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.
It seems like just yesterday that I wrote about Canada’s population surpassing 40 million people. Because today, some 9 months later, we’re already over 41 million.
Since 2000, we are the fastest growing country in the G-7:
This is, in many ways, a positive thing. But it’s also a serious problem if, among other things, we don’t build enough new housing (source):
In 2013, Canada ranked 13th out of 170 countries in meeting the basic needs of citizens, according to data tracked by Social Progress Imperative. By 2023, it had fallen to 39th, in large part because of a lack of affordable housing.
For more on this topic, here is a recent article from Bloomberg talking broadly about Canada’s declining social safety net.
Rental housing in France is both heavily regulated and supported through dedicated public funds. Here’s a high-level overview of what that means (via this 2021 Brookings case study by Arthur Acolin):
Homeownership rates in France went from 35% in 1954 to 56% in 2001
As of 2018, 58% of French households own, 40% rent, and the remaining 2% supposedly get free housing from either their employer or a family member
Not surprisingly, younger households are most likely to rent (the figure is > 60% for people aged 18-29)
Household size seems to play a major factor in how likely people are to live in public housing
France has some 4.5 million public housing units and 17% of all households live in them (which represents about 43% of all renter households)
Within the unsubsidized rental market, 93.5% of households live in homes owned by individual investors (this is as of 2013) and only about 3.5% live in homes owned by institutional investors
This is pretty typical of Europe, where multi-family isn’t an established real estate asset class like it is in North America; so for those of you who like to hate on individual condo investors, check out France
In the decade between 2010 and 2020, 28 metro regions in France adopted some form of rent control and, in a few markets, like Paris and Lille, there are also maximum rents that can be charged for specific housing types
If you’re interested in rental housing, Brookings also has articles covering the US, Germany, Spain, Japan, and the UK. They can be found here.
It is disappointing to me that we often vilify all condominiums as being “luxury condos.” I think the rhetoric is disingenuous and I think it distracts us from finding more productive solutions. As Mike Moffatt points out in this thread, if you look at virtually all major cities in Canada, the most affordable housing options are going to be condominiums and not low-rise freehold houses.
In his case, he looked at current for sale listings in London, Ontario, and found that for homes under $400k, about 81% of them were condominiums, and for homes over $1,200,000, only 4% of them were condominiums. Again: the real “luxury homes” are the low-rise houses that not the condos.
Now to be fair, John Pasalis is not wrong in responding to the thread and saying that on a per pound basis, or a per square foot basis, condominiums are actually more expensive. I’ve been saying this for years on the blog. When measured this way, mid-rise buildings are one of if not the most expensive housing typologies.
So John’s argument is that, while condominiums may be the more affordable option for 1-2 person households, if you’re a family in need of more space, low-rise housing is likely going to be more affordable for you on a per square foot basis. And I would agree with this statement.
The problem with this approach in the real world, though, is that people don’t buy and afford homes based on this metric. You can’t go to a bank and say, “I want to buy this house for $1.7 million dollars because it’s only $680 per square foot when I include the basement, and that’s better value than this 700 square foot condominium selling for $1,400 psf.”
Sorry, the bank is going to tell you what total price you can afford based on your income. And that’s why condominiums in our market have tended to serve as a critical entry point for first-time buyers. They’re the most affordable option in terms of their total sale price.
So in my view, labelling all condominiums as “luxury” is not exactly productive. It ignores their role in providing more affordable homes; it overlooks the supply constraint that low-rise houses represent in most of our cities; and it’s a distraction from the more systemic issue at hand: how do we make housing more affordable for everyone, including families?
If you are the Los Angeles County Metropolitan Transportation Authority and you own excess land next to a transit line that you’ve just recently built, one possible option could be to give this land to a non-profit housing developer so that they can build some affordable housing. And this is exactly what was agreed to in 2007 with the Lorena Plaza site in the Boyle Heights neighborhood of LA. The proposal: 49 affordable units geared toward people making 50% of the AMI.
However, like all things in development, things do take time. And when building new 4-storey housing complexes, there is always the real possibility that you might face several years (or longer) of fierce opposition. In the case of Lorena Plaza, it apparently took the developers from 2013 to 2020 to reach a settlement with the local councilman and their immediate neighbor (a commercial plaza). In the end, this project is now expected to occupy next summer (2024), which brings the total project timeline to 17 years.
This is probably an extreme example and, thankfully, some of the rules have since been changed to help speed up projects like this one. Still, it is no wonder we can’t build enough new housing. (Los Angeles wants to build some 450,000 new homes by 2029.) Time isn’t free. And according to the WSJ, this relatively small project ended up costing US$34.2 million to build. That’s nearly US$700k per suite. A number that will buy you a lot of home in many cities across the US.
Non-profit Vivre en Ville launched a new rental registry in Ontario last week. It is an extension of the one that they launched in Quebec last spring. The way it works is that it allows anybody to enter how much they’re paying in rent. In other words, it’s a crowdsourcing platform.
The site then displays this information on a map so that everyone can see current and past rents. The data points are all anonymous and no personal information is linked to them, but the idea is to “preserve affordability in the residential market by providing access to important rent information.”
Obviously, the thinking is that greater transparency will lead to more affordable housing. Presumably because you’ll now be able to see if you’re somehow being bamboozled, among other things.
I’m not 100% convinced that this will be the case, but I am of the general opinion that more transparency and more information is better than less transparency and less information.
I also find it interesting that there seems to be a lot of people willing to take the time to share this kind of information. According to the Toronto Star, they launched in Ontario with over 3,000 rental inputs. And according to their website, the full registry has over 40,000 inputs.
Montreal has a bylaw that came into effect on April 1, 2021 and that requires developers to contribute to the city’s supply of social, affordable, and family housing. (All three of these have their own definition.)
Developers can meet this requirement in a number of different ways:
They can build the social, affordable, and/or family housing
They can contribute land or a building
Or they can pay cash-in-lieu
Usually, I think of inclusionary zoning as being the first of these three bullet points: a hard requirement to build a certain amount of non-market housing. That is not an absolute requirement here, and so I see this policy as being IZ lite.
Since the bylaw came into force, there have been approximately 150 new projects by private developers in Montreal, according to this CBC article. That has resulted in about 7,100 new market-rate homes. At the same time, it has resulted in exactly zero non-market homes.
From what I can tell from the article, every single developer has opted for option three: pay the cash-in-lieu instead of actually building the housing. Supposedly this has produced about $24.5 million in new fees, which sounds like a lot. But if you divide it by 7,100 homes, it isn’t all that much: just under $3,500 for each new home.
So what is clear is that this is the least expensive option. That’s why everybody is choosing it. If the fee was significantly higher and it was cheaper to just build the social/affordable/family housing, then every developer would just do that. This is how development pro formas work.
But at the end of the day, we are still taxing new housing and new home consumers for the purpose of trying to create a smidgen of more affordable housing. And this has never sat well with me, especially considering that there are plenty of other things that we could be doing to make new housing more affordable for everyone.
Last month we spoke about how our current economic environment is going to negatively impact housing supply in the short-term. Now here’s some further evidence for this argument (via Bloomberg):
“As rates started ticking up, the faucet started to turn off,” says Jonathan Gertman, senior vice president for development at the NRP Group, one of the largest multifamily housing developers in the country. “The number of projects starting this year already has been cut significantly. Anything that started in 2022, in most of the country, comes online 18 to 24 months later. So by the middle of 2025, you see that new supply start to go down significantly.”
This is also being reflected in Federal Housing Administration (FHA) loan applications for new multi-family housing:
Or put another way: FHA multifamily loan applications are on track to total as much as $18 billion for FY 2023, compared with $29 billion for FY 2022, $51 billion for FY 2021 and $45 billion for FY 2020.
The above article is specifically talking about a looming affordable housing shortage. But these exact same headwinds are also impacting new market-rate housing. Of course, there’s always a lag when it comes to development. So it’ll likely be a few years until we really feel the impacts.
Many cities around the world practice some form of participatory budgeting, but even among those that do, Cascais [Portugal] is an outlier. It spends prodigiously through the system: in Paris, five per cent of the city’s annual investment budget has been allocated to participatory projects in recent years, but in Cascais, more than fifteen per cent of the budget flows through the program, and the percentage can float higher if voter turnout rises. Cascais is surprising in another way: its mayor, Carlos Carreiras, is both a champion of participatory budgeting and a member of a center-right political party. Participatory budgeting is often considered a tool of the left, but its role in Cascais suggests that it could have a broader appeal; part of the theory behind it is that citizens can be better than officials at knowing how money should be spent.
Of course, it won’t solve all of our problems:
Even in the best of circumstances, participatory budgeting faces some structural limitations. Citizens can’t use it to raise the minimum wage, for instance, or to reconfigure affordable-housing policy, or to ban single-use plastics. As it stands, the approach “will never change the destiny of a poor neighborhood,” Giovanni Allegretti, a senior researcher at the Centre for Social Studies at the University of Coimbra, told me. Allegretti noted that participatory budgeting is mainly a competitive process involving limited resources with no long-term strategy; it doesn’t eliminate the need for other policy interventions. But when it functions effectively, participatory budgeting can give direct political power to those who might otherwise have very little of it.
There is something very compelling about empowering people to come up with new ideas, compete with others for the best ones, and then participate in public decisions. It also strikes me as a possibly efficient way to force: “We only have this much money to spend. What should we spend it on? Spending on this means not spending on that. Time to make a decision.”
ICON, the 3D-printing home company that I wrote about a few months ago, has just launched a new global architecture competition called Initiative 99. As the name starts to suggest, the goal is to generate new ideas for “accessible, beautiful, and dignified 3D-printed homes that can be built for under US$99,000.”
The competition is open to all: architects, designers, builders, students, and/or people who are just interested in finding new ways to deliver affordable housing. However, the current website does ask for a zip code. So maybe you need to live in the US.
In any event, if you’re selected, you might get money and you might get to see your design built. The total prize fund for the competition is US$1 million and ICON has also committed to building a selection of the winning designs. Registration begins May 23, 2023, but if you’d like to enter your zip code now and “stay informed,” you can do that here.
In 2019, Seattle made it easier to build accessory dwelling units (ADUs). Among other things, they started allowing two ADUs per lot, they stopped requiring the owner to live on site, and they stopped requiring off-street parking. The result is that the city is now permitting close to 1,000 ADUs per year (2022 figure). And for the first time ever, this figure now exceeds the number of permits issued for single-family houses.
Part of what’s driving this adoption is that the City created 10 pre-approved plans that owners/builders can choose from. And since they were launched in September 2020, these plans have been permitted 130 times. (Los Angeles did something very similar with its “standard plan program.”)
In general though, Seattle’s policies seem more permissive than what we have here in Toronto. According to this recent “annual report”, it is estimated that about 12% of ADUs in Seattle are licensed as short-term rentals. About a third are also being permitted as condominiums. In Toronto, any sort of severance is heavily discouraged. The objective was and is to create new rental housing.
But for Seattle, this seems to be creating more affordable homes for sale. The median selling price for an ADU is apparently $732,000, compared to $1.2 million for a single-family house. This sounds kind of good.
