In the nook

As a child, the fictional Harry Potter lived in a closet under the stairs. Stella Pak-Guenette can relate. The 11-year-old Torontonian also resides in a closet, her bed tucked beneath a set of open risers.

Though unlike the wizarding prodigy's cramped, infamous digs, which were the result of familial mistreatment, it's hard to believe that Stella's pad is technically a storage space, expertly renovated as it has been.

At five feet wide, the room is narrow. But it's also tall, with sunshine flooding through a skylight to illuminate her stylish Herman Miller decor and precocious art (including two prints from Damien Hirst). The stairs lead up to a private landing, where Stella can do homework, entertain her friends or literally hang out on a custom, hammock-like mesh floor that brings light to the sleeping area below.

The room, designed by furniture maker and carpenter Mary Ratcliffe, creatively solves a problem many people in Canada's tight, tumultuous real estate centres are facing: how to comfortably accommodate everyone when space costs more than ever, so has never been so precious. In October, the average cost of detached house in Toronto was $1.3-million.

Rob Guenette, Stella's father and the chief executive officer of Canadian creative agency Taxi, bought the townhouse to "downsize" from a larger place. The smaller, more manageable home meant that he and his family could have "better balance," he says, and spend more time at a second home they have outside the city.

He loved the townhouse's convenient, subway-adjacent location and rich character. Before being converted to condos, it was a dairy plant, and the old brick walls are still visible. There was just one hitch: It was a bedroom short. There was, however, a large ensuite storage locker that was oddly tall and just wide enough for a queen-sized bed. He figured with a little design savvy, it could become a pretty awesome sleeping space.

Mr. Guenette engaged Ms. Ratcliffe to do the conversion as she had previously worked on custom furniture for Taxi's offices. Her solution is both practical and playful. There was an ironic lack of closet space, so she tucked plenty of storage into the base of the stairs and the frame of the bed. The hammock floor was custom ordered from a boating supply store in Florida, the mesh of the sort commonly used on catamarans. "It can hold up to 850 pounds," Ms. Ratcliffe says, or a birthday party's worth of 11-year-olds.

"The room is a far cry from a closet," Ms. Ratcliffe says. Instead, it's the kind of imaginative room where you can just let your mind wonder about all the possibilities. It wouldn't be shocking if Stella grew up to be an architect or a sculptor, her formative years spent living in a study of how to make the most of three dimensions.

Mr. Guenette isn't the only homeowner turning to ingenuity to solve a space crunch. In fact, more and more Canadians are deciding to renovate the space they have, instead of upgrading to something larger (and therefore much more expensive). According to real estate research company Altus Group, Canadians are now spending more on home renovations than on new real estate.

Designer Anne Renshaw runs Petitsuite, a Toronto-based company that specializes in converting "underutilized" areas into "beautiful, well-loved spaces," she says.

One such conversion was turning a "ramshackle" garage into a playground, extending "a tiny, tiny yard" for a growing family with twins. The homeowners looked at moving to a bigger place, eventually deciding against it because they "liked their house, and didn't like the idea of moving to the suburbs," Ms. Renshaw says. As a remedy, they decided to make better use of what they had.

The garage worked best for a conversion as the owners weren't using it for parking any more. Like many people in the city, they didn't like having to manoeuvre down their shared, narrow driveway, so opted for on-street parking.

The garage is now topped by a translucent polycarbonate roof that lets light in, and the ceiling beams are festooned with swings. There's room for arts and crafts. In order not to diminish the home's resale potential, the play space was designed so that it can easily be converted back to its original purpose.

Ms. Renshaw was originally inspired to work with small spaces when she remade a boyfriend's boat. The experience showed her how to maximize utility in minimal space. "Everything had to do double duty," she says. She established Petitsuite when she noticed the rising "cost of housing and how much space you get for that," she says. "It's quite alarming. More people are living with less space. So how do you balance privacy, quality of life and have good style as well?"

Ideally, Ms. Renshaw would like to convert more garages into laneway housing, auxiliary living spaces or nanny suites, but points out that many cities currently have prohibitive zoning and permitting rules. Noting, though, that Toronto's rules are currently before city council, and might change in the near future, she is hopeful that more people can benefit from the underused potential of their backyards. "We're on the tip of something," she says.

Not all space-making solutions have to replace or convert something. Interior designers Sarah Keenleyside and Lindsay Konior, co-founders of Toronto's Qanuk Interiors, recently infused a Toronto townhouse with many double-duty spaces, taking advantage of elements most people simply overlook. For example, they turned the underside of a staircase into an indoor garden, augmenting a small, five foot-by-six foot exterior patio. "Using potted plants eliminates the need for irrigation," Ms. Keenleyside says. "We unified the look with a bed of pebbles."

In the third-floor master bedroom, on the underside of a sloping roof, they installed an operable skylight that pops open, with part of the window becoming the guard rail of on-demand Juliet balcony. The impromptu outdoor space needed no permits or approvals from the committee of adjustments. "It was not an inexpensive solution," Ms. Keenleyside says. But it's ultimately more practical than upgrading to a bigger home, and bigger mortgage.