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.
This week, RBC Economics published a study on Canada’s rental market where they argued that the pace of new supply needs to at least double in markets like Toronto in order to meet future housing demand and balance the market. Similar things, I’m sure, could be said about many other housing markets around the world.
The report pegs the current rental housing deficit in Toronto at about 9,100 units:
And because they believe that the cost of ownership is pushing more people into rentals, the number of renter households is expected to grow at an average rate of 22,200 units per year in Toronto.
If you take 22,200 units per year over the next two years, and add in the current deficit of 9,100 rental units, you get to a total count of 53,500 rental units. This is what RBC Economics believes must be delivered to the market in order to restore equilibrium, and decrease the upward pressure on rents.
Rental units are, of course, delivered to the market in two main ways. There’s purpose-built rentals and there are for-sale units that end up as rental housing. But even if you amalgamate both of these tenures, we are not building enough housing.
Against this backdrop, I find it curious that developers are so often vilified. Earlier this week, I saw Jennifer Keesmaat tweet out that — as we ready for this fall’s federal election — any sensible housing plan must move away from our current for profit housing delivery model.
Who, then, will build these 53,500 rental units? That part wasn’t clear to me.
It was announced this week that Metrolinx will be making changes to the popular UPX train service that connects Union Station to Toronto’s Pearson International Airport. This is an interesting transit story. And as someone who will be moving to the Junction (adjacent to one of the stops along the way), I have a vested interest in this announcement.
The UPX started out as a high-priced boutique train service to the airport. A one-way fare was $27.50 per person (without a PRESTO card). This was too much and I argued that here on the blog. If you looked at the math and compared it to the alternatives, such as taking an UberX, most people were not going to take this train.
The fares were ultimately dropped — by a lot — and the service then took off not only as a link to Pearson but as an inner-city commuter service. I now sometimes call it the Union-Junction Express, because the actual train ride from Union to Bloor St (at Dundas West) is about 7 minutes once you’re on the train.
The announcement this week merely solidifies the train’s evolution from high-priced boutique service (which didn’t work) to airport/commuter service (which is really working). The trains are expected to run more frequently now, some of which will continue to make the same stops as today and some of which will stop in new locations along the line.
As transit-advocate Cameron MacLeod said in the Globe and Mail yesterday, “there’s both good and bad news here.” The good news is more frequent service. Even quicker trips in some instances. And better integration with the broader GO train network. The bad news is the award-winning UPX station at Union will no longer be needed. The service is expected to move to a new platform.
Love them or hate them (I happen to love them), Toronto’s streetcars are part of this city’s identity. Most North American cities got rid of their streetcars around the middle of the 20th century. But Toronto didn’t. And that has left us with the largest first generation streetcar network in the Americas in terms of total track length, number of cars, and ridership. That’s something. If you’re also a fan of streetcars (or just like geeking out about cities), you may enjoy this little ode to Zürich’s tram network by Monocle. It’s called, “My life as a tram.”
This past weekend I was in a condo building here in Toronto with large signs in the elevator saying, “No Short-Term Rentals Including Airbnb Are Permitted. Trespassers Will be Prosecuted.” It was the first time I had seen anything like this, but it immediately signaled to me that the building must be having a problem with short-term rentals. Why else would you deface the elevators? There are some buildings that allow short-term rentals, but most don’t.
However, over the last few years we have started to see purpose-built short-term rental buildings. In some cases, existing apartments buildings were “converted”, as was the case with Niido’s two properties in Nashville and Orlando. Here tenants in the building can rent both unfurnished and furnished apartments and then rent them out on Airbnb up to a maximum of 180 days per year. To date, I think these are the only two properties to use the “Powered by Airbnb” moniker, but more are on the way.
The developer behind Niido — Newgard Development Group — recently launched a new Powered by Airbnb brand called, Natiivo. This one looks to be focused on for sale product, with two upcoming projects in Austin and Miami. Both projects will have hotel licenses in order to avoid any regulatory risk going forward. But this makes me wonder how materially different this model is from the condo-hotels we’re already familiar with.
For landlords and developers, the goal is obviously to maximize rents and prices. Allowing (or explicitly encouraging) residents to rent out their place and earn some extra cash, should help with that. And given the way I started this post, we also know there’s a desire to do this, particularly in places with strong tourist demand like in Nashville and Miami. But the reviews are mixed. Not everyone wants to live in a hotel. But then again, not everyone wants to co-live. To each their own.
Earlier today, the Conservative Party of Canada made the following housing policy announcement. If elected this fall, they would (copied verbatim from here):
Fix the mortgage stress test to ensure that first-time homebuyers aren’t unnecessarily prevented from accessing mortgages and work with OFSI to remove the stress test from mortgage renewals to give homeowners more options.
Increase amortization periods on insured mortgages to 30 years for first-time homebuyers to lower monthly payments.
Launch an inquiry into money laundering in the real estate sector and work with our industry partners to root out corrupt practices that inflate housing prices.
Make surplus federal real estate available for development to increase the supply of housing.
There aren’t a lot of details here, but Andrew Scheer did say that his party would eliminate the financing “stress test” for all mortgage renewals. Currently, you’re only exempt if you renew with your existing lender.
As Rob Carrick points out, this is a pretty sensible move. (Though he doesn’t agree with “fixing” the stress test.) The current situation gives the incumbent lender almost monopolistic power if the borrower can’t meet the stress test and is unable to shop around for a better rate.
At the same time, we know that the price of a highly levered asset tends to correlate with financing ability. So depending on what serves you better, you may be either concerned or delighted that this increased buying power could spur further housing consumption/appreciation.
From 1899 to 1902, the north side of 42nd Street, between 7th Avenue and Broadway in Manhattan, was occupied by the Pabst Hotel. At the time, this neighborhood was called Longacre Square.
Owned by the Pabst Brewing Company of Milwaukee, the building was part of a growing network of hotels and restaurants that the company used to promote its beer. Note the cool rooftop sign.
The portico you see in the above picture was highly controversial. I guess some things never change. City officials were criticized for allowing such a structure to encroach over a public right-of-way. Curiously, the Times was one of its biggest critics. A judge ultimately ordered for it to be removed in 1901.
The building also came down not long after. The introduction of New York City’s first subway — operated by the private Interborough Rapid Transit (IRT) Company — began to spur new investment in the area. The first IRT line ran right through Longacre Square.
Adolph S. Ochs was the owner of the The New York Times during this period and he believed that the new subway line would increase foot traffic in the area. Betting on transit is clearly not a new phenomenon. So in January 1905, the newspaper moved into a new headquarters on the site of the former Pabst Hotel; a building that it developed for itself.
Today this building is known as One Times Square. Here is a photo of it under construction in 1903:
And here is a photo of the completed building in 1919 (at this point, it was no longer occupied by the paper):
At the time of its completion, it was one of the tallest buildings in New York City. And eventually, perhaps as a result of some encouragement on the part of Ochs, Longacre Square was renamed to commemorate this new building and the paper. It became known as Times Square.
By 1913, the Times had outgrown the building and would move down the street. But not before it would introduce a now famous New Year’s Eve celebration in the Square. The Times would continue to own the building up until 1961.
The area continued to evolve into an important theater district and transit hub. Everything connected through Times Square. Sadly, the Great Depression was not kind to the area and, either because of it or alongside it, Times Square declined into an area of vice filled with everything from burlesque shows to prostitution. This would come to define the area for almost the balance of the 20th century.
It would take many attempts starting in the 1980s to try and redirect Times Square’s now entrenched reputation. In 1982, the Department of City Planning created the Special Midtown Zoning District, which attempted to attract developers with tax breaks and other subsidies. It didn’t really work.
The City eventually looked to eminent domain to try and tidy up the area. But property owners — many of whom owned the adult businesses in the district — objected via a group known as the Coalition for Free Expression.
It would take a few other mayors, many legal battles, and interim ordinances such as the 60/40 rule — which allowed adult businesses to continue operating as long as no more than 40% of their floor area were allocated to sex — before things would really change.
Today, or at least as of 2015-2016, Times Square represents 15% of New York City’s total economic output. And it does this via 0.1% of the city’s total land area and 7% of its total employment.
Real estate in the district is estimated to be worth over $7 billion, with the Square generating about $2.5 billion in municipal tax revenue and about $2.3 billion in state revenue. A lot has changed in more than a century. But perhaps most importantly, the portico came down.
Joshua Levine’s recent (WSJ Magazine) piece on John Pawson, — the architect who “elevated nothingness to an art” — is a good read.
It’s mostly about the country retreat that he recently completed for himself and his wife in the English countryside, but there’s also lots about his minimalist architecture, his career, his work with hotelier/developer Ian Schrager, and his passion for photography.
I like this bit about architectural simplicity. The great irony of minimalism, and the reason why brands such as Calvin Klein and Jil Sander began working with John Pawson to leverage his aesthetic, is that it’s often more difficult to do less. Getting the details right costs money. Hence this great line from the New Yorker:
As the New Yorker cartoon put it, “Only the rich can afford this much nothing.” Don’t expect a rebuttal from Pawson. “It is big, and it is expensive, you know. It’s sophisticated architectural simplicity. This isn’t a religious thing, and it isn’t as simple as you can go. You can go a lot simpler than this.”
I also like what the following says about labels and what it means to be defined as something:
Slowing down for Pawson isn’t all that slow. He takes photos constantly and has always used the camera as his third eye. In 2017, Phaidon published Spectrum, a book of his photos, many of them first posted on his Instagram (“I said, ‘Well, I’m not a photographer,’ and they said, ‘You are a photographer,’ so now I’m a photographer”).
Click here for the rest of the article from WSJ Magazine. And if you aren’t familiar with John Pawson, here is his minimal website.
This recent study used geotagged tweets to measure social connectedness within American cities. There are two measures: (1) concentrated mobility and (2) equitable mobility. The first measures the extent to which social connections (geotagged tweets) are concentrated in a set of places within the city. And the second looks at the degree in which people move between neighborhoods in roughly similar proportions. These measures are the y-axis and the x-axis, respectively, in this graph:
So how do you read this chart?
Well if you look at New York, you’ll see that it is relatively high in concentrated mobility, but the lowest in terms of equitable mobility. This means that social connections are highly concentrated and that there’s low connectedness to other neighborhoods within the city. Miami, on the other hand, is the opposite. It’s also an outlier. Few hubs. But its social connections appear to cross neighborhoods and spread across the city.
Perhaps not surprisingly, the study found that the size of a city seems to have the biggest impact on social connectedness. Which makes sense — it becomes harder to get around and so people start to localize. I am reminded of this whenever my friends in Los Angeles tell me they never go to the beach because it’s simply too difficult and too time consuming to get across the city.
This also became clear to me after I started playing around with the Moves App back in 2015. The app no longer exists, but it was an activity tracker that allowed you to map where you, well, moved. And the more time you spent in one place, the more concentrated the activity would become. They depicted this through larger and larger circles. Example maps, here. My maps revealed that I need to branch out into different neighborhoods more often.
Ottawa, Ontario and Gatineau, Quebec are border cities. They exist on either sides of the Ottawa River. And yet, 2017 data from the Canada Mortgage and Housing Corporation revealed that there’s about a $450 per month rent spread on the average two-bedroom apartment in these two cities. The average rent on the Ontario side was $1,232 per month; whereas the average rent on the Quebec side was $782 per month.
Now, Ottawa is bigger. The city has a population of about 934,243 (2016); whereas Gatineau is about 276,245 (2016). Ottawa is also the nation’s capital, and so the center of gravity is firmly toward the former. But the border is also very porous. Google Maps is telling me that you can walk from downtown Ottawa to downtown Hull (Gatineau) in 30 minutes. So why then is there such a rent disparity?
Is there a language barrier? Is it because income taxes are higher in Quebec? Or is it something else? Interesting.
There’s a stretch of restaurants and bars on the south side of King Street, west of John Street, here in Toronto, that I generally try and avoid. I won’t name names, but if you’re from Toronto, you know what I’m talking about. With all due respect to the business owners, I think of this stretch as tourist row. All cities have them. Usually the identifying marker is a human on the street with a menu trying to entice you to come inside and eat. And there’s nothing wrong with that. I can appreciate good street hustle.
But whenever I’m traveling and trying to find a place to eat, I’ll often think to myself, “Oh man, is this the (insert city name here) equivalent of tourist row? I see people on the street with menus in their hands. Could be.” This is one of the reasons why I like Time Out’s recent “definitive list of the planet’s cultural and culinary hotspots.” They surveyed over 27,000 city dwellers in order to figure out where locals actually want to hang out. The result is the 50 coolest neighborhoods in the world.
I am somewhat embarrassed to say that, I think, I’ve only been to 6 of them. I have work to do. But Toronto does make the list — once — and it is none other than the Junction. Their recommendations, here. However, one thing they did miss was the Union Pearson Express. That is the way to get to the Junction from Union Station and it is, clearly, still under the radar for most. The number one spot on their list goes to Arroios in Lisbon, which is actually beside where I stayed when I was there this summer. Damn that city is cool.
