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

  • Multiple paths to a quick yes

    I have heard a number of people describe this blog as covering all that is new. That wasn’t my explicit goal when I started writing it. My goal was simply to focus on cities and all the wonderful things that shape them. But it turns that new ideas form a big part of that and that I am very interested in new ideas. Change is what moves the world forward.

    Of course, there is no shortage of new ideas. We all have brilliant ideas. Maybe you’re looking at Toronto’s public garbage bins right now and thinking to yourself, “You know what, I have some terrific ideas for how these could be greatly improved.” And chances are, your ideas are good ones. The problem, however, is that ideas are fleeting. The real challenge is bringing them to fruition before they die.

    So here are a few thoughts that came to mind this morning:

    • There is a difference between incremental improvements and directional/fundamental change. Generally speaking, we tend to be naturally better at ideas related to the former than the latter. When we look at a Toronto garbage bin on the street and see it overflowing with rubbish and see all its side panels swung open, we intuitively see the problems. But it is less common to think about, oh I don’t know, subterranean garbage networks for moving refuse around or networked robots that come out at night and tidy our streets with purple brooms. This is also why when we come up with something new like a horseless carriage or an iPhone, we often name them after the thing we already know and are familiar with, even though it probably undersells how meaningful the change is. It helps our minds make the leap.
    • Many organizations have separate decision making processes that depend on the above. Amazon, for example, likes to ensure that incremental improvements have “multiple paths to yes” within the company. Again, these are the more intuitive kind of changes and so you don’t want some brilliant, yet fragile, idea to get killed by some naysayer along the way. You want as many of them being implemented as possible. On the other hand, ideas that might change the direction of the company are typically slowed down and carefully deliberated. This is a common split. “Major decisions” go up to some greater governance body; whereas all other day-to-day decisions just get made on the fly by those “in the field”. This is one way to keep things moving quickly.
    • On a related note, venture capitalist Fred Wilson wrote today about the virtues of small and flat partnerships when it comes to early-stage investing (but I don’t think the lesson only applies to this sector). In his view, the biggest venture winners — at least when it comes to early-stage companies — often come from the most “controversial and out there” ideas. And to make these sorts of bets it is helpful to have a small and flat team with a lot of trust. I found this particular insight really interesting because it implies that when you have the opposite — big and hierarchical organizations — you naturally start to lose your ability to experiment with non-consensus ideas. And so what you’re likely left with is just the intuitive and incremental stuff.
    • Recently, we also spoke about the argument that generations view change differently. Young people are often more open to new ideas, at least partially because they view it as a way for them to make their mark on the world. Older generations, on the other hand, often view change as a threat to their current position in the world. None of this is universally true, but think about how this often plays out with new housing. Young people view housing supply as a way for them to buy or rent something new and form their own household. Whereas already established households can view it as a threat to their community and their existing way of life.

    These are a broad set of thoughts. But if there are any lessons to extract from these bullet points it is perhaps these: One, consider the kind of decision that needs to be made. Is it something incremental and intuitive? Is it an obviously sound infill housing project? Because if so, you want multiple paths to a quick yes. And two, consider who gets a say and who controls the decision. Because the wrong group dynamic can kill even the best new ideas.

  • Disease-breeding tenements

    What do you think of this beautiful low-rise apartment building? It is called Spadina Gardens and it was built (allegedly illegally) on Toronto’s Spadina Avenue in 1906, shortly before the City enacted an outright ban on “disease-breeding tenements” (i.e. apartment buildings) in all residential neighborhoods.

    This, of course, is a form of exclusionary zoning. Our predecessors had decided that apartments were bad, they promoted disease and immorality, and that they were likely to destroy or at least corrupt Toronto by making it, you know, less waspy.

    Important studies are underway here in Toronto, and across North America, to determine whether we should do something about this longstanding city building tradition. Should we allow a mixture of different housing types in our residential neighborhoods, or should we keep things just the way that they are? That being low-rise and single-family.

    In the meantime, we are implementing things like inclusionary zoning, which I guess makes some people feel better about themselves and the current state of affairs. But in the end, it sits very much on top of our exclusionary past.

    Low-rise single-family home neighborhoods remain off limits. Apartments should only go in select locations (provided they don’t bother the single-family homes). And any efforts to create greater affordability and diversity should only impact the new apartments and not the low-rise single-family homes that already exist.

    I would encourage all of you to have a listen to 99% Percent Invisible’s recent episode about Toronto’s “missing middle.” It does a great job explaining why Toronto looks and performs the way that it does today, and why it’s time that we do something about it. It’s also highly relevant to not just Toronto, but many cities across North America.

  • Displacement and gentrification

    Let’s consider a scenario where we have a relatively affordable 20-unit apartment building in a rapidly growing global city. This particular building happens to be of an older vintage and so let’s say that the in-place rents are about 40% below market.

    Next let’s assume that the zoning has just been updated for the land and it is now possible and economically feasible to build a total of 300 housing units in a new high-rise building. This would mean demolishing the existing 20 apartment units.

    But because this global city has rental replacement policies in place, these 20 units would need to be rebuilt within the new high-rise and offered to the current residents at exactly the same rents. So same price, but new housing.

    Compensation would also need to be provided to these residents to cover the cost of moving around. Because they would obviously need to move off site to allow for construction and then, if they’d like, move back once construction is complete.

    How would such a scenario make you feel?

    The typical objections usually involve, among other things, concerns around displacement, gentrification, and overall built form. There is a concern that investments of this magnitude might push people out of the area and also change the character of it.

    But at the end of the day, these 20 existing homes are not disappearing from the market. They will remain part of the housing stock, but now with the addition of 280 new market rate homes.

    I think it’s important to remember that in a rapidly growing city, trying to maintain the status quo by limiting new development can actually have the opposite effect. Because what you end up doing is creating a scenario where more and more people are fighting for a relatively fixed supply homes. And that is certainly one way to encourage displacement and gentrification.

  • Introducing CORKTOWN

    Today, Slate Asset Management announced its latest condominium project: Corktown. Named after its neighborhood, Corktown is located in downtown Hamilton just south of the GO Centre station.

    If you’re a longtime reader of this blog, you might remember that I first wrote about this site a few years ago when we were just starting community engagement.

    Since then, the design has evolved to include a tower on the southeast corner of the block (pictured above) and a mid-rise building along John Street South. This site is also now fully zoned.

    So it’s go time. Phase one, called Corktown East, will launch this summer and condo pre-registration is live as of today. To register, head over here.

  • How to tell if you have a housing shortage

    Housing supply is one of those topics that a lot of people can’t seem to agree on. Some people, including annoying city bloggers from Toronto, will tell you that we’re not building nearly enough new housing. While others will tell you that, no, everything is just fine. We are totally building enough to meet demand.

    So today I am going to encourage all of you to read Brian Potter’s latest Construction Physics article. In it, he answers the question: Is there a housing shortage or not? But just in case some of you don’t feel like doing that, here is the tl;dr:

    • You can’t look at construction rates alone and infer whether or not you have a housing shortage. There are so many other factors to consider, including household size (see above chart). A drop in household size alone, for example, means that you need more housing, even if nothing else is going on.
    • The US is probably short at least several million housing units right now.
    • Vacancy rates, within a market, are pretty useful for predicting housing cost increases. When vacancy rates fall, prices go up. This is one reason why housing supply matters.
    • Looking at the gap between population increases and housing supply increases is “hilariously non-predictive” if you’re trying to determine whether or not you need more housing. We’ve all seen this before: This city added X people, but only constructed Y new homes.
    • Finally, there is an extremely strong correlation between housing supply restrictions (i.e. land use restrictions) and home prices. It turns out that the harder we make it to build new homes, the more expensive they become.

    So yeah, Potter’s article is definitely worth a read when you get a moment.

    Chart via Construction Physics

  • Housing starts up 63% in Calgary

    The Canada Mortgage and Housing Corporation (CMHC) just published its latest housing supply report for Canada’s 6 largest city regions (downloadable over here).

    One figure that stands out is the increase in housing starts in the Calgary CMA — it was up almost 63% last year compared to 2020. This is a positive indicator for that market.

    It’s also worth mentioning that Calgary’s supply is more evenly split between low-rise and apartment housing. This is in contrast to markets like Toronto, where 3/4 of all new housing is now “apartment”, and in Montreal, where the percentage is even higher.

    My view is that it’s time to get more granular with our reporting of higher density housing. In the above example, we are showing 3 categories for grade-related housing and only 1 for anything outside of that.

    This is our national bias toward low-rise housing coming through.

  • Who should pay for affordable housing?

    Deeply affordable housing is mostly infeasible to build.

    This is why you don’t see the market naturally building this kind of housing on its own. It, for the most part, doesn’t make any economic sense to do so. So this is also why the US has fabricated things like low-income housing tax credits. They are a way to make up the economic shortfall that exists with low-income rental housing and get the private sector building this kind of housing.

    We sometimes try to convince ourselves — or maybe it is a way of shirking responsibility — that there can be such a thing as no-cost affordable housing through things like inclusionary zoning. But I think we all know that there’s no such thing as a free lunch. Somebody is ultimately going to need to pay. The big question, of course, is who should that be?

    By definition, we acknowledge that the people who will ultimately live in these affordable homes cannot afford to pay market rates. So by default, the subsidies will need come from somewhere else. But again, from where and from who? Should it be specific people who pay or should it be mostly everyone who pays?

    If we return to the Toronto building industry’s favorite topic right now — development charges — you’ll see that under the current rates, every new 2 bedroom or larger apartment that is constructed must pay $3,727 toward affordable housing. Under the proposed rates, this will increase to $12,545 for every new large apartment. It’s by far the largest proposed percentage increase (237%) and also one of the largest service items.

    This raises two interesting philosophical questions.

    One, should the buyers of new housing be responsible for contributing to affordable housing in this way? Because what we are in effect saying to these people is, “Hey, you can afford to buy a new market rate home, so we’re going to collect some additional money from you — $12,545 to be exact — so that we can try and help those that aren’t in the same position as you. We’re also going to mandate additional affordable homes within your building and we’d like you to subsidize those too.” This is one way to redistribute wealth.

    But if the goal is to try and create more broad-based affordability, an alternative approach might be, “Hey, you already own a home and it has gone up a lot in value, so we’re going to collect some additional money from you over time so that we can try and help those that aren’t in the same position as you.” This would be the property tax approach. It’s probably not perfect, but might it be a more fair and equitable way to redistribute wealth?

    The second interesting philosophical question has to do with whether this is consistent with the dogma that growth should pay for growth. The idea behind development charges (also known as impact fees in some parts of the world) is that they should pay for the cost of new development. This makes complete sense. When you build new housing you certainly need some additional stuff — everything from additional school capacity to emergency services.

    But the question here is whether the construction of new housing in and of itself creates a direct need for more affordable housing, and therefore should be charged for it. Asked in the opposite way, if you weren’t building this new housing, would you then no longer need this affordable housing, just like you no longer need that additional school capacity?

    This is definitely not the case. In fact, I would argue that the opposite is true. If you don’t build any new housing in a growing city, you actually exacerbate the problem of affordability. So here’s a provocative thought. Rather than a charge, should this affordable housing line item actually be a credit towards each new project given that it benefits affordability?

    While it may not make any economic sense to build affordable housing, I think that many of us would agree that it makes a lot of social sense to build affordable housing. We know that our cities are at their best when they are both diverse and inclusive. The problem is that we can’t agree on who should pay for it.

  • Housing supply across Ontario

    Here are a few Ontario / Toronto housing supply charts taken from this recent blog post by Mike Moffat (an assistant professor at Ivey Business School):

    So what do these tell us?

    Well, 2015 was a banner year for the supply of new apartments/condominiums in the City of Toronto. And supply, in general, has been ticking upward for apartments across the province.

    But if you’re in the market for a new single-detached, semi-detached, or row house, supply is on the decline in the Toronto CMA. You’re likely going to have to go further out for that.

    This, of course, makes sense. The Toronto CMA has been built out. Most of the new growth is now going to need to take place through intensification, which usually means apartments and condominiums.

    Though obvious, I think all of this is an important reminder. Because the more difficult and the more expensive we make it to build in our already built-up areas, the more we are encouraging sprawl in “Ontario outside of Toronto CMA.”

    At the same time, we are also making it more financially challenging for families to remain in the city. We can talk all we want about 3-bedroom suites and ways to make them more accommodating to children, but that doesn’t mean much if people can’t afford them.

  • Toronto housing market has slowed — do you care?

    If you’ve been following the Toronto housing market and/or following any panicky resale agents/brokers on Twitter, you’ll know that things have shifted over the last few months. Here’s what broker (and my friend) Christopher Bibby had to say about the market in his most recent newsletter:

    As anticipated, April has ended up being one of the defining months of the 2022 real estate market. With the recent fragility we are seeing, it is clear that the market peaked in February. In fact, the Toronto Real Estate Board, in its most recent Market Watch, claims that month-over-month prices could be down by 2.6%—which is very likely. TREB also indicated that the overall number of year-over-year transactions in March was down by approximately 30%. I deferred the release of this newsletter because weekend activity positively altered some of my previous commentary. The key takeaway, however, is that sentiment has shifted in our marketplace.

    But let me paraphrase the conclusion of Bibby’s newsletter with two words: who cares? If you think that Toronto (or some other city) will remain an important global city by 2025, 2030, or even 2040, you really shouldn’t be fussed by what the market is doing over the span of a few months.

    Moreover, I can tell you that my least favorite time to go out and buy real estate is when everyone else is submitting silly offers and clamoring to buy whatever they can find.

  • Micro-housing experiment in San Diego’s Little Italy

    San Diego-based Jonathan Segal is a unique kind of builder in that his firm doesn’t have any clients. They act as both the architect and developer for all of their projects. This gives them a lot of control over the building process, but also more freedom to experiment.

    ULI recently interviewed Segal about his micro-housing project on 320 West Cedar Street in San Diego’s Little Italy (called The Continental). And I think it’s a pretty interesting case study for us to discuss here on the blog.

    It’s a 5,000 sf corner site, and Segal developed it with 42 micro units (5 of which are priced at 65% of AMR), two retail spaces at grade, and a separate “single-family townhouse” for his son that sits on top of the retail space at the corner.

    The idea was to create relatively affordable “workforce” housing, which is why there’s also minimal parking. The 37 market-rate units are currently priced between $1,595 and $1,995 per month, and the affordable ones are about $900 per month.

    Segal is forthright in the interview in saying that leasing velocity was slow following completion in December 2019. It was hard to rent these kinds of units in San Diego without any parking. But he viewed the project as an experiment and eventually he did find product-market fit.

    The mix of housing types here is also noteworthy. Presumably his son could have just gone out and built a more typical grade-related home. But why do that when you can build on top of an urban retail space and add 42 other homes to the lot?