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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Category: Housing

  • The case for point access blocks

    We have spoken before about buildings, such as this 6-storey one in Paris, that were allowed to be built with only a single exit stair. This is noteworthy because, here in Canada, if you were to try and build an equivalent 6-storey building on an equivalent 100 square meter site, you would be required to have two exit stairs. And that would create more non-leasable space and make it even more challenging to develop such a small building.

    It is for this reason that single-stair buildings have been getting an increasing amount of attention as of late. They are seen as a way of encouraging more missing middle housing.

    So where are single-stair buildings currently allowed? Below is a map from Seattle-based Larch Lab showing the maximum number of storeys for point access blocks (what they call single-stair buildings) around the world. Based on this, Canada is one of the most conservative countries on the planet when it comes to required exiting (I don’t want to speak for any of the grayed-out countries). It also shows that much of the world allows 6 or more storeys.

    Larch Lab is a major advocate for point access blocks and they have this policy brief outlining the problem and the opportunities. One of their most interesting statistics has to do with minimum project size inflation. As recent as 2000, only about 13% of all multifamily completions in the US had more than 50 units. Today, this number has jumped to more than 55% of all new multifamily buildings, meaning we are quickly losing our ability to build small and intimate.

    Point access blocks can help with this.

    Of course, the reason we have exiting requirements in our building codes is because of life safety. But there’s research to suggest that this level of redundancy may not be needed in certain buildings. According to the above policy brief, the average death rate (caused by a building) in point access block countries like Switzerland, France, Italy and Germany, is significantly lower than that of the US. On top of this, almost no countries in the EU require buildings less than 28m tall to be sprinklered. The US does.

    All of this said, I don’t think that single-stair buildings are a silver bullet for missing middle housing. It is just one important ingredient in a complicated recipe. And as evidence of this, we can look to Seattle. The 2018 Seattle Building Code allows point access blocks up to 6 storeys, which is a rare occurrence in the US. However, the city appears to be still working on missing middle reform. Presumably other ingredients are still — missing.

    Image: Larch Lab

  • Less new housing — for now

    Approving new housing is one thing. And it is an important one thing. But you also need to sell/lease and finance the project. And that is a lot more challenging in today’s environment compared to a few years ago. I think a lot of people look at our cities, see a shortage of housing, and wonder why developers don’t just build more of it. But it’s not that simple:

    “Our industry is now taking a second look at our [calculations] and saying it’s costing more to build, it’s costing more to lend,” he said. “And there is a threshold in regards to what a purchase price or sale price can be. So there’s a bit of a pause in the market right now in regards to starting construction.”

    Throughout this last development cycle and, in particular, during the pandemic, development costs increased dramatically. But the revenue side was also increasing — meaning you could sell and/or lease space for more. That kept development going. You could still successfully underwrite new projects.

    But now the cost of debt has increased and the revenue side has expectedly slowed both in terms of pricing and velocity. This dramatically changes the feasibility of new projects, which means the market is going to need time to adjust to this new environment. This, of course, will happen. But in the interim (i.e. right now), it is going to mean a lot less new housing.

    This should not come as a surprise.

  • When interest rates are low, who cares the most?

    When interest rates are low, people generally want to buy more highly-levered assets, such as real estate. This, of course, makes perfect sense, because lower rates mean more buying power. But how badly someone wants to buy more real estate should, at least in theory, depend on their particular situation.

    If you’re buying a pre-construction home, the current rate should matter less than what it might be in the future when it comes time to close (usually you can only lock in a rate for so long). That said, lower rates can help people feel richer because it buoys the value of their other assets/investments. So in this regard, low rates do help the pre-construction market.

    On the other hand, if you’re buying a home to immediately close on, then current rates matter a great deal. This is the rate that you are going to be paying. However, in Canada, the typical term for a fixed-rate mortgage is 5 years. Meaning that after 5 years the rate resets to whatever market is at that time. So eventually, the mortgage does become an adjustable-rate one.

    In the US, this isn’t the case. The most popular mortgage is a 30-year fixed-rate loan, meaning the rate stays the same for the entire 30-year period. What this means is that Americans should — again, in theory — want to buy more real estate — the most — when rates are low. That’s the time to back up the truck and lock in a sweet rate for the next three decades.

  • Dubai is now the top “super-prime” residential market

    People continue to buy expensive homes:

    Global super-prime ($10m+) residential sales bounced back in Q1 2023, with 417 sales across the 12 markets tracked in Knight Frank’s new Global Super-Prime Intelligence report. That’s up 11% on the 376 recorded in Q4 2022 and the highest volume since Q2 last year.

    The biggest market in Q1 this year was Dubai (88 sales), followed by Hong Kong (67), New York (58), Los Angeles (46), Singapore (37) and London (36). While volumes rose in Q1, the total value of sales fell 4% to $7.2 billion. The most expensive average super-prime sales took place in Geneva ($23.8m) and London ($20.4m)

    What is perhaps most interesting, though, is how central Dubai has become in the flows of global capital. In 2019, Dubai accounted for 2% of all super-prime sales in the 12 markets that Knight Frank tracks.

    Today, looking back at the most recent 12-month period, Dubai now accounts for 17% of all super-prime sales, placing it ahead of London, New York, and Los Angeles.

    Part of this jump likely has something to do with the “housing disaster” that Dubai was going through back in 2019. But even still, it is impressive to see just how quickly the city has managed to build and position itself as an alpha global city.

    I much prefer walkable cities, but clearly there are enough other people who don’t care about that sort of thing.

  • Everybody wants a 3 bedroom condo until they see what they cost

    We have spoken about this topic — of larger family-sized suites — many times before on the blog. And my argument then, as it is now, is that the largest barrier is cost. We can talk about cultural biases (which I do think exist in North America) and, sure, we can talk about how to better design for families. But until we solve the problem of costs or until low-rise housing gets so prohibitively expensive that it tips the scales in favor of multi-family buildings, I’m not sure we’re going to see a meaningful shift.

    To be fair, it does appear that the number of families living in apartments and condominiums is increasing here in Toronto. My neighbor is one data point. However, broadly speaking, I don’t think it’s happening with the “larger family-sized suites” that most people imagine in their minds when they talk about this opportunity.

    So how do we address this? There are a number of interesting ideas in the above Twitter thread that I would encourage you to check out. Ratcheting down or eliminating development charges (and other government levies) on larger suites is one of them. But what is obvious is that this is a challenging problem to solve. So the brutally honest answer is that I don’t really know what will be most effective. But here are three potential places to start.

    As-of-right mid-rise buildings

    Remove the barriers to building more mid-rise. One irony of mid-rise buildings is that they are probably the most desirable form of multi-family housing and yet they’re the most expensive to build. A lot of this has to do with construction costs and other unavoidable diseconomies of scale, but there are other things we can do. In my view, we should target to make all mid-rise buildings fully as-of-right. This means no rezoning costs, no community meetings, and overall simpler designs. Instead, the rough process should be: buy site, work on permit drawings, and start marketing new homes.

    Growth pays for as much as possible

    Please watch this short 1-minute video:

    This is also something that we talk a lot about on this blog. But most people outside of the industry don’t think of it in this way, or they don’t care. The mantra is that “growth pays for growth”, which obviously sounds good. Tax new housing based on its impacts. But in reality this is not what’s happening. What is happening is that “growth pays for as much as possible as long as new home prices keep rising.” And it persists partially because nobody except evil developers see these large bills. But if we really want to make new housing more affordable and if we really want to encourage more families in new multi-family buildings, then we need a more equitable solution.

    Financing new family-sized homes

    The way we finance new homes impacts the kind of housing that gets built. Here in Toronto, new condominium projects generally require a certain percentage of pre-sales, because construction lenders want as much certainty as possible that they will get their money back upon completion. In theory, it also reduces the chance of overbuilding because you’ve pre-sold most/all of the homes. So there are obvious benefits to this approach. However, the problem is that you need people to now buy in advance. And oftentimes, the people buying early aren’t families who expect to need 3 bedrooms in 5.2 years. Should there be another financing solution for larger homes?

    Once again, these are just three potential places to start. But I think they’re all critically important. If you have any other suggestions or ideas, please leave them in comment section below.

  • Adding missing middle housing in Vancouver

    The City of Vancouver recently published this video talking about missing middle housing. For those of you who are following this trend (and reading this blog), there won’t be a lot that is new in the video (although Uytae Lee is great). But I’m sharing it here, anyway, for three reasons. One, it’s an example of Toronto being ahead of Vancouver, which wasn’t the case with laneway housing. Vancouver started allowing these first. Two, it is further evidence that this shift toward intensifying low-rise residential neighbourhoods is really happening — and gaining momentum — all across North America. And three, the City of Vancouver is about to bring forward new multiplex housing policies. So now is a good time to get involved and say things.

  • Pill-shaped prototypes

    Back in 2020/2021 when we were getting ready to launch sales for One Delisle, the team came up with the idea of pill-shaped kitchen islands for our residences. 

    What that means is we wanted to use perfect semi-circles on both ends. We didn’t want oval islands. We didn’t want distorted semi-circles. We wanted islands shaped like pills!

    We felt these opened up the kitchens and also looked really unique. So with Studio Gang and the rest of the team, we proceeded to design a few different types.

    We needed ones that would work for smaller suites, we needed ones that would work for larger suites, and we needed to accommodate breakfast bars/seating.

    When we approached Scavolini Toronto about this idea their first response was, “we’ve never done this before. It would be a first.”

    However, their second response was, “but we’ll figure it out with you.” And based on this response, we built (by hand) a pill-shaped island for our condominium sales gallery, and then included them as part of One Delisle.

    Fast forward to 2023 and we are now in the “let’s figure it out phase”. This week we reviewed the very first production prototypes in Scavolini’s factory in Pesaro.

    They are everything we could have hoped for, and we are thrilled that Scavolini was a willing partner in this endeavor.

    It’s not easy doing new things in construction. The smallest things can (usually?) end up being a lot more work. But it all feels worth it when you get to see the results.

  • Corktown Condos just launched!

    Today was the official launch of Corktown Condos. (In case you missed it, I wrote about Corktown last month, over here.) So what does this actually mean? What it means is that we got a small group of 500+ agents and brokers together to tell them about the project. We talked about our love of Hamilton and provided an overview of the project’s amenities, suite pricing, deposit structures, and so on. Everyone who attended now also has access to our broker portal, where all of this information is stored.

    However, no actual purchase agreements were signed today. That’s for later. The first signing event will take place on Saturday, May 27th starting at 12PM, at 30 St. Clair Avenue West, Suite 103, in Toronto. So if you’re interested in Corktown, I would encourage you to attend on this date. Feel free to also reach out to our sales team if you have any questions (sales@corktown.condos). The people you want to connect with are Shannon Glas, Daniella Commisso, and/or Hansen Chu. Hopefully I’ll see you there next weekend!

  • All lit up in the Junction!

    Friday was a busy day at Junction House.

    In the morning, we gave a hard hat tour to Toronto’s City Planning Division. They are currently revisiting the Mid-Rise Building Performance Standards, and so this was an opportunity to see what these standards translate to when you’re on site trying to actually build a mid-rise building.

    It was great to see the group so highly engaged and looking for ways to improve the delivery of this housing typology. Thanks for taking the time to visit Junction House.

    Then we had the “official lighting ceremony” for the placemaking art. And by official lighting ceremony, I mean that there were a handful of us playing around with a drone and trying to get cool pictures on our phones. However, did we have one actual videographer, so stay tuned for some proper video footage of the installation.

    Finally, in the evening after sunset, we got to see it illuminated for the very first time. And it was everything we had hoped for! An idea turned into reality, many years later. Shout out to the Urban Toronto community for spotting one of our earlier prototypes online and then encouraging us to make some design changes. We are happy we listened.

    But what do you all think? I’d love to hear your thoughts in the comment section below.

  • What are the opportunity costs of not building new housing?

    The stated policy goal of inclusionary zoning is to to produce more affordable housing. We can debate who ultimately pays for this below-market housing, and we have many times before on the blog, but for the purposes of this post let’s just focus on its stated goal.

    Given this ambition, it makes sense to carefully measure the number of affordable homes produced. And that is ordinarily what is done: “We implemented this new policy on this date, and since then we have produced X amount of new affordable housing.”

    It is then likely that we will take X and form opinions on whether it was a successful policy or not. If X seems like a lot, then maybe we think it’s a good policy. And if X doesn’t seem like a lot, then maybe we think it was a bad policy, or perhaps just an ineffective one.

    But what is largely impossible to measure with any real precision is the number of new market-rate homes that are now not being built as a result of a policy. Let’s call this number Y. It is, of course, possible to come up with an estimate by looking broadly at rents across the city, plugging in some development costs, and seeing what pencils. But this is a rough approximation.

    It does not capture the countless times that a developer has looked at a possible housing site, only to come to the conclusion that it is not feasible to build. There is no official Y figure. And any amorphous estimates of Y are going to be easy to ignore by the general public anyway. Unbuilt homes? Opportunity costs? What?

    I am saying (okay repeating) all of this because I continue to feel like most people believe that development will just happen no matter what is thrown at it. There is a housing shortage, right? So developers should just do what they do best and build today. Surely they could if they were genuinely nice people and really wanted to. Hmm.

    What many people seem to ignore (or not know) is that development, and in turn new housing supply, operates under this very simple decision tree:

    • Find development site
    • Underwrite said site
    • If math works, seek capital/investors and then build
    • If math does not work, do not build
    • If math works, but capital doesn’t like it, also do not build (most can’t in this scenario)
    • Repeat

    Just because you aren’t seeing or noticing something, it does not mean that it doesn’t exist and that it’s not happening behind the scenes.