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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  • Market making for houses

    Matt Levine’s latest Money Stuff column does a good job explaining why a lot of smart people are trying to figure out a market-making model for homes (see companies such as Opendoor):

    People want to apply the market-making model to homes. This makes sense. Buying or selling a home is a long slow uncertain annoying process. The value of immediacy is high, especially for a seller. If you decide to sell your house and go to a website and spend 10 minutes filling out a form and then someone wires you cash for the value of your house, that is much much much better than hiring a broker and listing the house and holding open houses and so forth. You’d be willing to pay a market maker a lot for that immediacy. (By selling your house to the market maker at a discount.) And if the market maker is good at acquiring houses, then it will have a lot of inventory, which will make it a good seller of houses. If you want to buy a house, you will naturally go to the market maker’s website, because it’s where the houses are.

    Levine also explains why a market-making model is that much more difficult for homes compared to things like stocks. In a slowing/slumping housing market, it’s pretty easy to lose money as a market maker. (That is, unless you can somehow accurately predict that a slump is coming.)

    Last month, Opendoor lost money on 42% of its home transactions. This is a result of them buying homes from people when prices were X and then selling these homes many months later when prices were less than X.

    However, I’m not so sure that this has to be an existential problem. Opendoor’s primary value proposition is instant liquidity for homeowners. And this value proposition is at its strongest when the market is in fact slumping. Because the alternative — selling with a broker — is less attractive.

    So the current environment may eventually turn out to be a boon for Opendoor. Of course, we won’t know for a number of months.

    Full disclosure: I am long $OPEN. And yes, it is painful right now.

  • Wooden sash windows only

    There is, of course, part of me that admires what King Charles III has been trying to do in Poundbury (a small master-planned community on the outskirts of Dorchester, England). It is a community that has deliberately rejected the modern suburban in favor of traditional main-street urbanism. It is denser than you’d expect. It has a mix of uses. And it has been generally designed around people, rather than the car.

    On the other hand, I could never ever live there:

    To live here is to live under Charles’s rules (it is not clear whether William intends to be more flexible). Currently, Poundbury residents are embroiled in a debate about windows: The Duchy says that only wooden sash windows are permitted. Many residents would like to replace theirs with vinyl or fibreglass windows, which are easier to maintain and, crucially, more energy-efficient – and Poundbury is theoretically a ecologically advanced town. So far, the Duchy is not willing to budge.

    The last thing I want in my life is someone telling me what kind of windows I can install and what kind of architectural styles are suitable. Messy and organic urbanism suits me just fine.

  • A spectacular laneway retreat 11 years in the making

    The latest issue of Designlines magazine is about how Toronto is — finally — embracing laneway life. And one of the featured homes is none other than Mackay Laneway House. Pictured above is architect Gabriel Fain sitting on the front steps.

    As some of you will know, MLH took over a decade to get built. I first did a design for the house back in 2009. Laneway housing seemed like such an obvious opportunity, and so I designed a compact house that could fit neatly within the confines of my 25-foot-wide backyard.

    Technically, it was perfectly workable. But I could tell I was too early. After speaking with city staff, I immediately got the impression that this thing was not going to get approved. At least not now. So I shelved the project until 2017.

    By this time, it was clear that laneway housing was on its way to becoming a reality in Toronto. It was simply a matter of time. And so Gabriel Fain and I decided to come up with a new design and try our luck at the Committee of Adjustment (we needed, I think, over a dozen zoning variances).

    But it turns out that we were still too early. The project was immediately refused. After the decision, I had a few planning lawyers reach and offer to help me with a pro bono appeal. But I decided to wait until the new laneway policies came into force and the home could be built without any variances.

    And that’s exactly what we did. In the fall of 2020 we submitted for a building permit, and about 6 weeks later it arrived. The home was then built that winter and it went up on the market for rent in March 2021. It rented right away, even in the midst of intermittent COVID lockdowns.

    At this point, it’s hard to imagine that this form of housing was once illegal. Hundreds of permits have already been issued and this number is only going to increase. In fact, I believe that the humble laneway house is destined to become a defining characteristic of Toronto’s urban landscape.

    Toronto is finally embracing laneway life.

  • Streets in the sky

    I went out this morning to grab coffee from around the corner and, on my way back home, I ran into two people in the elevator that, from what I could glean, had hit the same button in the elevator and then struck up a conversation. He asked if she had just recently moved into the building. She responded with no, and that she usually doesn’t see anyone else on their floor. He was surprised by this response and said that he knows everybody on the floor.

    Nearly a hundred years ago, architect Le Corbusier, as well as others, had the idea of creating “streets in the sky.” Perhaps the most famous example of this concept is his Unité d’Habitation in Marseille (pictured above). Now a UNESCO World Heritage building because of its role in the development of modernist architecture, the building houses five “streets”, two of which were intended to be fully-fledged shopping streets. These streets house(d) things like shops, restaurants, galleries, and even a hotel.

    Le Corbusier was famous for his desire to create machines for living in. And these streets in the sky were part of this philosophy. The idea was that by having all of the things you needed under one roof, you would then be able to live an efficient, productive, and enjoyable life. Architecture and design could do that for you.

    Of course, the other reason for this thinking was that we needed to get people away from cars. As the car became more commonplace in cities, conflicts arose. And architects began to grapple with how best to separate people and cars. One obvious solution was to simply lift people up and off the ground so that the street could be freed up for cars to do their thing. This was going to be the future.

    The pitfalls of this line of thinking have since then been widely documented. And today, I think it’s pretty clear that most cities are in fact taking the opposite approach. Instead of removing people, they are removing cars through pedestrianization projects. Some of these projects are temporary, but many are also permanent. This happening almost everywhere from Toronto to Sao Paulo.

    The other problem is that it’s extremely challenging to make retail uses work way up in the sky. And that’s why even second floor retail spaces often struggle compared to those on the ground floor. As I understand it, the non-residential tenancies in Marseille’s Unité d’Habitation have naturally evolved from being retail-centric to being more office-like. Supposedly you’ll now find architects and medical offices, which is not at all surprising.

    But that doesn’t mean that Le Corbusier’s instincts weren’t directionally right. We now have lots of examples of tall buildings housing an intense mix of uses and public functions. And in the case of multi-family buildings, the corridors do often serve as a kind of street. I happen to live off of one that houses our building’s amenities. And so in addition to just running into neighbors, I’ll often run into the odd birthday party or Sunday afternoon sumo-suit party. True story!

    It may not be the Champs-Élysées, but it is a kind of street for living.

    Photo by Bernd Dittrich on Unsplash

  • The Local Project

    Regular readers of this blog will know that I am huge fan of the YouTube channel Never Too Small. I have seen most of their episodes and I like to tell people about it even when it is only remotely related to the conversation at hand.

    I love the urbanity of it all. There is just something so satisfying about turning constrained spaces into homes that are both beautiful and functional. It also makes you question how much space you really need.

    But if constraints aren’t your thing, and you’d like to see a wider variety of homes, another great channel to check out is The Local Project. The homes — which are all in Australia and New Zealand — are equally as beautiful, but tend to be more, uh, extensive. See above video.

    What are some other channels worth checking out? It seems to me like Canada needs something similar to The Local Project. Maybe it already exists.

  • The average wait time for a rent-controlled apartment in Sweden is now over 9 years

    I’m not all that familiar with Stockholm’s housing market, but according to this recent article, it would appear that, like most big cities, there isn’t enough affordable housing to go around. This is despite the fact that everyone in Sweden is technically entitled to it.

    As of December 2021, there were 736,560 people (in Sweden) in the queue for a rent-controlled apartment, resulting in an average wait time of about 9.2 years. So basically what you want to do is put yourself on the list as soon as you turn 18. And then hope that at some point in the future you’ll be granted an affordable apartment.

    Given this dynamic, it makes sense there would be a long waitlist. If everyone is entitled to a rent-controlled apartment, you are effectively giving people two options: pay the market price or put yourself on this list, wait for a decade, and then pay less than the market price.

    Why wouldn’t you at least try to pay less?

    The problem with this approach is that supply will almost certainly never keep pace with demand. It also appears to be fuelling a robust (and I guess illegal) secondary sublet market. Because if you have a below-market contract that is yours to keep forever and that lots of other people want, you have a valuable asset.

    Getting housing right certainly isn’t easy.

  • France clamps down on “dark stores”

    One way to shop for things is to make a list of all the things you want and/or need, and then go to a location that sells as many of those things as possible. As I understand, this is more or less what people do when they go to a place like Costco.

    Another way to shop is to just order things piecemeal, and have them delivered to you when you want them and in the least amount of time possible. And it turns out that this latter option is pretty popular.

    It is popular because it involves (1) not going anywhere and (2) not having to make a list and think proactively about the things you may want and/or need in the future. But it does mean that we need specific infrastructure to support this method of consumption. Generally speaking you need urban spaces close to where people live and work, and you need people to transport the goods.

    I mention all of this because it has translated into two areas of concern within our cities: (1) we now have “dark spaces” that are embedded into urban areas but don’t have any public-facing components and (2) we now have throngs of delivery vehicles starting to annoy local communities.

    In fact, France has already responded with a new federal policy that is expected to reclassify “dark stores and “ghost kitchens” as warehouses. This is intended to give local municipalities the power to shutter these sorts of spaces. Part of the thinking is that we all did just fine before delivery apps, so why not just go back to doing what we were doing?

    My own view is that this shift in consumption is here to stay. And so we would be better served by figuring out how to respond in a way that is both sensitive to communities and that maintains the vibrancy of our urban environments. We also managed without things like refrigerated food and mobile phones, but I’m pretty happy to have these tools available to me.

  • Influencers in the wild

    Okay, so this is creepy, but perhaps not all that shocking:

    What artist Dries Depoorter has done is the following:

    • He recorded videos from open cameras located in cities around the world (the one in the embedded tweet above is from Temple Bar in Dublin)
    • He scraped all Instagram photos tagged with the same general location
    • And then he used AI software to help compare the Instagram photos against behind-the-scenes footage of the photos actually being taken

    I don’t have a problem with people posing and making numerous attempts to capture the right photo. You should see me before every meal and when I go to the gym. I think the creepy part is that many, or perhaps most, probably don’t realize just how ubiquitous video surveillance is within our cities. But the reality is that there are cameras everywhere.

    I guess I’ll never be able to run for Prime Minister.

  • Redfin experiment shows how home buyers react to flood-risk data

    This is a fascinating little experiment:

    From Oct. 12, 2020 to Jan. 3, 2021, Redfin ran an experiment on 17.5 million of its users across the US. As prospective homebuyers entered the site, Redfin assigned them randomly to either a group that was shown flood-risk information on each property or a group that was not.

    The flood-risk scores came from First Street Foundation, a climate and technology nonprofit that works to make climate hazards more transparent to the public. In June 2020, First Street published the first public maps that revealed flood risk for every home and property in the contiguous US. 

    First Street scores properties on a scale of 1 to 10 based on the likelihood that they will flood in the next 30 years (which is assumed to be a typical mortgage term). A score of 1 means the property has “minimal” risk and a score between 9-10 is considered “extreme” risk.

    So what happens once you start showing people flood-risk information? They, not surprisingly, start systematically looking for safer properties. After one week of users being exposed to this new information, prospective buyers who were previously looking at “extreme” homes started looking at homes that were about 7% safer.

    After 9 weeks, these same “extreme” home buyers were looking at properties that were about 25% less risky. And for some buyers, in particular those working with a Redfin agent or partner, their flood-risk tolerance dropped by over 50%. (Embedded in this data might be a sales pitch for working with a knowledgeable Redfin agent or partner).

    Also interesting is the fact that below “severe” flood risk (a score between 7-8), there was very little change in behavior. “Major” flood risk, it would seem, isn’t all that concerning to most buyers. It needs to be “severe”. Nevertheless, it is noteworthy that people will in fact make behavioral changes when presented with clear climate-risk data.

  • Coastline villages

    I recently collected two NFTs from aerial photographer Vitor Esteves. I purchased one of Menton, France and one of Las Negras, Spain (pictured above). Both are from his 1/1 Coastline Villages collection on Sloika. I know that NFTs aren’t nearly as popular as they were last year, but that is exactly why now is a great time to be collecting. Talented artists continue to create, but ETH gas fees have come way down (a few dollars versus sometimes over a hundred at the peak) and there is now far less competition out there. It is no different than trying to buy great real estate when the rest of the market is sleeping.

    At some point, I’m going to need to pull the trigger on a good NFT display. I’ve been contemplating a Tokenframe, but I also think that most TVs are going to appropriate this function pretty soon. Some already have.