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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  • Mid-year consumer trends update

    The New Consumer has just published its 2022 mid-year update. Some of you might remember that I wrote about their inaugural consumer trends report at the end of last year.

    It’s interesting, but not surprising, to see a lot of things returning to their means. Spending on home furnishings, for example, is coming down, whereas luggage and bag sales are up. Home fitness has also come way down as people return to gyms. It’s time to leave home.

    At the same time, it has become a lot more expensive to leave home, assuming you need to drive. Motor fuel increased 49% year-over-year as of May 2022. It’s the CPI category with the biggest change. But even with this, transit ridership has yet to fully rebound. NYC is sitting at around 60%.

    To download a free copy of the full presentation, click here.

  • Super-entrepreneurs by region

    A super-entrepreneur, according to the common definition, is a rich person who has amassed a net worth of at least US$1 billion dollars by either starting a company or taking a small company and growing it into a big one. A super-entrepreneur is, by definition, not someone who inherited their wealth. Though I’m not sure what the cut off is. If you inherited $1 million and then started a massive company, does that still make you a super-entrepreneur? What about if you inherited $100 million?

    In any event, here is a chart from New Geography showing super-entrepreneurs by region:

    The USA is in the lead in this chart at about 3.1 super-entrepreneurs per one million inhabitants. But the highest rate in the world, at least according to this data set, actually belongs to Singapore at 4.7 per million. Europe, as a whole, doesn’t look all that great here. But again, if you get more specific, some European countries are actually doing quite well. Sweden, for instance, is sitting at around 2 per million, which is higher than Canada’s figure.

    Why this data is potentially interesting is that it tells you a bit about these countries. It tells you whether they have strong property rights, whether it’s easy to conduct business, and whether it’s supportive of new ideas, among, of course, many other things. There also appears to be a clear link between the presence of super-entrepreneurs and unemployment. Turns out that the more people you have starting wildly successful businesses, the lower unemployment tends to be.

    For the full New Geography article, click here. In addition to what I just wrote about, it talks about Europe’s “entrepreneurial paradox” and issues of gender equality.

  • State-to-state net income migration from 2019 to 2020

    Here is an interesting chart from the WSJ showing how much net income migrated to the state of Florida between 2019 and 2020:

    I’m not sure what the exact dates are for this dataset, but it seems to again suggest that this migration was already a trend before the pandemic happened.

    Either way, Miami is red hot and the continues to lead the US in residential rental rate growth. But all of this growth is now apparently starting to catch up to the city. Here is just one example from the same article (though developers here in Toronto would gladly take this sort of timeline):

    Right before the pandemic, when he moved to Miami, he said it took no more than four months from when he submitted development plans to when he got city approval. Now, with the number of projects swamping Miami Beach’s staff and resources, that same process takes nearly a year, Mr. Curnin said.

    This frenetic run-up is also causing some in the city, including Barry Sternlicht of Starwood Capital Group, to pause:

    “Everyone and their cousins are looking to build a building here,” he said. “I’m getting nervous.”

    Miami has historically always been a boom and bust kind of market. I don’t know if this is one of those times, but there’s clearly no denying the allure of palm trees, warm winter weather, and no state income tax.

  • What might Toronto learn from this infill rental project in Tokyo

    This is a lovely little infill rental project in Tokyo by ETHNOS (architect) for Real Partners (developer):

    The building is 4 storeys plus a rooftop terrace. From the plans, it looks like there are 8 units, all of which are two-storey suites.

    The A and B suites are accessible from the ground floor. For the A suites, you enter at grade, and then go down into the first basement level. And for the B suites, you enter at grade and then go up to your second level. One of the entrances (suite B-3) is via an exterior walkway.

    The middle of the ground floor is the lobby entrance and there’s a single elevator that services the second and third floors (it then drops off for the fourth floor). On the second level is a co-working space, and so the upper C suites (these sound fancy) are all accessible from the third floor.

    The fourth floor and fifth floor terraces are all accessible from within the C suites, which means that the only real common area corridors in this building are on the third level. And it looks like they wanted this particular corridor to have a view to the street, because they could have easily reduced it even further to increase the building’s overall efficiency.

    What is also interesting to look at this building’s dimensions. Based on the above section, the floor-to-floor heights are 2500mm, which is low compared to the 2950/3000mm that is typically used here in Toronto for new reinforced concrete builds.

    In terms of the overall building, it is only about 10m deep and it is less than 10m tall if you exclude the stair popups on the rooftop terraces. For context here, our Junction House lot is about 30m deep and the build is about 30m tall, so actually a similar kind of box proportion.

    But let’s scan more of Toronto.

    If you move away from designated “Avenues” (which is where Junction House sits) and look at some of our other major streets (which is something the City of Toronto is in fact doing), you can sometimes/oftentimes find even deeper lots.

    Below is a random area that I quickly panned too on Dufferin Street — these single-family house lots are around 36m deep:

    Now obviously Toronto is not Tokyo and Tokyo is not Toronto. But my point with all of this was to demonstrate just how much space we actually have within our existing boundaries, should we ever feel the need to increase our overall housing supply.

    As I have argued many times before, I think one of the greatest opportunities to quickly do this sits along our majors streets.

    Architectural drawings: ETHNOS

  • New KYIV city collection t-shirt

    At the beginning of this year, Globizen announced a new collection of city t-shirts. They have been very popular and we only have a few left from our original batch (which included some of the greatest places in the world: Toronto, Paris, and Park City). But we recently added a new city: Kyiv. This is obviously a really important one, and 100% of the proceeds from the sale of this shirt are going be used to support Ukraine. The plan is to allocate 50% to the Toronto Ukrainian Foundation, which has been helping displaced Ukrainians settle in Canada, and the balance to Ukraine directly (via cryptocurrencies).

    If this sounds good to you, click here.

  • Artificially low property taxes

    A blog reader responded to yesterday’s post about rent controls (and inclusionary zoning) with an excellent point: If you’re against rent controls, then you must also be against artificially low property taxes for homeowners. And I would agree with this.

    One of the points I was trying to make yesterday was that if you’re in a situation where your revenue is capped but your operating expenses are free to grow based on the market, then you are likely heading down an unsustainable financial path.

    This is true if the revenue is in the form of rent and this is true if the revenue is in the form of property taxes. A good example of this is California’s Proposition 13, which is the principal thing that keeps property taxes artificially low over on that coast.

    Similar to what I argued yesterday with rent controls, it too creates a misallocation of housing. If you’re sitting on historic and artificially low property taxes, then you are now highly incentivized to stay put where you are. Why would you move only to have your taxes mark to market?

    So this line of thinking cuts both ways, whether we’re talking about renters or homeowners.

  • Rent control and inclusionary zoning

    I received an email from a reader over the weekend saying that my comments around rent control have been too critical, and that they are not doing proper justice to the challenges that renters face in today’s cities. I thought this was a fair comment and so I’d like to respond to it publicly on the blog.

    But before I get into that, it’s worth saying that housing issues are incredibly complex. And I am certainly not professing to have all of the answers. In fact, part of the reason I write this blog is so that I can think critically about these topics and hear what other people have to say.

    It is obvious that wages have not kept pace with home prices in many cities around the world. This is a problem. And so we can all agree that we need more economic opportunities, we need more housing, and we need more attainable housing. The question is how best to go about this.

    Mechanisms like rent control and inclusionary zoning might seem like obvious solutions. Just cap rents and force developers to build affordable housing. Problem solved at no cost to anyone, right? It’s not that simple. Every intervention creates distortions in the market.

    To give just one example, studies suggest that rent controls end up creating a misallocation of housing. Because if you are living in a rent controlled home and your rent is well below market, you are now heavily incentivized never to move. Even if you have an empty nest with 5 bedrooms, why would you?

    Of course, there are other possible repercussions. Residential contracts are typically gross leases (though some utilities might be sub-metered and paid for by the tenant). This is in contrast to commercial leases where net leases are common and most, if not all, of the operating costs are passed through to the tenant.

    Why this matters is that if your rents are capped but your utility costs, taxes, and other operating expenses are continuing to rise, you may run into a situation as a landlord where you can no longer afford to upkeep your building. And you’re certainly not going to invest in any new improvements if this is your situation.

    Rent controls could also impact the supply of new housing by making it no longer feasible to build. This is similar to what we have seen with policies like inclusionary zoning. Just last month San Francisco went on the record saying that it’s going to rethink its inclusionary zoning policies because of a view that it is now choking off new housing supply.

    And so herein lies one of our great housing challenges. We want more housing and we want more affordable housing. But depending on how we approach the latter, it could hurt the former, which ends up creating a viscous cycle.

    Building new rental housing is very challenging in Toronto (and elsewhere). Typically the way the process goes for a developer is that you start by preparing a detailed development pro forma. This pro forma will then tell you that your new rental development is infeasible. And so you go back, convert it to a condominium development, and then it magically becomes feasible.

    I am exaggerating, but only slightly. The point is that there are lots of developers out there who would love to build more rental housing — they just can’t make the math worth.

    My goal with this post was to explain where I have been coming from with some of my past comments. I also used the opportunity to link to a number of my related posts. But I haven’t really put forward any possible solutions. I plan to do that in a follow-up post, and I think I’m going to call it “the definitive but crazy guide to creating more affordable housing.”

    So if any of you have any crazy ideas, please send them over.

  • Google Maps for the Roman Empire

    Okay, this is neat. Stanford has created what is effectively Google Maps for the Roman Empire.

    What it shows you is the principal routes of the Roman World: the road network, the main navigable rivers, and the hundreds of sea routes that crossed the Mediterranean, the Black Sea, and the coastal Atlantic.

    The tool then attaches both time and expense to these routes (which would have been used for the transportation of goods and people, but also for general communication across the Roman Empire).

    So if, for example, you are curious about how many days and how many denarii it would have cost you to deliver an important dinner invitation from Roma to Alexandria during the summer months of antiquity, you now have an online tool. It’s about 14 days.

  • Finally — garden suites are now permitted in Toronto

    Some of you might remember that Toronto City Council approved new garden suite policies earlier this year. Garden suites (also known as accessory dwelling units) are kind of like laneway suites but without the adjacent lane.

    Unfortunately, these new policies were subsequently appealed by a group of Resident’s Associations, and so they haven’t been in force. Thankfully, the Ontario Land Tribunal has just dismissed this appeal:

    What this means is that, as of today, you’re now free to build a garden suite in the City of Toronto. So hire an architect and file for a building permit — it’s go time. If you need any referrals, please feel free to reach out.

    The Ontario Land Tribunal is often criticized for its ability to overrule local communities on land use matters such as these. But this is a good example of why it is needed and why it is important to have some kind of neutral arbitral.

    Because these sorts of decisions should not be based on what any one individual or group thinks; these decisions should be based on what makes for good planning and what makes the most sense for the broader city and region.

    Invariably, this is going to piss some people off. But in my mind, it’s kind of like that asshole teacher you used to have. Sure, you hated him/her at the time, but in retrospect you end up appreciating what they were trying to do to help.

    This could be a bad analogy.

  • Toronto’s downtown streets broke over the weekend

    Canada Day weekend was a lot of fun in Toronto. This city was alive and it felt like people had come far and wide to visit downtown. But it was a good reminder that even if all of our cars were electric and even if they were all able to drive themselves, we would still have this problem:

    https://twitter.com/donnelly_b/status/1543642057088049152?s=20&t=kt9GmjDLPvfeueMzbshQcA

    I was in an Uber on Saturday afternoon heading over to the west side of downtown and we had no choice but to declare bankruptcy and hop out in the middle of Bay Street. We thought about waiting for the Ontario Line to be ready, but that seemed a bit far out.

    So we rented bikes instead and rode along the waterfront, which was a considerably better experience. But then we couldn’t find any docks with available slots, so we had to ride up into Liberty Village, drop our bikes off there, and then walk back down to Ontario Place.

    Of course, this was still the better option. I’m fairly certain that we’d still be in that Uber had we stuck it out. And maybe not finding a bike dock is just part of life in the big city on a beautiful long weekend in the summer.

    Still, it was frustrating. So I’ll use this opportunity to once again ask our city leaders to reconsider their ban on dockless electric scooters. Toronto clearly needs all the mobility support it can get.