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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  • The enduring allure of private vehicles

    Uber’s recent investor day presentation (link here) is interesting if you’re an investor or thinking about becoming an investor, but it’s also interesting from an urbanism standpoint. Part of the promise of Uber was that it was going to help lure people away from owning cars. Looking at the data though (see below), ridesharing penetration is still pretty low in even Uber’s largest markets: 3.9% for the US and 3.3% for Canada. Brazil is a leader here, which you might think is because of a lower cost per mile, but Australia isn’t far behind.

    At the end of the day, the vast majority of mobility trips are still being done through personal vehicles. This is certainly the case in the US with 6.6 billion weekly trips in personal vehicles versus 191 million on public transit and 22.6 million with UberX (all 2019 data). And for those taking Ubers, about 90% of riders are using some form of UberX — that being a solo, on-demand, point-to-point trip with a 4-door car. So sharing a car with strangers and using different/multiple modes of transport hasn’t really caught on here.

  • Philadelphia readies new inclusionary zoning policy

    When I was living in Philadelphia as a graduate student, new development was seen as a bit of a gift. I remember developers telling me that it costs the same to build in Philly as it does in New York, except that the rents are obviously a fraction in the former relative to the latter. So it was tough to make projects pencil.

    At the same time, Philadelphia had a 10-year residential tax abatement program in place. I think it’s still in place, but it may have been modified since I was there. Either way, it was essentially an incentive to develop or redevelop existing residential properties. In the case of a renovation, the taxes associated with any improvements were what got abated for the 10 years.

    Put differently, it was an invitation to gentrify. Come buy an old row home, fix it up, and then don’t pay any additional property taxes on those improvements. This was the way things felt at the time. So it was interesting to learn today that Philly’s current development boom is about to get throttled down with a new mandatory inclusionary zoning policy that will take effect later this year. Gentrification, it would now seem, is a problem.

    The policy requires that 20% of the units in any new housing development (with 10 or more units) must be affordable for at least a 50-year period. For rental households, affordability means 40% of the area median income (AMI). And for owner-occupied households, it means 60% of AMI.

    I have already said pretty much everything I can say about inclusionary zoning. But one of the unique things about Philly’s policy is that it is only going to apply to two of its Council Districts. It is not a citywide policy. This is going to create a strong disincentive to develop in these areas, and will likely force new development into surrounding ones. But maybe that’s part of the point.

    Photo by Dan Mall on Unsplash

  • Comparing the weekly earnings of Canada’s visible minorities to white people

    We just finished up three days of snowboarding and skiing in Tremblant, Quebec and we’re now in Montreal closing out the long weekend. I am arguably Toronto’s greatest fan and supporter, but I continue to admit that Montreal is the coolest city in Canada.

    In other news, Theresa Qiu and Grant Schellenberg recently authored a Statistics Canada report looking at the weekly earnings of visible minorities and white people across the country. The study focuses on Canadian-born individuals aged 25 to 44 who were gainfully employed and making money in 2015.

    The reason why they isolated the study to Canadian-born visible minorities is that they wanted to eliminate the noise around new immigrants who may be struggling with the language(s), the recognition of their foreign credentials, or some other variable.

    In this case, every individual that factors into the study was born in Canada and, in theory, had access to similar sorts of opportunities. Of course, we know this isn’t always the case, but it’s an attempt an equal baseline.

    The findings are pretty interesting.

    Korean, Japanese, and South Asian men all tend to earn more than white males (which formed the baseline for the study). More than 60% of Chinese and Korean men also have a bachelor’s degree or higher, whereas only 24% of white males are in the same position.

    This is an important data point because we know that economic outcomes tend be positively correlated with educational attainment. The benefits of education also tend to compound later in life and this study only focuses on people aged 25 to 44. So the spreads could widen.

    One the factors that is surely influencing the above findings is that visible minorities are overwhelmingly urban. About 60% of visible minorities in Canada live in just three cities: Toronto, Montreal, and Vancouver. This compares to only 27% of white people.

    Again, an important data point given that people in big cities tend to earn more than those in smaller communities.

    For the full study, click here.

  • How to repair America’s broken housing systems

    As a general rule I don’t like to recommend books that I haven’t read yet. And so I’m not here today to recommend Jenny Schuetz’s new book about how to repair America’s crumbling housing policies. Instead, I’m just telling you all about it. You can then do your own research and decide if it’s worthy of your time. The premise sounds good though:

    Unequal housing systems didn’t just emerge from natural economic and social forces. Public policies enacted by federal, state, and local governments helped create and reinforce the bad housing outcomes endured by too many people. Taxes, zoning, institutional discrimination, and the location and quality of schools, roads, public transit, and other public services are among the policies that created inequalities in the nation’s housing patterns.

    This may be confirmation bias at work but I continue to feel like there’s a groundswell of interest in housing reform. In particular, there seems to be a growing interest in rethinking the privileges that we have decided to bestow upon low-rise housing (at least in this part of the world). But of course, that’s only one part of what is ultimately a complex set of systems.

  • Opendoor is creating too many rentals

    Steven Levy over at Wired recently wrote a short piece comparing Opendoor’s iBuying approach to what Zillow was doing when it was in the space. (Thank you Robert Wright for forwarding me the article.)

    As we have talked about before, the fundamental problem with Zillow’s model is that it couldn’t accurately predict where home prices were going. It was losing too much money and so they shut down that side of their business.

    The article talks about Opendoor’s approach and how they’ve spent the last 8 years refining a valuation model/approach that is now apparently pretty accurate. That’s positive. But here’s another excerpt that I found particularly interesting:

    There’s one controversial aspect of the business model that Wong didn’t bring up. It appears that when companies like Zillow and Opendoor can’t easily sell a home, the fallback is what’s called an “institutional sale.” All iBuyers sell a small but not insignificant percentage to institutional investors with aspirations of being “mega-landlords.” While the marketing materials of the iBuyers emphasize clean sunny rooms and frictionless transactions, that segment of the market involves hedge funds like KKR and Blackstone snapping up properties for rental, limiting the inventory available for families seeking homes. Even the Biden administration has weighed in on the evils of this trend: “Large investor purchases of single-family homes and conversion into rental properties speeds the transition of neighborhoods from homeownership to rental and drives up home prices for lower cost homes, making it harder for aspiring first-time and first-generation home buyers, among others, to buy a home,” said a recent White House dispatch.

    It’s interesting for two reasons.

    First, these highly tuned valuation models are now being used to scale the acquisition of single family homes. No specific figures are given, but Levy speculates that some iBuyers could be feeding up to 20% of their homes to institutional buyers. Economies of scale are a challenge with this asset class. Here technology is helping.

    Second, I don’t like the tone toward renters in the above White House dispatch: “[It] speeds the transition of neighborhoods from homeownership to rental.” This line in particular implies that renting is perceived as being suboptimal to homeownership and that “speeding”’ towards the former is something that should be avoided for reasons of social good.

    Even the words that are used here suggest biases. A single-family home is called, well, a home. But a rented one is a rental property. I reckon that a home is a home regardless of whether it’s low-rise, high-rise, rented, or owned.

  • The Russian gas network

    Reuters recently published an extraordinary set of diagrams (here in this article) that help to explain the energy dynamics at play right now across Europe. Above are two examples. Among other things, the graphics show the various gas pipelines in use (or planned), which countries they flow through, their vintages, and ultimately who depends on who. It’s worth a read or, at the very least, a scroll through.

  • Density bonus as inclusionary zoning offset

    Somebody on Twitter responded to my recent post about inclusionary zoning and asked: Aren’t all the upzonings that the City is already doing a kind of density bonus? In other words, and this is me elaborating here, why is there an economic “shortfall?” Why does there need to be any other sort of subsidy in order to mitigate the economic impacts of inclusionary zoning?

    A density bonus can mean and can be used in a number of different contexts. Sometimes it is used as an incentive with landowners, whereby they get a bonus on top of their sale price if the developer manages to achieve a certain amount of density on the site. But in this particular case — IZ subsidies — we’re talking about something else.

    We’re talking about density above and beyond what you might normally achieve on a particular site in order to directly offset — maybe partially or maybe entirely — the economic shortfall brought about by inclusionary zoning. The fact that upzonings are happening all over the city doesn’t necessarily qualify them as bonuses. In the case of Toronto, the market is just responding to out-of-date zoning.

    Here’s a specific example.

    Let’s say you have a development site with in-place zoning that would allow you to build 20,000 sf of density. This is the as-of-right or by-right density. No need to rezone the site. Just file your building permits and you’re off making things. If this is the most you could build, then the market would value the land based on this density. As we have talked about before, land is the residual claimant in a development pro forma.

    However, if the zoning was out of date and it was fairly clear that one could rezone the site and build up to 100,000 sf, then the market would no longer value the site based on its in-place zoning. It would instead value it based on its future expected density. Again, because land is the residual claimant, more density = higher land value.

    In this second scenario, the additional 80,000 sf is, in my view, not a density bonus. Give or take a bit here and there, it is the density that everyone is generally expecting. The market has already priced it in. A true bonus / subsidy, would be something above and beyond the base of 100,000 sf. Something that is only available to developers if they do X — which could be build affordable housing.

    Maybe the bonus is perfectly tuned to exactly offset the economic drag of doing X, or maybe the bonus is designed to serve as an incentive to do X. In this latter case, the bonus would more than offset the drag and be accretive to the pro forma, which would mean that every sensible developer would now want to do X. More carrot, less stick.

    One of the challenges with this hypothetical scenario is that, for such a bonus structure to work, you need to know the baseline that you’re bonusing against and you need to ensure that nobody gets the bonus unless they do the thing — the X. Using the above example, that means that the 100,000 sf needs to be fairly firm and that anything above that number only happens with the delivery of affordable housing.

  • Be a global citizen — my new NFT photography collection

    I have enjoyed photography for as long as I can remember. But I got into it in earnest during undergrad while studying architecture. At that time, Toronto-based photographer Sam Javanrouh was in the early days of running his decade-long photoblog called daily dose of imagery. And I remember checking it religiously to see his captures of the city. This was a fairly novel medium for photos at the time. Instagram wouldn’t arrive for another 7 or so years. So I found it deeply inspiring.

    So much so that I went over to Henry’s at the corner of Queen and Church, bought a refurbished Canon Rebel, and started capturing my own photos of Toronto — often at night after school. I’m positive that I’d be embarrassed if I ever pulled out those old photos from the archives, but regardless, photography more or less stuck with me as a hobby. It also formed an integral part of the design portfolio that I used to get into graduate architecture school. (My photos proved to be less useful for business school.)

    I later moved onto shooting with Fujifilm cameras (currently a Fujifilm X-T3). And nowadays I mostly shoot when I’m traveling and have some free time. But two decades after buying that refurbed Rebel, I can’t help but feel like we are at yet another important turning point in the evolution of photography (and, of course, art more broadly). We now have tools and technologies that allow for the ownership of digital assets. (See non-fungible tokens.)

    So I have decided to start minting and making my photography available for sale on Foundation. The first collection is called “Be a global citizen”, and the plan is to slowly add my photography from around the world to it. The floor price is currently set at 0.25 ETH. And all of the photos were taken on my Fujifilm X-T3. I hope you like it. To check out the collection, click here.

  • Do the best cities have a lot of immigrants?

    I tweeted this out last night while watching old reruns of Anthony Bourdain’s Parts Unknown series. This was a great show. If I were to give everything up and become a YouTuber, this is the kind of travel and food channel I would want to make, except that I would naturally have to add in some equal parts around architecture, planning, and real estate.

    The responses to my tweet were of course mixed. Some people agreed and some people didn’t. And a few people provided examples of great cities that aren’t particularly known for their openness to new entrants — places like Tokyo. This kind of response is not at all surprising given how divisive this topic has always been throughout history.

    But here’s what I was thinking:

    1/ There are some obvious current case studies. Consider places like Toronto and Miami, where foreign born residents now make up the majority of the population. These are two fast growing and dynamic cities that wouldn’t be anywhere near as interesting without their immigrant populations. Certainly the food wouldn’t be as good.

    2/ Many of the most beautiful cultures in the world are the result of different cultures coming together. Brazil is one example that comes to mind. Throughout history they have been one of the largest recipients of immigrants in the western hemisphere. Sadly, Brazil was also the last country in the western world to abolish slavery.

    3/ Rome and Tokyo were cited (in the comments) as two great cities that frankly aren’t all that diverse. According to Wikipedia, less than 10% of Rome’s population is non-Italian. But Rome, while nice, is provincial these days. And Tokyo, while awesome, has a bit of a demographic problem.

    4/ Even if you think a place doesn’t have a lot of immigrants and maybe isn’t all that diverse, it is still probably the result of diverse cultures coming together at multiple points throughout history. Maybe because of immigration. Or maybe because of something bad like war. Think of the Moors from northern Africa who crossed the Strait of Gibraltar and conquered the Iberian Peninsula.

    5/ An openness to new people could signal and probably does signal an openness to other things. And since we are living in a world that thrives on innovation and new ideas, being open strikes me as being a fairly good and useful characteristic to have.

    6/ Lastly, I come from a family of immigrants. I self-identify as being entirely Canadian. But I had to come from somewhere (multiple places, in fact). And so it strikes me as being odd and entirely selfish to want to block the flow of people now that I’m here and established.

    What are your thoughts?

  • The inclusionary zoning shortfall

    Colliers recently hosted a webinar about inclusionary zoning here in Toronto. On the panel was Jeremiah Shamess (SVP at Colliers / moderator), David Bronskill (partner at Goodmans), Giulio Cescato (senior planner at IBI Group), and Richard Witt (principal at BDP Quadrangle). I wasn’t able to attend (either because of a critical meeting or because I was off attending to a gluttonous lunch burrito), but the slides are now available online. I was going through them this morning and I came across this chart from NBLC:

    What you are seeing here is a comparison between a typical market development before IZ and a development after IZ. As you can see, soft costs remain the same, hard costs remain the same, and the profit margin remains the same. What changes is the overall revenue. Market revenue goes down because you now have fewer market-rate units and a new IZ revenue is added, which is the revenue generated from the addition of affordable units to the project.

    But when you add up the market revenue and the IZ revenue, you don’t get back to the same economic equilibrium. In other words, there has been a destruction of value, and so something is going to have to give in order for this project to pencil and remain financeable. Otherwise, no development will take place. This shortfall is the red box area in the above graph that says, “impact of inclusionary zoning.”

    We have discussed this red box gap a lot on the blog, because how you think this gap gets filled might determine how you think of inclusionary zoning as a policy tool. In this particular instance/graph, the gap is filled by a reduction in the value of the land. Everything else remains static. So what is effectively happening in this model is that the landowner, who has decided to sell their land to the above developer, is now the one who has to indirectly pay for this new affordable housing.

    This may seem like a sensible way to go about it. I mean, people who own land must be rich. Let’s make them pay. But is this actually what is going to happen in practice and over extended periods of time? Soft costs — things like development charges — are always going up. Why aren’t land values perpetually declining in order to offset these additional costs? It is largely because market revenues have also been increasing. Housing keeps getting more expensive. And that is what has been keeping the market going.

    I suspect that over an extended period of time, the same thing will happen here.