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.
Pat Hanson of gh3* is absolutely right with her comment, here, about why we are seeing more windowless bedrooms being built in Toronto:
In much the same way, some of Toronto’s development policies encourage windowless bedrooms. “I don’t think it’s driven by cost,” says architect Pat Hanson, a founding principal of gh3* and a member of Waterfront Toronto’s Design Review Panel. “It’s driven a lot by building forms. Where you find a lot of these inboard bedrooms is in the mid-rise type.” The requirements to step back mid-rises on an angular plane, she adds, forces the developers to populate their projects with very deep units.
This condition is being driven by building forms and by overall housing affordability. Here is a post that I wrote on this exact topic back in 2017. The numbers are dated. I cited $857 per square foot as the average price of a downtown Toronto condo. But the forces at work remain the same.
And they are not entirely unique to apartments and condominiums. One of the reasons why many condominiums are becoming long and skinny — and getting designed with windowless bedrooms — is the same reason that many cities, like Toronto, have long and skinny single-family lots.
You can certainly find wider lots, but it’ll cost you.
Recently, I wrote about 4 predictions that I have for Toronto’s laneways. And one of them is what I refer to as a “market inversion.” What I mean by this is that I think we’ll start to see the laneway side of lots become more desirable than their traditional street frontages.
Maybe it won’t be a universal thing, but I definitely think we’ll stop thinking about laneways as being the “rear” or “backside” of lots and just think of them as quieter and more intimate streets. Because here’s the thing, as more and more laneway houses get built, we are, in a lot of cases, removing parking at the same time. And so generally speaking, as time goes on, our laneways are going to become even more pedestrian-oriented by default.
Now here’s a built example.
Designed by Williamson Williamson, I think this house, called the Garden Laneway House, is immediately notable for two reasons. One, the overall design is beautiful, especially the exterior brickwork. I mean, wow:
And two, it is a 4-bedroom house for a family of five. In fact, what the family did is turn the front house into a duplex, creating three homes on a lot where previously there was only one. And from the looks of it, it was their preference to live in the laneway house and use the laneway as their front door.
This is exactly the sort of thing that I was getting at with my predictions post.
The $418 million commissions lawsuit that was settled last week with the National Association of Realtors (NAR) is certainly a big deal. The NAR is trying to sound positive, but all signs point to this outcome being meaningful for the industry. TD Cowen Insights is forecasting that commissions paid in the US each year could fall by some $25 to $50 billion (from a total of ~$100 billion). And this is the headline you’ll see everywhere right now. But how might this actually happen?
Sellers are typically the party who pays 100% of the commissions
But sellers don’t pay until the agent sells and they have fresh cash
Money being deducted from proceeds (a “take rate”) is a lot less noticeable and has a lot less friction than cash you just have to pay out of pocket
Buyers kind of don’t pay — or at least that’s how they’re supposed to feel
This is “good” because it perpetuates the existing model. If buyers feel like they’re mostly not paying, they’re just going to go to the marketplace with the most supply of homes. And that marketplace is the Multiple Listing Service (MLS). However, this marketplace also does things like tell buyer agents how much commission they will make as part of each deal. And the belief is that practices like this are anticompetitive.
So as part of the above settlement, the following new rules are expected to go into place by July 2024 in the US:
Seller agents will no longer be able to set compensation for buyer agents
All fields on MLS displaying broker compensation will need to be removed
Furthermore, agents will no longer even need to subscribe to an MLS in order to accept compensation
Buyers working with an agent will need to enter into their own buyer broker agreement and negotiate compensation separately
However, there’s nothing stopping buyers and sellers from negotiating whatever commission structure they want; the idea is simply that it will be more transparent and negotiated by each participant
Why this is meaningful is that it decouples buyer agents and seller agents in a way that they aren’t today. Instead of everything originating from the sell side, each side of the transaction is now going to — theoretically at least — negotiate what they believe is fair compensation for their representation. At the same time, there’s no obligation to even subscribe to an MLS.
This leads us to, at least, two important things to think about:
What is fair compensation? Well, it should depend. If I’m a first-time buyer, I may want someone to walk me through the entire process. But if I’ve done it many times before, maybe I need very little. Or, if I’m an investor looking to renovate homes, maybe I want representation that is also an expert on construction. The point is that, in a truly open market, one should be able to find an agent and pay them based on the value that they’re creating. And this is presumably why everyone is expecting commissions to fall precipitously.
If there’s no obligation to even subscribe to an MLS, does this then open the door for new and more open listing platforms? Right now, I don’t know how this will play out. I’d like to better understand more of the details around this settlement item and what it could mean for the landscape. But I do know that the way to spur the most amount of innovation would be to have the marketplace run on something like a blockchain, and then allow anyone to create their own listing platform on top of it. One day.
This will be fascinating to watch play out. And I’m sure it’s only a matter of time before it spurs similar changes here in Canada. Expect further coverage of this topic on the blog.
“Danchi”, or apartment blocks built by Japan’s housing agency during the country’s high-growth period, may look grim and outdated in today’s Tokyo, where flashy glass and steel towers reign.
However, I only just learned that, since 2013, the Japanese houseware brand Muji has been renovating apartments within these housing blocks in an attempt to reduce vacancies:
But danchi are becoming hip again, thanks to modern renovations by lifestyle brand Muji, which is turning the poky, multi-room flats into open-plan studios.
It’s a logical collaboration. Both want to bring good and affordable design to the masses. And obviously there are brand benefits for Muji. It’s a way to expose more people to their products.
But what I find particularly interesting is that it, once again, shows the potential of a strong brand within the real estate industry.
According to the same 2015 article, as soon as Muji completed its first round of apartment renovations, UR saw 2x the number rental applications from people in their 20s and 30s. Perhaps the number is even higher today.
Clearly what happened is that you had young followers of the brand who said to themselves, “oh if Muji is involved, it must then be cool and nice, and so I’d like to live there.”
I mention this because, as a gross generalization, real estate companies don’t seem to focus on their own brands in the same way other companies do. (Again, I’m making a gross generalization.)
Designed by Morris Adjmi Architects and located at the corner of Grand and Mulberry in New York City, it is exactly the kind of building that many of us would like to see more of in our cities. It has retail at grade and it’s, you know, modest in scale at only 7 stories, 20 units, and 35,765 square feet.
Looking inside, here are some of the floor plans:
Overall, I would say that these layouts are more generous than what you would typically find in new builds here in Toronto. For new condominiums, 686 sf would be considered large for a one bedroom. Many/most sales teams/departments would tell you to turn this into a two bedroom.
But this doesn’t mean that developers in NYC are simply being more generous with their square feet. It all costs money. And according to StreetEasy, the average sale price in this building is US$1,979,210 and the average price per square foot is US$2,384 (19 most recent sales).
This is another reminder that modest and beautiful can often equal expensive. It’s how you make the math work, or at least hope to.
I don’t use Facebook anymore, but I was recently sent this. It is a post by a reporter for The West End Phoenix asking people from the community what they think of the JUNCTION sign on top of Junction House. As of right now, there are 217 comments and, if you scroll through them, you’ll see that they are actually overwhelmingly positive.
Some people were critical of the fact that, depending on what you consider to be the boundaries of the Junction, this sign may or may not actually be in it. Some see Junction House as belonging to the West Bend neighborhood. So here is yet another real estate developer stretching boundaries and renaming neighborhoods.
I don’t know, neighborhood boundaries are a funny thing. They’re often amorphous and they often change. Here’s what Google believes to be the boundaries of the Junction:
As you can see from the map, the whole point of the sign was to mark one of the entrances to the neighborhood. Although, Junction House seems to sit on contested lands; Google Maps shows it as simultaneously belonging to the West Bend. Whatever the case, it is really great to see that the vast majority of people seem to love the sign.
My favorite comment is this one here: “Love it. My kid recognizes it and always yells that we are close to home.” I mean, this was our hope. We wanted to create something that could become a symbol for the area, help to reinforce its existing identity, and also bring people delight. The fact that kids are loving it makes it that much better.
Perhaps this is proof that we shouldn’t be so rigid when it comes to the design of our cities. A little color, and some LEDs that look like neon, can be a positive thing. Just ask the kids.
One of the things that you’ll notice on real estate listings in France is an Energy Performance Diagnostics (EPD) rating. In French, it gets reversed, and so it’s a DPE (diagnostic de performance énergétique). What it tells you is how much energy the dwelling (or building) consumes and how much greenhouse gas it emits. And it is a requirement on all real estate listings and for all dwellings, except those that are occupied for less than 4 months per year. The output of this diagnostic is a rating from A (best) to G (worst).
According to FT, this is how primary residences in France rank today:
Less than 5% of homes are rated A and B (the most energy efficient). And many more are rated G and F. Beyond just being energy inefficient, this is potentially a problem because there are penalties and restrictions for the lowest rated homes, one of which is that you are not allowed to rent out the property. Right now and as of January 1 of this year, the upper consumption limit is 450 kWh per square meter per year. Go above this and the home becomes ineligible.
January 1, 2023: Rental ban on properties with G+ energy label
January 1, 2025: Rental ban on all properties with G energy label
January 1, 2028: Rental ban on all properties with F energy label
January 1, 2034: Rental ban on all properties with E energy label
Now here’s what this is thought to mean for overall rental supply:
By 2028, 5.2mn homes rated F and G, or 17 per cent of total housing stock, will become ineligible for rental. By 2034, all E properties will also be excluded, amounting to about 40 per cent of homes.
This raises an interesting question: Is it more important to have energy-efficient homes or to have greater overall supply? Now obviously the goal and ideal scenario is both; lots of affordable homes that are also energy efficient. And presumably, one of the objectives of this rental ban is to stick/carrot owners into investing in energy measures. But it’s not exactly obvious as to how many owners will be able to renovate their homes in time, and how many homes will become ineligible for rent. This will be an interesting policy to watch as it plays out.
Following yesterday’s post on small-scale apartments, a number of people commented on the 6m front yard setback that was shown on the city’s drawings and that I mentioned in my post. Well, it turns out that I wasn’t entirely correct about the 6m. What is proposed in the draft zoning by-law is the following:
The modelling has illustrated building setbacks that are appropriate for townhouse developments and small-scale apartment buildings on major streets in a Neighbourhoods context. Based on the review, Urban Design staff recommend that the front yard setback be implemented through use of the average of the existing neighbouring setbacks, or a minimum of 3 meters, whichever is greater. This approach maintains consistency with the existing character of the Neighbourhoods supports protection of existing mature trees.
As you might expect, the approach with these small-scale apartments is to be mindful of the existing low-rise context. But as many of you rightly pointed out when you saw the 6m, the existing context may not be appropriate or ideal for the planned context, especially if there’s retail at grade.
This is just one of the many details that we’ll need to be careful with as this initiative moves forward.
This week we speak about the problem of not enough density next to transit stations. More specifically, we spoke about Toronto’s low-rise residential neighborhoods, which are colored yellow in the city’s Official Plan. Well, as many of you know, the city is, in fact, working to “expand housing options” in these neighhorhoods through their EHON program. One component of the program covers laneway and garden suites, another covers multiplexes (up to fourplexes), and another hopes to allow 6-story apartment buildings on all major streets.
Here are the city’s major streets:
And here’s what these “small-scale apartments” might look like:
The setbacks are intended to be 6m in the front (to be consistent with existing neighborhood setbacks); 1.8m on the sides (so there’s rear access and so that these elevations only get fenestration for secondary rooms); and 7.5m in the back (which is consistent with the current mid-rise guidelines). Now, directionally, and without referring to any of the specific details, this is good. Toronto’s major streets are, in most cases, painfully underdeveloped; the existing built form feels generally entirely out of place. But the important question remains: Will developers actually build these at scale?
Bloor Street and Danforth Avenue, for example, already allow mid-rise buildings that, for the most part, are bigger than what is being proposed here as part of the EHON program. But again, they remain underdeveloped. And there’s a subway running underneath these streets! So why will it be any different on our other major streets? One key difference is that these small-scale apartments are expected to be fully as-of-right. Meaning, no rezoning process and no community meetings. This will save a lot of time and money.
Still, this is almost certainly going to require some iterative finessing to get it right. I think you’ll see developers looking to do little to no parking, no basements, no dedicated loading areas (certainly no type “G” spaces), slab-on-grade construction, and standardized and repeatable designs. And even then, this may not be enough. Rental replacement policies are yet another major barrier to consider. It’s going to have to be all about speed and efficiency, which is why it will likely also create a greater push to rethink some building code items, such as the requirement for two means of egress.
At the end of the day, I want something like this to happen. It would increase housing supply, and make Toronto far more vibrant and far more conducive to non-driving forms of mobility. It’s, no doubt, a really positive thing. But for this to become a reality, it needs to work at scale. Meaning, the development pro formas need to work at scale, and with sufficient margin that developers won’t just automatically look to other opportunities. If the development community can make money building this housing typology, they will look for every opportunity to build it. But if they can’t make money, they won’t. It’s as simple as that.
This morning I toured 1151 Queen East (here in Toronto). It is a new 47-suite apartment building that is being developed by Hullmark and that was designed by Superkül (the same architects as Junction House). It’s not quite finished yet, but it is looking terrific. The interiors feel, to me, like Berlin meets classic Miami Beach (if you can picture whatever this means). So a big congrats to the entire team. I’m sure it will be well-loved once people start moving in this year.
At the same time, it’s hard not to see small and beautiful infill projects like this and wonder, “why do we make it so difficult to build this kind of new housing? This is a 6-storey rental building that, according to Urban Toronto, was first proposed in 2018. It then had to go through the typical rezoning process, which, in this case, seems to have taken two years. Now we’re in 2024. Uh, why?
We should be looking at this kind of infill housing and saying, “Yes! You should go ahead and build this right now. Let us help you with that.” Instead, we erect barriers, which only force developers toward ever larger projects. If you’re going to spend two years in rezoning, no matter the scale of the development, why not build 470 homes instead of 47? And this has only been exacerbated with higher interest rates, because now time costs you that much more.
I say all of this because this is an objectively great infill project. Our city would be a better place with a lot more of these.
