Dylan Reid recently wrote an interesting article about, what he calls, high low-rise infill buildings along Toronto’s main streets. 

He describes the typology in this way: “These are generally 4-storey mixed-use buildings built quickly on one or two lots, replacing smaller previous buildings. They are often inserted beside existing, attached buildings.“

Now, Reid acknowledges that this a challenging scale to develop at. He links to one of my articles in Urban Capital’s Site Magazine where I talk about exactly that: the diseconomies of scale associated with building small. (Though, I was talking about mid-rise, not high low-rise.)

Reid addresses these challenges with a number of potential cost savings, including no parking minimums and no rezoning process. He also suggests that these projects may be better suited to existing landowners (who may own the land free and clear of a mortgage).

Getting rid of parking minimums and streamlining approvals would certainly help, though I remain doubtful about overall feasibility. But what I wanted to comment on today was the last point about these projects being better suited to existing landowners.

One problem with this line of thinking is that if we’re talking about land on a street where greater densities such as mid-rise are also permissible, the land is going to get valued based on mid-rise and not high low-rise.

So when a prudent landowner thinks about developing their land, they may also consider the opportunity cost of simply selling their land based on its highest and best use.

That thought process might go something like this. I own a piece of land. If I were to sell this land today and take on no development risk, I could make $X. If I were to instead develop this land, I could make $Y.

If $Y is less than $X, then I’m obviously not going to develop. But if the spread between $Y and $X isn’t enough to compensate me for the risk of developing (and there’s lots of risk in developing), then I’m also not going to do it. (Developers run a similar test by marking the land cost in their pro forma to market.)

And if $X is based on greater densities than $Y ($X is based on mid-rise densities and $Y is based on high low-rise densities) and if $Y is also being challenged by further diseconomies of scale, then I’m sure you can start to see how the math may not pencil.

I say all of this not to shit on Reid’s article. It’s a good article. You should go read it. And we should all continue to think about ways to increase the supply of housing in this city and in others.

The Ryerson City Building Institute and Urbanation recently published a terrific report called: Bedrooms in the Sky. Is Toronto Building the Right Condo Supply? 

Here is a quick synopsis: The 35-44 year old age bracket in this city will see significant growth over the next decade; single family homes are really expensive; and we’re not building enough family-friendly condo units.

When Urbanation looked at the data for all condo units currently under construction they found that the unit mixes still skewed toward 1-bedroom units, but that the number of 3-bedroom units is starting to trend upward. That feels right.

The report also talks about the affordability gap between condos and houses. The average condo in the Greater Toronto Area costs about $511,000, while the average detached house costs $1,134,000.

However, this isn’t exactly an accurate comparison because the average condo is smaller in size than the average house. I think a better metric is to look at price per square foot.

Also, houses give you the flexibility of a secondary suite. Right now that usually means a basement apartment, but pretty soon it’ll likely include a laneway suite. That creates an additional income stream and helps with overall affordability.

In any event, up until maybe recently, houses generally looked cheaper on a per square foot basis. And my view – which I have written about extensively on this blog – was that as soon as houses become “more expensive”, we’ll see an uptick in larger family-oriented condos.

A few weeks ago I went to an open house in a desirable area of Toronto. It was for a 1,300 sf semi-detached house with good bones, but in need of a full gut. Basement was low, only suitable for humans around 5′ tall. It sold for $1 million.

Let’s say that house needs $300,000 to bring it up to the level of a new condo. If that doesn’t include some sort of extension, now you’re in for $1.3 million or about $1,000 per square foot. You can still find a condo for less than that.

Which is one of the reasons why I think we’re now starting to see an uptick in larger/family units. (We are trying to do it at Junction House.) 

But like all things in real estate, these things move slowly. The condos under construction today were designed years ago. Changes take time to work themselves through the system.

Dylan Reid recently wrote an interesting article about, what he calls, high low-rise infill buildings along Toronto’s main streets. 

He describes the typology in this way: “These are generally 4-storey mixed-use buildings built quickly on one or two lots, replacing smaller previous buildings. They are often inserted beside existing, attached buildings.“

Now, Reid acknowledges that this a challenging scale to develop at. He links to one of my articles in Urban Capital’s Site Magazine where I talk about exactly that: the diseconomies of scale associated with building small. (Though, I was talking about mid-rise, not high low-rise.)

Reid addresses these challenges with a number of potential cost savings, including no parking minimums and no rezoning process. He also suggests that these projects may be better suited to existing landowners (who may own the land free and clear of a mortgage).

Getting rid of parking minimums and streamlining approvals would certainly help, though I remain doubtful about overall feasibility. But what I wanted to comment on today was the last point about these projects being better suited to existing landowners.

One problem with this line of thinking is that if we’re talking about land on a street where greater densities such as mid-rise are also permissible, the land is going to get valued based on mid-rise and not high low-rise.

So when a prudent landowner thinks about developing their land, they may also consider the opportunity cost of simply selling their land based on its highest and best use.

That thought process might go something like this. I own a piece of land. If I were to sell this land today and take on no development risk, I could make $X. If I were to instead develop this land, I could make $Y.

If $Y is less than $X, then I’m obviously not going to develop. But if the spread between $Y and $X isn’t enough to compensate me for the risk of developing (and there’s lots of risk in developing), then I’m also not going to do it. (Developers run a similar test by marking the land cost in their pro forma to market.)

And if $X is based on greater densities than $Y ($X is based on mid-rise densities and $Y is based on high low-rise densities) and if $Y is also being challenged by further diseconomies of scale, then I’m sure you can start to see how the math may not pencil.

I say all of this not to shit on Reid’s article. It’s a good article. You should go read it. And we should all continue to think about ways to increase the supply of housing in this city and in others.

The Ryerson City Building Institute and Urbanation recently published a terrific report called: Bedrooms in the Sky. Is Toronto Building the Right Condo Supply? 

Here is a quick synopsis: The 35-44 year old age bracket in this city will see significant growth over the next decade; single family homes are really expensive; and we’re not building enough family-friendly condo units.

When Urbanation looked at the data for all condo units currently under construction they found that the unit mixes still skewed toward 1-bedroom units, but that the number of 3-bedroom units is starting to trend upward. That feels right.

The report also talks about the affordability gap between condos and houses. The average condo in the Greater Toronto Area costs about $511,000, while the average detached house costs $1,134,000.

However, this isn’t exactly an accurate comparison because the average condo is smaller in size than the average house. I think a better metric is to look at price per square foot.

Also, houses give you the flexibility of a secondary suite. Right now that usually means a basement apartment, but pretty soon it’ll likely include a laneway suite. That creates an additional income stream and helps with overall affordability.

In any event, up until maybe recently, houses generally looked cheaper on a per square foot basis. And my view – which I have written about extensively on this blog – was that as soon as houses become “more expensive”, we’ll see an uptick in larger family-oriented condos.

A few weeks ago I went to an open house in a desirable area of Toronto. It was for a 1,300 sf semi-detached house with good bones, but in need of a full gut. Basement was low, only suitable for humans around 5′ tall. It sold for $1 million.

Let’s say that house needs $300,000 to bring it up to the level of a new condo. If that doesn’t include some sort of extension, now you’re in for $1.3 million or about $1,000 per square foot. You can still find a condo for less than that.

Which is one of the reasons why I think we’re now starting to see an uptick in larger/family units. (We are trying to do it at Junction House.) 

But like all things in real estate, these things move slowly. The condos under construction today were designed years ago. Changes take time to work themselves through the system.