Brandon Donnelly

Daily insights for city builders, delivered every morning at 6 AM ET. I’m Brandon Donnelly — a Toronto-based real estate developer and founder of Globizen. I’ve been writing here since 2013.

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Month: August 2023

  • Montreal’s Diverse Metropolis policy has delivered exactly zero affordable homes

    Montreal has a bylaw that came into effect on April 1, 2021 and that requires developers to contribute to the city’s supply of social, affordable, and family housing. (All three of these have their own definition.)

    Developers can meet this requirement in a number of different ways:

    • They can build the social, affordable, and/or family housing
    • They can contribute land or a building
    • Or they can pay cash-in-lieu

    Usually, I think of inclusionary zoning as being the first of these three bullet points: a hard requirement to build a certain amount of non-market housing. That is not an absolute requirement here, and so I see this policy as being IZ lite.

    Since the bylaw came into force, there have been approximately 150 new projects by private developers in Montreal, according to this CBC article. That has resulted in about 7,100 new market-rate homes. At the same time, it has resulted in exactly zero non-market homes.

    From what I can tell from the article, every single developer has opted for option three: pay the cash-in-lieu instead of actually building the housing. Supposedly this has produced about $24.5 million in new fees, which sounds like a lot. But if you divide it by 7,100 homes, it isn’t all that much: just under $3,500 for each new home.

    So what is clear is that this is the least expensive option. That’s why everybody is choosing it. If the fee was significantly higher and it was cheaper to just build the social/affordable/family housing, then every developer would just do that. This is how development pro formas work.

    But at the end of the day, we are still taxing new housing and new home consumers for the purpose of trying to create a smidgen of more affordable housing. And this has never sat well with me, especially considering that there are plenty of other things that we could be doing to make new housing more affordable for everyone.

  • You never really own it. You simply look after it for a few years.

    I have been wearing an Apple Watch for many years and I love it. I love tracking my workouts. I love seeing my altitude when I’m snowboarding. And I love using it to pay for almost everything. Today I also learned that when you dive into a body of water, it’ll tell you the temperature of said water and your depth. It’s all pretty incredible and, of course, it’s only going to get better.

    Like clockwork (bad pun), new features are continually being added and that means that the watch I have on my wrist right now will likely be obsolete in a matter of a few years. This is a good thing because it means the tech is continually getting better. But it’s also a bad thing because it means my current watch doesn’t have any real longevity.

    Legacy watch companies like Patek Philippe have sold us on the idea that a watch is something you keep for a lifetime and then pass down to the next generation. And there’s something wonderfully romantic about this idea, which is why people do/did it.

    But today, Apple Watches alone outsell the entire Swiss watch industry. Meaning, most people have moved on from this romantic idea of a watch. We want new diving features! And there’s part of me that feels sad about this. My parents got me my current watch and it would be nice if I could tell that to the next generation of our family.

  • Military-grade camping vehicle

    If you think housing is expensive, consider the above, which I stumbled upon in New Hampshire and which initially struck me as some sort of military-grade camping vehicle.

    I checked out Earth Roamer’s site and these things are luxurious on the inside. However, they also have a base starting price of US$695,000. I don’t know the exact square footage, but the PSF price has got to be very high.

    They’re also about 12’ tall (nearly double what most parking garages are designed to accommodate); meaning they don’t really fit in most cities. But I guess that’s kind of the point.

    These are about adventure and the open road.

  • New Hampshire

    Rye and Portsmouth, New Hampshire. Shot on a Fujifilm X-T3 with a 23mm f/2 prime lens.

  • Urbanism versus architecture

    Good morning from rainy New Hampshire.

    It’s been raining all morning, but apparently there is an ocean hidden in the above picture. We also got in after dark and so all I really saw was what I could see on the drive from the airport.

    Whenever I am reminded that the vast majority of built form in North America is car-oriented in nature, I can’t help but think of how sticky all of this is going to be.

    Witold Rybczynski put it accurately when he said, “urbanism and architecture observe different time lines.” Buildings may take forever to build, but relative to urban form, they actually change pretty quickly.

    New materials and styles emerge, and so do new buildings. But the streets that surround them change so slowly, that for all intents and purposes, they mostly don’t change.

    What that means is that, for better or for worse, most of what we see is likely to persist. No wonder there is an arms race going on with autonomous vehicles.

  • Toward a culture of innovation and entrepreneurship

    One way you could oversimplify the Canadian economy is to say that it revolves around three things: natural resources, real estate, and high immigration. (You can tell me I’m wrong in the comments below.) More recently, we’ve also been touting the growing number of tech workers in our cities. But in some ways this is a bit of a vanity metric. 

    I think of it in terms of two different categories of workers. There are tech workers that are the result of foreign companies opening satellite offices to take advantage of the weak Canadian dollar and our more enlightened immigration policies. And there are tech workers that are the result of Canadian-based companies innovating, growing, and needing more talent. Think Shopify.

    The former situation is not at all bad, but a lot of the value is going to accrue outside of the country. Whereas in the latter situation, we get to be the principal recipients and we get all of the positive externalities associated with innovation and entrepreneurship. One of these is a powerful compounding effect. Successful startups tend to beget even more new companies. 

    So even though I work in and benefit from one of the three things that I mentioned at the beginning of this post, I believe that we need to be much better at encouraging a culture of innovation and entrepreneurship in Canada. We’ve become too complacent.

    This is a critically important topic that we don’t seem to be talking about nearly enough. So I plan to do more of that here on the blog.

  • Cheap mortgages are something to hang onto

    If you really need a new home, then I guess this makes sense:

    We thought rising mortgage rates would crush the homebuilders, and bet against Pulte in the FT stockpicking contest. But the exact opposite happened: high rates froze the existing house market by giving homeowners a huge incentive not to move — their irreplaceable cheap mortgages. That left new homes as almost the only game in town for anyone who really needs to buy a home. Pulte has been one of the best- performing stocks in the S&P 500. Never pick stocks, even in a stupid stockpicking contest, on the basis of superficial research.

    And here’s a chart that supports this argument (new homes as a % of total single-family home inventory, including resales):

    It’s an interesting nuance.

    But it’s certainly a different story here in Toronto with new condominium sales. According to Urbanation, in the first half of this year, the Greater Toronto Area sold 6,727 new condominium homes. This is down 59% compared to 2022, and represents the slowest first six months in a decade.

    In this case, higher rates have dramatically slowed the market.

  • Retiring on Lake Como

    For those of you thinking about summer in Europe right now, here is an interesting WSJ article about the real estate market in Lake Como, Italy. It’s behind a paywall, though, so here are two things that stood out to me.

    Firstly, the market is all about foreign buyers:

    The key driver of the Como market is, and has long been, foreign buyers. Prepandemic, Baysal estimated, non-Italian buyers were responsible for 70% to 80% of sales, with buyers from Russia, the U.K., Germany, and Switzerland leading the way. Today, foreign buyers still dominate. But while Russian and British buyers have gone quiet, said Baysal, North Americans stepped into their shoes last year, attracted by the relative strength of the dollar.

    More:

    Sara Zanotta, founder and managing director, Lakeside Real Estate, said most of her buyers are American, Swiss, Scandinavian and German vacation-home buyers. Armed with budgets of between $880,000 and $2.75 million, they are eager to buy a four- to five-bedroom villa, preferably historic, with a lake view and within walking distance of the water. Apartments in historic houses are also popular. “Outside space is a must,” she said. As a result of strong demand, Zanotta estimates that prices for this class of home have increased by around 20% between 2021 and 2022. 

    Secondly, there appears to still be some deals if you don’t need to be directly adjacent to George Clooney. The first home that is profiled in the article is a 1,000 sf two-bedroom condominium with a clear and direct view of the lake. It was purchased back in 2020-2021 for US$254,000.

    That feels very reasonable — $254 psf! The owner also purchased the property site unseen, visited it for the first time in 2021, and is somehow already approved for an Italian citizenship. (Doesn’t naturalization usually take 5 years of residency?)

    I can think of worse places to retire than Lake Como.

  • Real estate is a project-based business

    A friend of mine just sent me this blog post from the venture capital firm, Shadow Ventures. They specialize in the built environment (i.e. real estate and construction) and the post is called, “What McKinsey gets wrong about the built environment.” Here’s one of the points that they make:

    We are project based. While we are much larger, the most similar business is the movie industry. Project based, different source of funding/budget every time, the team changes (but we have our faves).

    This is very true. Oftentimes what happens in real estate is that you start with an opportunity. Something like, “buy this building, fix it up, and then sell it for more.” If the opportunity sounds compelling, a common approach is to then “get control of the asset and figure out how to capitalize it.”

    What this means is a conditional deal so that you can (1) do your due diligence and (2) figure out how to pay for it. This gets back to the three-legged stool that we’ve spoken about before. To do real estate stuff you basically need 3 things: a piece of real estate, relevant experience, and, of course, some money.

    This speaks to the entrepreneurial nature of real estate. But it also speaks to why it is maybe unfair to evaluate the architecture, engineering, and construction (AEC) industry as you might the automotive industry. The auto industry doesn’t capitalize and make each car slightly differently.

    This is one of the many things that makes real estate unique. And it’s why we have seen an enduring effort to figure out the “productization” of housing. It’s about being less project based.

  • Okay, I’m hooked

    I’ve always loved cycling, but never before have I had a bike like this:

    And boy does it make a world of a difference.

    Here’s my inaugural ride (excluding the night ride I did last week where I mostly couldn’t see where I was going):

    The High Park loop was a lot of fun. The entire park is closed to cars on the weekends (though I understand that some people are upset about this feature).

    I want to do a ride like this at least once a week, which means I’m probably going to need to get something from Pas Normal Studios to pad my ass. I’m also working my way up to clipless shoes.

    Cycling is fun and Toronto is a great city for it.