away. If anything, slower population inflows release some of the pent-up pressure built over the past 20 years. For policymakers, this creates an opportunity to build ahead of demand, rather than continually trying to catch up. For builders, it changes the landscape of who is buying or renting, and what type of housing is in demand.

Shifting demand preferences

It’s not just the pace of growth, but also who is driving demand. The dominant demographics of the next decade are families in their 30s and 40s, and downsizers in their 60s and 70s. Both groups fuel apartment demand, but not the kind of towers small one-bedroom condos are built to satisfy.

Figure 2 – Total population growth by age group, Historical and Ontario government projections, GTA

These households are looking for larger units, bigger principal rooms, and ground orientation integrated with neighbourhoods, schools, parks, and amenities. This is exactly where missing middle housing fits.

Market shifts in sales and supply

Population shifts are already evident in the market. New home sales in the GTA are projected at around 5,000 units this year - half of last year’s figure, and well below long-term requirements.

Figure 3 - New home sales by type, GTA; Historical and forecast household growth

One of the main drivers of this slowdown is the GTA supply model’s reliance on condo investors. Investors have traditionally purchased units off-plan, making financing viable. However, as returns have declined, many have pulled back.

End-users, on the other hand, don’t usually commit to large projects years before delivery. Small and mid-scale projects, which can be marketed earlier and built faster, are better suited to today’s environment.

Altogether, models suggest the GTA will need about 265,000 new units over the next decade, lower than the 328,000 delivered in the last decade, but still reflecting strong pent-up demand. About 30,000 units, or 3,000 annually, could be absorbed in missing middle formats such as stacked walk-ups, infill apartments, and townhome clusters.

Construction costs, risks, and opportunities

Construction costs spiked during the pandemic but have now leveled off. Some project bids are coming in 15–20% lower than two years ago. Still, the cumulative escalation remains steep, as high-rise costs are up 76% compared to pre-pandemic levels, and single-family costs have doubled.

This creates both risks and opportunities. Smaller projects face headwinds from building code issues that scale better in larger projects, like egress and elevator requirements. But with the right design, such as Part 9 construction - the Building Code’s streamlined requirements for housing and small buildings - missing middle housing can undercut the cost structure of larger projects and deliver more competitive units.

Aligning product with market demand

Even with slower population growth, demand for new housing is solid. The challenge is targeting product correctly. Missing middle projects have natural advantages: they bring housing into established neighbourhoods, appeal to family buyers and downsizers, and can be delivered faster than towers.

However, smaller projects often lack budgets for deep market research, and planning frameworks sometimes push them toward smaller units - a mismatch when demand is strongest for larger homes.

Financing challenges

Financing is one of the toughest hurdles. Projects in the $3–10 million range often fall into a “no man’s land”: too large for standard mortgages, too small for institutional capital.

If banks decline, developers turn to private lenders, adding hundreds of basis points in costs. Mezzanine structures and private capital can help, but systemically, the financial ecosystem isn’t well set up to support missing middle projects at scale.

Programs like CMHC’s MLI Select can assist, but come with layers of complexity, such as affordability requirements, climate compliance, and slow approvals.

Approvals and scale challenges

Approval of small projects often encounter lengthy delays, appeals, and political pushback. For a 20-unit project, a one-year delay can erase profitability.

Marketing also presents challenges. Large towers can distribute sales costs across hundreds of units, but smaller projects can’t achieve the same economies of scale.

Charting a path for the missing middle

Missing middle projects have the potential to deliver much-needed housing options: gentle density, larger family-oriented units, and integration into established neighbourhoods. Demographics align strongly with this housing type. But risks remain, from approvals and costs to sales and financing hurdles.

If policymakers and industry can work together to create better financing tools, streamline approvals, and align product with demand, the missing middle can finally move from stalled potential to a scalable solution for the GTA’s housing shortage.

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