I had a call with a developer in Paris earlier this week and it was interesting to hear him talk about the new home market over there. It sounded a lot like Toronto. Higher interest rates cooled demand. Individual investors largely disappeared. And now developers are having to rethink their strategies and floor plans (including suite sizes).
But in his view, this isn't necessarily a bad thing. It now means that you actually have to be a reasonably good developer in order to have a chance at succeeding. You have to design thoughtful floor plans and build great housing. It's a return to fundamentals, and I would argue that the same thing is happening here in Toronto.
My other noteworthy takeaway was around social housing. All new developments in the Île-de-France region are subject to inclusionary zoning. I believe the requirement is 30% of the suites. These suites are then purchased by social housing operators, and it is one of the ways that new supply is created in the market.
We talk a lot about IZ on this blog, but what's interesting about this approach is that it becomes a forward sale for the developer. Meaning, it helps to de-risk projects. Before doing anything, you know you've sold 30% of your inventory, and somehow the numbers all work. European social housing math is baffling to me.
I am now wondering if this creates some kind of incentive to keep development costs in check. Because if social housing operators are expected to buy 30% of all new homes, then they too are going to want them to be as cost effective as possible. I'm speculating though; I don't know that this is the case.
I had a call with a developer in Paris earlier this week and it was interesting to hear him talk about the new home market over there. It sounded a lot like Toronto. Higher interest rates cooled demand. Individual investors largely disappeared. And now developers are having to rethink their strategies and floor plans (including suite sizes).
But in his view, this isn't necessarily a bad thing. It now means that you actually have to be a reasonably good developer in order to have a chance at succeeding. You have to design thoughtful floor plans and build great housing. It's a return to fundamentals, and I would argue that the same thing is happening here in Toronto.
My other noteworthy takeaway was around social housing. All new developments in the Île-de-France region are subject to inclusionary zoning. I believe the requirement is 30% of the suites. These suites are then purchased by social housing operators, and it is one of the ways that new supply is created in the market.
We talk a lot about IZ on this blog, but what's interesting about this approach is that it becomes a forward sale for the developer. Meaning, it helps to de-risk projects. Before doing anything, you know you've sold 30% of your inventory, and somehow the numbers all work. European social housing math is baffling to me.
I am now wondering if this creates some kind of incentive to keep development costs in check. Because if social housing operators are expected to buy 30% of all new homes, then they too are going to want them to be as cost effective as possible. I'm speculating though; I don't know that this is the case.
If you're a developer or real estate person in Paris, please get in touch. I'd love to learn more about your market and trade notes.
In response to the tragic collapse of the 12-storey Champlain Towers South building in Surfside last year, the state of Florida is set to pass new stricter condominium rules around inspections and reserve funds. And according to the WSJ, the requirements would be some of the strictest in the US.
Under the House bill that has already passed, condominium buildings that are three or more stories would need to be fully inspected and recertified once they are 30 years old. For buildings within 3 miles of a coast (salt water is impactful), the requirement would be 25 years old. Following this recertification, the buildings would then need to be inspected every 10 years. Under the proposed Senate bill, the inspection process would start after 20 years and be required every 7 years. In both cases, the reports that come out of these inspections would need to be submitted to all unit owners and to local building officials.
If approved, these rules would have an immediate impact on the market given that about 900,000 of the approximately 1.5 million condominium units in Florida are older than 30 years old.
But is all of this enough? I think the devil is in the details.
Under the House bill, unit owners would no longer be able to waive the collection of certain building reserves. But under the Senate bill, the requirements for waiver would simply be tightened. How tight? In all honesty, I don't know the specifics. I haven't read the bills. But the collection of reserve funds is paramount. And after reading the above WSJ article, I can't help but feel like these new policies might still be less stringent than what we already have here in Ontario.
Put more simply, all buildings and structures need to have regular inspections. Materials and systems naturally depreciate over time and so the point of a reserve fund study is to determine (1) what will need to be repaired/replaced, (2) when it will need to be repaired/replaced, and (3) how much it might cost. You then need to ensure that the money is in place to carry out the execution of said study. In all cases, there should be zero compromises around life safety.
Jens von Bergmann (data analyst and mathematician); Nathanael Lauster (sociologist); and Douglas Harris (law professor) have been working since 2018 on a study of how condominiums are used and occupied across Canada. The goal is to use the results to better inform public and academic debate.
They recently presented some of their early findings at the National Housing Conference in Ottawa and have since made that information public. It is still a work in progress, but already there are some interesting takeaways. To start, here is a chart showing occupied housing units in Canada and in select CMAs:
If you're a developer or real estate person in Paris, please get in touch. I'd love to learn more about your market and trade notes.
In response to the tragic collapse of the 12-storey Champlain Towers South building in Surfside last year, the state of Florida is set to pass new stricter condominium rules around inspections and reserve funds. And according to the WSJ, the requirements would be some of the strictest in the US.
Under the House bill that has already passed, condominium buildings that are three or more stories would need to be fully inspected and recertified once they are 30 years old. For buildings within 3 miles of a coast (salt water is impactful), the requirement would be 25 years old. Following this recertification, the buildings would then need to be inspected every 10 years. Under the proposed Senate bill, the inspection process would start after 20 years and be required every 7 years. In both cases, the reports that come out of these inspections would need to be submitted to all unit owners and to local building officials.
If approved, these rules would have an immediate impact on the market given that about 900,000 of the approximately 1.5 million condominium units in Florida are older than 30 years old.
But is all of this enough? I think the devil is in the details.
Under the House bill, unit owners would no longer be able to waive the collection of certain building reserves. But under the Senate bill, the requirements for waiver would simply be tightened. How tight? In all honesty, I don't know the specifics. I haven't read the bills. But the collection of reserve funds is paramount. And after reading the above WSJ article, I can't help but feel like these new policies might still be less stringent than what we already have here in Ontario.
Put more simply, all buildings and structures need to have regular inspections. Materials and systems naturally depreciate over time and so the point of a reserve fund study is to determine (1) what will need to be repaired/replaced, (2) when it will need to be repaired/replaced, and (3) how much it might cost. You then need to ensure that the money is in place to carry out the execution of said study. In all cases, there should be zero compromises around life safety.
Jens von Bergmann (data analyst and mathematician); Nathanael Lauster (sociologist); and Douglas Harris (law professor) have been working since 2018 on a study of how condominiums are used and occupied across Canada. The goal is to use the results to better inform public and academic debate.
They recently presented some of their early findings at the National Housing Conference in Ottawa and have since made that information public. It is still a work in progress, but already there are some interesting takeaways. To start, here is a chart showing occupied housing units in Canada and in select CMAs:
Not surprisingly, Canada is broadly speaking a nation of single-detached houses. But in our three largest cities -- Toronto, Montreal, and Vancouver -- apartments/condominiums are doing a lot of the heavy lifting.
Vancouver has the highest proportion of condominiums. It is a geographically constrained metro area and it is one of the first cities in the country to adopt condominiums as a housing tenure. And in Montreal, there are more apartments under 5 storeys than there are single-detached houses. Not surprising. There's no "missing middle" in this city.
But the really interesting question is, how are these condominiums being used and occupied? It's a challenging question to answer, which is why it's so often debated, but here's what the researchers have found so far:
The owner and renter categories are self-explanatory. Temporary, which is the least common type of tenure, is where the owner has declared their principal residence as being somewhere else. In other words, the condominium is a second home.
The vacant category is effectively that city's condominium rental vacancy rate. These are condominium units which are empty, but that are at the same time listed for rent. There are relatively few of these. In Toronto and Vancouver they're virtually non-existent in this dataset (2016).
Finally, we get to unoccupied units. This one is tricky and the researchers aren't exactly clear on what is driving this number. They chalk it up, at least partially, to the flexible nature of condominiums. For example, it could be empty because the unit is switching from owner-occupied to rental, or vice versa.
That said, it is very interesting to note that Toronto and Vancouver actually have the lowest percentage of unoccupied condominium units. This may be surprising to some of you given the public discourse around investor units in these two cities.
Generally, they found that in Canada's three largest metro areas, the following rule of thumb seems to apply: For every 10 condominium units built, 6 will become owner-occupied, 3 will enter the rental stock, and 1 will go unoccupied. Does that seem right to you?
If you'd like to dig into the methodology that the researchers used, you can do that over here at Mountain Doodles. All of the charts and data used in this post were taken from there.
Not surprisingly, Canada is broadly speaking a nation of single-detached houses. But in our three largest cities -- Toronto, Montreal, and Vancouver -- apartments/condominiums are doing a lot of the heavy lifting.
Vancouver has the highest proportion of condominiums. It is a geographically constrained metro area and it is one of the first cities in the country to adopt condominiums as a housing tenure. And in Montreal, there are more apartments under 5 storeys than there are single-detached houses. Not surprising. There's no "missing middle" in this city.
But the really interesting question is, how are these condominiums being used and occupied? It's a challenging question to answer, which is why it's so often debated, but here's what the researchers have found so far:
The owner and renter categories are self-explanatory. Temporary, which is the least common type of tenure, is where the owner has declared their principal residence as being somewhere else. In other words, the condominium is a second home.
The vacant category is effectively that city's condominium rental vacancy rate. These are condominium units which are empty, but that are at the same time listed for rent. There are relatively few of these. In Toronto and Vancouver they're virtually non-existent in this dataset (2016).
Finally, we get to unoccupied units. This one is tricky and the researchers aren't exactly clear on what is driving this number. They chalk it up, at least partially, to the flexible nature of condominiums. For example, it could be empty because the unit is switching from owner-occupied to rental, or vice versa.
That said, it is very interesting to note that Toronto and Vancouver actually have the lowest percentage of unoccupied condominium units. This may be surprising to some of you given the public discourse around investor units in these two cities.
Generally, they found that in Canada's three largest metro areas, the following rule of thumb seems to apply: For every 10 condominium units built, 6 will become owner-occupied, 3 will enter the rental stock, and 1 will go unoccupied. Does that seem right to you?
If you'd like to dig into the methodology that the researchers used, you can do that over here at Mountain Doodles. All of the charts and data used in this post were taken from there.
