The other night, I went down a Parisian real estate rabbit hole on Twitter. And one of the things that kept coming up was this half joke: The biggest developer in Paris today is the mayor. The reason for this is that the city is targeting 40% of all homes to be public housing by 2035 (of which 30% will be social housing and 10% will be moderately affordable).
Supposedly this is to stem the steady outflow of people from the capital as a result of housing being too expensive. But it means that a lot of new public housing will need to be created. As of January 1, 2021, the official estimate was 260,563 "logements sociaux" in the capital, which translates into 22.4% of all principal residences.
To hit this 40% goal, the city is going to need to create somewhere around 140,000 new public housing dwellings between now and 2035. So how does it plan to do this? By being a developer, of course. A big part of the strategy seems to be to convert existing buildings (d'adapter l’existant). And to execute on this, the city is leveraging something known as "le droit de préemption."
The way it works is like a right of first refusal clause (ROFR), except that it's not something that was contractually negotiated between market participants, it's just the law. What it means is that if a property owner goes to sell their building and they receive an offer, the city has an automatic ROFR and can choose to buy the building at whatever that third party was willing to pay.
Over the last two years, the city has elected to do this 84 times and has spent over €1.1 billion,
Yesterday, the City of Toronto announced that it would be "unlocking" 7,000 new rental homes -- including 1,400 deeply affordable homes -- by doing two key things:
Waiving development charges on rentals
Providing a 15% reduction on property taxes
And by their estimates, the value of these benefits would be roughly $58k per new rental home:
The other night, I went down a Parisian real estate rabbit hole on Twitter. And one of the things that kept coming up was this half joke: The biggest developer in Paris today is the mayor. The reason for this is that the city is targeting 40% of all homes to be public housing by 2035 (of which 30% will be social housing and 10% will be moderately affordable).
Supposedly this is to stem the steady outflow of people from the capital as a result of housing being too expensive. But it means that a lot of new public housing will need to be created. As of January 1, 2021, the official estimate was 260,563 "logements sociaux" in the capital, which translates into 22.4% of all principal residences.
To hit this 40% goal, the city is going to need to create somewhere around 140,000 new public housing dwellings between now and 2035. So how does it plan to do this? By being a developer, of course. A big part of the strategy seems to be to convert existing buildings (d'adapter l’existant). And to execute on this, the city is leveraging something known as "le droit de préemption."
The way it works is like a right of first refusal clause (ROFR), except that it's not something that was contractually negotiated between market participants, it's just the law. What it means is that if a property owner goes to sell their building and they receive an offer, the city has an automatic ROFR and can choose to buy the building at whatever that third party was willing to pay.
Over the last two years, the city has elected to do this 84 times and has spent over €1.1 billion,
Yesterday, the City of Toronto announced that it would be "unlocking" 7,000 new rental homes -- including 1,400 deeply affordable homes -- by doing two key things:
Waiving development charges on rentals
Providing a 15% reduction on property taxes
And by their estimates, the value of these benefits would be roughly $58k per new rental home:
. And since the beginning of this year, they've done it 9 times, spending about €67 million on the following properties:
For those of you who are visual learners like me, here's the first property on the list:
It's certainly ambitious.
But, for the most part, it does not create a lot of net new housing, even though the city is also aiming to buy office buildings, parking garages, and other non-residential buildings. APUR previously estimated that for every 1 unit of new public housing, 0.6 existing units are being demolished. So the most accurate way to think about this initiative is that it represents the socialization of Paris' housing stock into public hands.
This runs in contrast to what we've been talking about recently with cities like Minneapolis and Austin, who have instead added a lot of new market-rate housing in order to temper rents and increase affordability. Paris is reducing its stock of market-rate housing.
At the same time, the city also enacted new policy prohibiting homes that consume more than 450 kWh/m2 from being rented. This is intended to force landlords to renovate, but it will certainly have a further impact on supply, at least in the short term.
It's also worth noting that all of this is happening at a time when Paris' housing market is in broad decline (less transactions, higher days on market, lower prices, and so on). Like Toronto, it started around the middle of 2022. And it's something that Paris hadn't seen since the 2008 financial crisis.
But wait, there's a catch. If you read the details, you'll see that in order for a project to be approved under this program, there is also a requirement to deliver at least 20% of the homes as affordable rentals.
So let's look at what this could mean.
Here is a chart comparing a market rental suite at $3,000 per month to a more affordable one at $1,500 per month:
Market
Affordable
Variance
Face Rent
$3,000
$1,500
($1,500)
Suite Size
$600
600
0
PSF Rent
$5.00
$2.50
($3)
Annual PSF Rent
$60
$30
($30)
NOI Margin
70%
70%
$0
Annual Net Rent
$42
$21
($21)
Cap Rate
4.50%
4.50%
$0
PSF Value
$933
$467
($467)
Per Unit Impact
($280,000)
20% of Units
($56,000)
Both are assumed to be 600 square feet. In the case of the market suite, the per square foot (PSF) value is estimated at $933 psf, and the affordable suite is estimated at $467 psf. This represents a halving of the value (which makes sense because I halved the rents).
On a per unit basis (again, we're assuming 600 sf), this is a loss in value of about $280k. But since only 20% of the units would need to be "affordable", I multiplied this number by 0.2. The result is a per unit loss of approximately $56k.
What this means is that we're basically doing a whole bunch of stuff to get right back to the same place. Like, hey, we're not building enough rental housing and we're certainly not building enough affordable housing -- because the development margins are so dangerously thin -- so here's a credit of $58k per unit. But at the same time, here's a bill for $56k per unit.
What's the point, besides making it sound like we're doing something to create more housing? This program will do absolutely nothing to spur the creation of new rental housing.
Here is an interesting chart (source) showing housing starts in Canada, by type, between 2000 and 2023:
As recent as 2000, single-family houses accounted for 61% of total starts and multi-family housing accounted for 39%. This flipped somewhere around the financial crisis and, last year in 2023, the percentages were 23% and 77%, respectively. This is a meaningful inversion which has helped our cities become more vibrant and more conducive to non-car modes of transport.
But in this recent article about Canadian housing, Donald Wright more or less argues: so what? We've been densifying our cities for all these years, but it hasn't helped our affordability problem. Supply must not be the answer to our housing crisis.
I'm not exactly sure what he believes to be the solution, but I don't think this problem is as simple as "we've built some housing, we made our cities denser, and yet housing is still expensive -- more supply must not be the answer. Let's move on."
Among many other things, it's important to understand what kind of density we've been building. Because up until very recently, we've basically taken the position that single-family neighborhoods should never be touched, and that density should only go in very specific areas -- and only after a lengthy and expensive rezoning process has been completed.
We've designed new housing to be expensive.
But attitudes are changing all across North America. We are now starting to do two very important things: (1) we are opening up more of our cities to intensification and (2) we are now allowing more multi-family housing on an as-of-right basis. Meaning, no lengthy rezoning exercises and no risk of community opposition.
These are two fundamental changes that should alter the kind of density that gets built. And in my view, it's going to be a positive thing for Canadian cities.
according to Business Immo
. And since the beginning of this year, they've done it 9 times, spending about €67 million on the following properties:
For those of you who are visual learners like me, here's the first property on the list:
It's certainly ambitious.
But, for the most part, it does not create a lot of net new housing, even though the city is also aiming to buy office buildings, parking garages, and other non-residential buildings. APUR previously estimated that for every 1 unit of new public housing, 0.6 existing units are being demolished. So the most accurate way to think about this initiative is that it represents the socialization of Paris' housing stock into public hands.
This runs in contrast to what we've been talking about recently with cities like Minneapolis and Austin, who have instead added a lot of new market-rate housing in order to temper rents and increase affordability. Paris is reducing its stock of market-rate housing.
At the same time, the city also enacted new policy prohibiting homes that consume more than 450 kWh/m2 from being rented. This is intended to force landlords to renovate, but it will certainly have a further impact on supply, at least in the short term.
It's also worth noting that all of this is happening at a time when Paris' housing market is in broad decline (less transactions, higher days on market, lower prices, and so on). Like Toronto, it started around the middle of 2022. And it's something that Paris hadn't seen since the 2008 financial crisis.
But wait, there's a catch. If you read the details, you'll see that in order for a project to be approved under this program, there is also a requirement to deliver at least 20% of the homes as affordable rentals.
So let's look at what this could mean.
Here is a chart comparing a market rental suite at $3,000 per month to a more affordable one at $1,500 per month:
Market
Affordable
Variance
Face Rent
$3,000
$1,500
($1,500)
Suite Size
$600
600
0
PSF Rent
$5.00
$2.50
($3)
Annual PSF Rent
$60
$30
($30)
NOI Margin
70%
70%
$0
Annual Net Rent
$42
$21
($21)
Cap Rate
4.50%
4.50%
$0
PSF Value
$933
$467
($467)
Per Unit Impact
($280,000)
20% of Units
($56,000)
Both are assumed to be 600 square feet. In the case of the market suite, the per square foot (PSF) value is estimated at $933 psf, and the affordable suite is estimated at $467 psf. This represents a halving of the value (which makes sense because I halved the rents).
On a per unit basis (again, we're assuming 600 sf), this is a loss in value of about $280k. But since only 20% of the units would need to be "affordable", I multiplied this number by 0.2. The result is a per unit loss of approximately $56k.
What this means is that we're basically doing a whole bunch of stuff to get right back to the same place. Like, hey, we're not building enough rental housing and we're certainly not building enough affordable housing -- because the development margins are so dangerously thin -- so here's a credit of $58k per unit. But at the same time, here's a bill for $56k per unit.
What's the point, besides making it sound like we're doing something to create more housing? This program will do absolutely nothing to spur the creation of new rental housing.
Here is an interesting chart (source) showing housing starts in Canada, by type, between 2000 and 2023:
As recent as 2000, single-family houses accounted for 61% of total starts and multi-family housing accounted for 39%. This flipped somewhere around the financial crisis and, last year in 2023, the percentages were 23% and 77%, respectively. This is a meaningful inversion which has helped our cities become more vibrant and more conducive to non-car modes of transport.
But in this recent article about Canadian housing, Donald Wright more or less argues: so what? We've been densifying our cities for all these years, but it hasn't helped our affordability problem. Supply must not be the answer to our housing crisis.
I'm not exactly sure what he believes to be the solution, but I don't think this problem is as simple as "we've built some housing, we made our cities denser, and yet housing is still expensive -- more supply must not be the answer. Let's move on."
Among many other things, it's important to understand what kind of density we've been building. Because up until very recently, we've basically taken the position that single-family neighborhoods should never be touched, and that density should only go in very specific areas -- and only after a lengthy and expensive rezoning process has been completed.
We've designed new housing to be expensive.
But attitudes are changing all across North America. We are now starting to do two very important things: (1) we are opening up more of our cities to intensification and (2) we are now allowing more multi-family housing on an as-of-right basis. Meaning, no lengthy rezoning exercises and no risk of community opposition.
These are two fundamental changes that should alter the kind of density that gets built. And in my view, it's going to be a positive thing for Canadian cities.
