By Pavlos Loizou

In recent months, Cyprus developers have intensified pressure on the government to relax planning regulations by reducing minimum apartment sizes and abolishing mandatory parking requirements per unit. The argument is simple and appealing: smaller homes and fewer parking spaces will reduce construction costs and make housing more affordable.

Prices will not be reduced

The million – dollar (or euro) question remains: will prices really fall? As someone who works daily with real transaction data, supply pipelines, and buyer behaviour, I believe this narrative needs to be challenged.

International experience suggests that shrinking apartments does not lead to lower prices. Canada provides a clear warning. Over the past 15 years, cities such as Toronto and Vancouver reduced minimum unit sizes and relaxed parking requirements to accelerate housing delivery. The result was a textbook case of housing shrinkflation. Average new apartments became 15–25% smaller. One-bedroom units that were once 50–55 sqm are now commonly delivered at 38–45 sqm. Two-bedroom units followed the same trajectory.

Prices did not fall. In many cases, the absolute selling price remained broadly unchanged, while the price per square metre increased sharply. Savings from reduced parking — often €25,000–€60,000 per space — were real, but they were not passed on to buyers. Instead, they were capitalised into land prices and developer margins.

This outcome was sustained by a specific market cycle. During the pandemic, ultra-low interest rates pushed investors into residential property, reinforcing the belief that prices could only rise. Developers responded rationally by maximising unit counts and yield rather than liveability. Small units sold easily, regardless of quality.

When interest rates later rose to combat inflation and supply caught up with investor demand, the market changed. Oversupply became visible — particularly in small, investment-driven units. The buyer base began to shift away from short-term investors toward longer-term occupiers and households intending to live in the properties they bought. The problem was that much of the stock being delivered was not designed for them.

A cautious approach is required

Cyprus risks following the same path.

Today, the buyers of new apartments in Cyprus are predominantly investors, foreign purchasers, and second-home buyers, especially in coastal cities. These buyers are relatively insensitive to size; they care about location, yield, and exit liquidity. As long as demand is driven by this group, reducing apartment sizes will not reduce prices. It will simply reduce space.

Cyprus also carries an additional risk that many other markets do not: geopolitics. External shocks, regional instability, and sudden changes in migration or capital flows can quickly alter demand. If investor demand weakens, Cyprus could be left with an oversupply of small, compromised units ill-suited to local households.

Removing parking requirements in a car-dependent country does not eliminate cars; it shifts congestion and cost to streets and municipalities. Shrinking homes does not create affordability; it creates density without liveability.

Affordability will not be solved through technical deregulation alone. It requires structural supply, infrastructure-led planning, diversified housing tenures, and mechanisms that ensure any cost savings reach end buyers rather than being absorbed upstream.

Shrinkflation is not housing reform. It is a quiet transfer of space away from residents — while prices remain exactly where they are.

*Pavlos Loizou is the CEO of Ask Wire