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David Saunders is one of many Canadians opting to renovate rather than move to help cope with a growing family.JOHNNY C.Y. LAM/The Globe and Mail

Space is tight at the Richardson house in Waterloo, Ont. The two-parent, two-kid family lives in a 1950s bungalow in the historic Mary Allen neighbourhood, a walkable area close to the city core and the children’s school. Their house has just less than 1,000 square feet on the main floor, with three small bedrooms, but the bathroom is tiny and closet space is limited.

“My husband and I share one closet,” says Jen Richardson, whose sons are 4 and 7. “The bigger our boys get, the tougher it gets. Their clothes get bigger, and they need somewhere to put them.”

Home values in Mary Allen have gone up significantly since the couple bought the place in 2007, before they had kids. While that’s good for resale value, it’s making it difficult for them to find an affordable, bigger home without leaving the area – something they’d rather not do. Listings in the neighbourhood are scarce, and the houses they’ve looked at have sold for well north of $700,000 – or the $600,000 range for places requiring a top-to-bottom renovation. “My husband is feeling the emotional strain of trying for these houses, not winning them and feeling like, ‘I cannot keep doing this,’ ” Ms. Richardson says.

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The couple have also considered renovating. They got a home equity line of credit and drawings for their dream reno: a 500-square-foot extension running the length of the back of the house. While the designer estimated it would cost $250,000 to build, contractors’ estimates were closer to $400,000 – sending the Richardsons back to the drawing board, wondering whether to live with things as they are or settle for a cheaper, less optimal renovation. “We know that [once the kids move out], this size house is all we’re going to need. Can we live through 15 to 20 years of feeling utterly cramped?” Ms. Richardson says.

At one time, buying a starter home and upgrading to a larger house to accommodate a growing family was common practice. But the Richardsons’ conundrum is increasingly common among young families today.

In areas where real estate values continue to surge, many families are strapped for space but struggling to afford bigger homes in their neighbourhoods, where they often have kids in school and an established community. For these families, it can make financial sense to stay put and renovate, experts say; a renovation to add a bedroom can cost the same as moving – and that’s before taking into account the financial strain of a larger mortgage.

“More people are choosing to stay and renovate out of necessity because they can’t get that next house,” says Hamilton mortgage broker Brian Hogben, who says that changes to mortgage rules mean many young families no longer qualify for financing for a larger home. “It actually is a blessing in disguise because it saves them money.”

Mr. Hogben is the founder of Mission35 Mortgages. He estimates that the process of buying a new home can cost more than $45,000 when taking into account legal and realtor fees, moving and financing costs, HST, land-transfer tax and Canada Mortgage and Housing Corp. loan insurance for down payments of less than 20 per cent.

He says he encourages clients to consider spending that amount on a renovation, an investment that punches above its weight when it comes to resale value. “Can you turn your $435,000 house into a $550,000 house with 50 grand? Probably you can, and you [don’t have to move]. You’re keeping your neighbours.”

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David Saunders is building an extension at the cottage he bought when he was still single to make more room for his family.JOHNNY C.Y. LAM/The Globe and Mail

David Saunders, a realtor and carpenter in Ontario’s Kawartha Lakes region, is currently building an addition to take his 860-square-foot home to about 1,200 square feet, including adding a bedroom. He bought the house when he was single, but after meeting his wife, Vanessa, and having a son, “there’s hockey gear in the living room and it’s a little bit tight.” Still, he loves where he lives, on a large property with waterfront on the Pigeon River.

Mr. Saunders says he typically asks his real estate clients whether they have considered renovating before they look at buying something new. “It is expensive and emotionally challenging to move.”

Jason Hunke, a contractor who builds additions in the Richardsons’ neighbourhood, says a good-quality bedroom addition usually costs about $200 to $225 a square foot, putting a 12-by-12 bedroom at $28,800, at the lower end. However, he says, it’s not particularly attractive to add a bedroom onto the back of a house – it often makes more sense to move the kitchen to the back, which means the job involves more than the new room, making it hard to provide a quote on a square-foot basis.

“I don’t like making an addition look like an addition,” says Mr. Hunke, president of Hunke Construction. “You either care about resale [value] or you don’t. If someone walks into a kitchen in the middle of the house … it doesn’t help for resale.”

Refinishing a basement to add space is also an option, which can run between $25,000 and $75,000, depending on factors such as waterproofing and whether an egress window must be added, he said.

He says that between his work in construction and his wife’s work as a realtor, they constantly see families faced with this decision. “At the end of the day, if the costs are apples to apples, why not stay where you like living?”

Those who choose the renovation route will likely require patience – Mr. Hunke says his company, and other quality firms, often book a year in advance. Agreeing on the cost of the renovation early would be wise for homeowners – construction costs in Canada have risen at a slightly higher rate than inflation in recent years, according to David Foster, senior adviser for policy and communications for the Canadian Home Builders’ Association. There is also the issue of permits and potential rezoning – approval times can vary depending on the jurisdiction.

The emotional challenge of moving has Toronto resident Caitlin Watson feeling paralyzed. After 13 years of sharing a loft-style condo at Lansdowne Avenue and Dupont Street with her partner, Joel Ramirez, they’re finding the space isn’t quite right for life with their new son, Vann. Their unit has a partly enclosed bedroom and floor-to-ceiling windows on two walls. Their son’s crib sits in a large closet, and they have to use an “extra loud” white-noise machine to mask the sound of voices or the TV in the open-concept home.

They want to stay in their neighbourhood – Ms. Watson runs a screen-printing shop within walking distance – but the change in real estate prices since they bought their home has been steep. After selling their place, they could walk away with about $300,000, but “nothing good around this area is less than $700,000,” she said, which would almost triple their mortgage. “It would mean cutting out things like trips.”

She knows the closet bedroom will only work for so long, but waffles between sentimental feelings about their home and questions about the right time to buy.

“Will it ever be affordable or should we bite the bullet now and start chipping at that huge amount of [debt]?" she said. "He’s not going to be a teenager living in this walk-in closet.”

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