Category: Housing

• K-shaped housing market

  

  If you’ve been following the housing market (in most cities) over the last year, this chart likely won’t surprise you. It is from a recent City Observatory article by Joe Cortright talking about the “k-shaped housing market” that we have seen emerge over the last year. The above is for the US, but I would imagine that the chart would look similar for Canada, as well as for other countries. Here’s an excerpt from the article:

  There’s an obvious explanation for the different trajectories of house prices and rents:  Low income workers rent; high income workers own and buy homes. High income households have been barely grazed by the Covid-19 recession.  In fact, the combination of low interest rates and enforced savings (because many kinds of consumption spending, including dining, entertainment, travel and even much retail have been constrained by lockdowns), mean higher income households may find housing a much more attractive spending item.  If you can’t go out to dinner, or take a vacation, you have more money to spend on a new home.  Low wage workers are in the opposite situation.  Low wage workers have borne the brunt of the recession; they are also much more likely to be renters than higher income households.

  It is perhaps worth reiterating that our fixation on homeownership is not universal. If you live in Switzerland — a very wealthy country — you’re more likely to rent than own. And if you live in Germany, you’re more likely to live in an apartment than in a low-rise house. Still, that doesn’t change the fact that the impacts of COVID-19, and our lockdowns, have been felt unequally. This chart is an example of that.

  2021.02.06

• Demand for short-term apartment rentals grew in 2020

  

  Apartment List’s quarterly Renter Migration Report (Q4 2020) offers up some interesting insights into what may be playing out in the apartment sector right now. The most striking takeaway seems to be the surge in people looking for short-term rentals (leases of six months or less). And while the data has historically shown that those looking to move to a new metro are more likely to be looking for a short-term rental compared to those searching within their current metro, that spread really widened starting in the spring of last year. See above.

  And when you drill even deeper, the most popular inbound destination — at least according to Apartment List’s search data — seems to be Honolulu. In the second half of 2020, about 26.8% of users searching in Honolulu from somewhere else in the US were looking for a short-term lease. This is compared to 14.9% during the same time period in 2019. Intuitively this makes sense to me. If you’re in lockdown and working from home, why the hell not do it from Hawaii? We’ve all have this same thought.

  Apartment List goes on to speculate that this short-term rental spike could be an indication that the inbound and outbound flows we’re seeing right now with certain cities may not be all that permanent. People are simply optimizing for the current environment. Though this data is representative of intent, rather than of leases consummated. Either way, that would be my guess. But who knows. Maybe some people will discover that surfing in the morning and working from the beach is a pretty enjoyable way to live.

  2021.01.11

• Average price of a home in the Toronto region increased 13.5% last year

  The Toronto Regional Real Estate Board released its 2020 housing figures this week. And I suspect that the numbers are probably directionally similar for many city regions around the world.

  2020 saw more home sales than 2019 with 95,151 homes changing hands. This represents an 8.4% increase compared to last year. December was also a record month with 7,180 sales — a 65% year-over-year increase!

  The average selling price in the Greater Toronto Area also reached a new record of $929,699. This represents a 13.5% increase compared to last year. Once again, December was a record setting month with an average selling price of $932,222.

  When you look at sales and average prices by home type, the biggest drivers were low-rise homes outside of the city. No surprises here.

  

  

  But consider the price spread that now exists between condos and detached homes. In the City of Toronto (“416”), we’re talking about an average price delta of nearly $850k. That would be an expensive home in many other markets.

  Of course, condos tend to be smaller than detached homes. And so different prices per pound. But total price matters a great deal and historically a widening spread has moved many buyers over to the condo market.

  I suspect we will see that happen again this year.

  2021.01.07

• How much home can you afford?

  Each quarter, HSH.com publishes a report that looks at the annual income required to quality for a residential mortgage in the 50 largest metropolitan areas in the United States. To do this, they look at the median home price for each city and then apply a 28% debt-to-income ratio (principal and interest payments divided by before tax salary). They also assume a 20% down payment and a 30-year fixed-rate mortgage. In their latest report, that comes with an interest rate of 3.15%.

  Below is a chart showing what they consider to be the 10 most affordable and the 10 least affordable metros (chart via the New York Times). I don’t think the cities on this list will necessarily surprise many of you (though I didn’t think Pittsburgh was this affordable), but it is interesting to see it all quantified. It’s also worth thinking about what might happen to these figures as that 3.15% number comes down. Shockingly, the price of highly-levered assets tends to be correlated with financing costs.

  

  2021.01.05

• Toronto’s condo market in 2021

  “If everyone is going left, look right.” –Sam Zell

  The right time to buy things is usually when other’s aren’t, which is why I’ve felt that this year was a great time to buy a centrally located condo. Cities aren’t going anywhere. This isn’t their first pandemic. Downtown demand will return as soon as urban life returns and the majority of people are back in their offices next year.

  I’ve also been predicting that the run-up in single-family home prices that we have seen this past year here in Toronto will eventually lead to a surge in demand for condos (and perhaps even for larger suites). It’s a question of relative affordability. And so it was interesting to see Shaun Hildebrand of Urbanation predicting the same thing for 2021 in this recent Toronto Star article.

  Hildebrand thinks the soaring prices of single-family homes will also push more buyers back to the condo market.

  As of November, the average price gap between condos and detached houses was $596,000. The gap between a condo and a semi-detached or townhome was about $217,000. Both of those were at their second-highest levels since the market peaked in late 2016-early 2017, he said.

  “This could really start to swing demand towards condos in the second half of the year,” said Hildebrand.

  Realosophy data shows condo sales were already up year over year prior to the holidays — 23 per cent the first week of December, 31 per cent the second week and 72 per cent the week of Dec. 14. That means 727 condos sold that week, compared to 418 in the same week last year.

  2020.12.28

• Condo transaction volumes in Miami-Dade county are up 61.4% year-over-year

  

  This pandemic seems to have been good for real estate located in places that people like to spend time in, but maybe had to limit their time there in the past because of things they had to do like, you know, work in an office. This includes everywhere from “cottage country” outside of Toronto to sunny destinations like Miami.

  Here are some figures that I came across for South Florida via Analytics Miami. Comparing November 2020 to a year prior, condo transaction volumes in Miami-Dade country are, interestingly, up 4.3% for condos less than $1 million and up 61.4% for condos worth more than $1 million.

  Somewhat similarly, single family home transaction volumes in Miami-Dade county (for the same time period) are down 5.2% for houses worth less than $1 million and up 100% for houses worth more than $1 million.

  Sometimes you see a decline like this (the -5.2%) because there simply aren’t enough houses on the market for less than $1 million. But it could also be that more rich people are looking for expensive properties in Miami compared to last year.

  As you may have gathered from here and here and here, I’m not all that bullish on the permanency of this whole working from home thing. But there’s no denying that there’s a very clear trend around people moving to places that are warmer. This was happening well before COVID-19.

  There is also some evidence that rich people are starting (continuing?) to eschew high tax states like California for lower tax states like Florida and Texas. I don’t have the data to be able to comment on how meaningful this trend is, but, for whatever it’s worth, apparently Elon Musk just moved to Austin.

  Photo by aurora.kreativ on Unsplash

  2020.12.10

• I want an expensive condo

  The Globe and Mail published this headline today: “Developers building more small condos, despite people clamoring for more space.” It’s behind a paywall and so some of you may not have read it. But the data looks something like this. Of all the new condo project launches that happened this year in Toronto, studios and one-bedroom suites accounted for 61% of all new inventory, according to Urbanation. This is a higher percentage than what the market saw in 2019 and 2018, and this is despite the fact that many/most people are still working from home and would probably appreciate a bit more space.

  The short answer as to why this is happening is affordability. For years I have been clamoring for a dual aspect oceanfront penthouse on Miami Beach, but that time hasn’t come for me yet. Things cost money. And the downward pressure on unit sizes is a direct result of developers trying to ensure that their inventory is within the reach reach of buyers (there’s a sweet spot somewhere in the range of $500-700k right now). Developers are heavily incentivized to build what sells and rents, both quickly and at the highest price. That tends to be smaller units, especially early on.

  Where this goes in the future is anybody’s guess. But with the dramatic price increases that we have seen on the low-rise side of the market, I suspect that we’ll see a subsequent surge in demand for condos — maybe even larger condos.

  2020.12.07

• Garden suites are coming to Toronto next year

  With laneway suites permitted as-of-right across the entirety of Toronto, the City is now looking to other forms of accessory dwelling units and other ways to increase the supply of rental housing. The next frontier is likely to be something that the City is broadly referring to as garden suites. And the timing is likely to be as early as next summer. Here’s how they’re defining it (taken from this recent report):

  Garden Suites are sometimes referred to by other names, such as “coach houses”, “tiny
  homes”, and even “granny flats”. However they are all effectively the same idea – a
  detached accessory dwelling unit generally located in the rear yard of a detached
  house, semi-detached house, townhouse, or other low-rise dwelling. It is generally
  smaller in scale, functioning as a separate rental housing unit. Garden Suites are similar
  in form and function to Laneway Suites, which are currently permitted across the City in
  all low-rise residential zones in the city-wide Zoning By-law, 569-2013. To avoid any
  confusion between these terms, the City is considering all types of detached-accessory dwelling-unit to be a Garden Suite, for the purpose of this review, with the exception of a
  Laneway Suite, which is already permitted and defined within the Zoning By-law.

  The above report will be going to Planning and Housing Committee on December 8, 2020. The goals are to kickstart the public consultation process and to come up with the necessary recommendations to permit garden suites by the second quarter of 2021. Like laneway suites, they are expected to be as-of-right. That means straight to building permit. No variances (and contentious Committee of Adjustment meetings) required.

  This is great news and I’m looking forward to seeing garden suites become a reality in 2021. For more information about what’s happening on December 8th, click here.

  2020.12.01

• Hong Kong to Singapore, quietly

  

  Here is an interesting article from the Financial Times talking about the quiet move of people and companies from Hong Kong to Singapore. I say quiet, because apparently Hong Kong-based companies are reluctant to overtly signal that they are setting up offices and moving some of their executives out of the city, in case that starts to upset people over in Beijing.

  But the real estate market in Singapore seems to be benefitting from some of these macro trends, as well from the city-state’s handling of the coronavirus. This is despite there being a 25% stamp duty tax on foreign property purchases (US nationals and a few others are exempt) and despite the fact that the economy shrank in the second quarter of this year by the largest percentage (13.2%) since independence in 1965.

  According to FT, there were 2,362 residential property transactions in the core central region of Singapore in the first 9 month of this year. This compares to 1,962 transactions for the same period last year. Of these total sales, 260 residential homes were sold to foreign nationals this year (~11%), compared to 316 last year (~16%). While this is obviously a decline, including a decline in the percentage sold to foreign nationals, it still feels pretty significant given that the borders were presumably closed, or largely closed, earlier this year.

  Apparently 75% of the above 260 homes were sold to buyers from either mainland China or Hong Kong. I don’t know how this percentage compares to last year. But the narrative out there right now is that it is up (along with office leasing by foreign companies) and that Singapore is a pretty safe place to put your money right now.

  Photo by Kirill Petropavlov on Unsplash

  2020.11.22

• La ville du quart d’heure, but also the value of centralization

  

  These days, everybody seems to be talking about the 15-minute city — Bloomberg, Treehugger, the Financial Times, as well as countless others. While not a new concept, it is a moniker that is easier for most people to digest. COVID-19 has also created the right backdrop for the moment that it is currently enjoying.

  The 15-minute city is a polycentric and somewhat decentralized approach to urbanism. It is about encouraging and creating multiple centers of urban activity near where people live. The idea being that everybody should have most of their essential services within a 15-minute walk of their home. Put even more simply, it’s about creating an urban environment where people can live locally.

  The benefits to this are numerous. It encourages more compact forms of development, which in turn encourages people to rely more heavily on active modes of transportation such as walking and cycling. The result is less commuting, less carbon emissions, more time, and likely better health outcomes given the reliance on active mobility.

  Indeed, living in a walkable urban community is something that I personally put a huge value on. If I can’t walk out of my home to go grab a coffee and something to eat, it’s probably not the neighborhood for me. But at the same time, I don’t think we can ignore the fact that there are powerful centralizing forces present within our cities.

  As Natalie Whittle points out in this FT article from the summer, new technologies — from the telegraph to the internet — have always elicited predictions that humans would now flee cities and move to the countryside. While it is true that there are other technologies — everything from the streetcar to the automobile — that have allowed us to decentralize to a greater extent, most of us are all still bound to cities.

  In fact, you could argue that the opposite of decentralization has played out. As we have transitioned to a knowledge and information economy, the returns to being embedded within cities and within a particular place have only become greater.

  Take for example the phenomenon of “collab houses” that has been playing out in Los Angeles for some time now, including during this pandemic. Collab houses are typically LA mansions where clusters of young people come and live together in order to create content for platforms like YouTube and TikTok. It’s like a big dorm for creators. And supposedly the biggest one is Hype House.

  What’s fascinating to me about this phenomenon is that it reinforces two things. One, if you want to be rich and famous (emphasis on famous), Los Angeles is seemingly still an important place to be. And two, if you really want to be at the top of your game, it’s apparently not enough to be in the same city as other likeminded individuals; you also need to be under the same roof, bouncing ideas around and pushing one another.

  So what does this all mean? Well, maybe this time is different and we are all currently living through a reorganization of how we will live, work and play. Or, maybe this time isn’t all that different. And the 15-minute city, while an important goal, won’t be the be-all and end-all of modern city building.

  Photo by Lukas Geck on Unsplash

  2020.11.14