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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Tag: affordable housing

  • The inclusionary zoning paradox

    What do you get when you have some of the most stringent affordable housing requirements in the United States? You might think that you get lots and lots of affordable housing, but that is not the case in San Francisco. Paradoxically, you still get some of the most expensive housing in the United States. And part of the reason for this — according to this inclusionary zoning review committee — is as follows:

    Of all 40 scenarios, only four, all of them ownership-based, penciled out while satisfying the inclusionary program. Many of the projects that were designated as feasible, or came close to it, were smaller. That could be because larger structures use more expensive union labor and tend to contain advanced safety systems, like elevators that can operate during fires, said Strachan Forgan, principal at SCB, an architecture and design firm.

    Among the 20 that were rental projects, only one was shown to be feasible, but it did not satisfy the city’s mandatory inclusionary policy. While not yet ready to make recommendations, the committee members accepted the findings as accurate. Multiple development experts who reviewed the analysis for The Chronicle said it appeared to be well done.

    What is often missing from analyses about inclusionary zoning is how many projects it makes infeasible as a result of the requirement. It is not no-cost affordable housing. There are real costs and real impacts. But we like to tell ourselves that this isn’t the case because, at the end of the day, we’re not really that serious about building more housing and building more affordable housing. Too inconvenient. Too disruptive.

  • What we value the most

    One natural response to yesterday’s post about (housing) affordability vs. beauty is to think that I put forward a false dichotomy. Why can’t we have both? Why does it need to be a zero-sum game? Surely there’s a middle ground. Our cities should be both inclusive and beautiful. And of course, I don’t disagree.

    What I was trying to do with the post was force a thought exercise. There are lots of things that we do as city builders which serve to increase the cost/price of housing. Going to a design review panel adds time/cost. Deciding to use that really nice material from Europe adds cost (and maybe time). And even adding a simple building stepback adds time/cost.

    So in doing these things, we are in effect deciding that these are more important that just building cheaper and lowering the resulting rents/sales prices. We can certainly debate the right balance and how much should be spent on things like design and/or sustainability, but it doesn’t change the fact that, for better or for worse, we are saying, “it is important that we spend the money on this particular item.”

    Now, there is also a common counter argument that none of this really matters, because developers will always price new housing at whatever the market will bear (i.e. the maximum possible price). But as I have tried to argue many times before on this blog, this is not always true. Pushing prices too far increases risk and slows absorption.

    It also ignores the fact that in any given city there are going to be sites that are infeasible to develop with new housing. That is, when you look at all the costs and, yes, what the market will bear, the numbers just don’t work. And so what can happen when you reduce development costs is that you now unlock more sites for new housing, increasing overall supply.

    None of this is to say that our cities shouldn’t be beautiful or that we shouldn’t strive for creative design solutions. This is exactly what we should be doing! Instead, this post (and yesterday’s) is simply a reminder that time and things do cost money, and that the decisions we make are rarely benign. In fact, they usually speak to what we value the most.

  • 70% of Hong Kong’s housing supply is either subsidized or a small unit

    This is an unfortunate distinction:

    Of all the world’s housing crises, Hong Kong’s may be the most formidable. The city of 7.3 million leads the world in housing prices and inequality, with 125,100 millionaires and 1.6 million people living in poverty. Home prices have rocketed by 187% over the last decade. In May, the number of public housing applicants hit 245,000, with an average wait time of 6.1 years — the highest in over two decades. According to lawmaker Scott Leung, a shortage of 30,000 units in the next five years means that the public housing queue will soon stretch to 6.5 years.

    So let’s take a look at overall housing supply (source):

    What this chart tells us is the following:

    • For the five-year period from 2017 to 2021, Hong Kong built about 173,900 housing units. That’s somewhere around 34,780 per year.
    • Of these units, 60,700 were subsidized public rental housing units (~35%) and 25,500 were subsidized sale units (~15%). So overall, about half of Hong Kong’s housing supply over the last five years was some form of subsidized housing. That said, the number of public rental housing units has been declining. It was about 70,800 units between 2007 and 2011.
    • Looking at private residential units during this same five-year period, about 35,200 of them (20% of total supply) can be classified as “small units.” These are units with an area less than 40 square meters and, based on the above chart, they obviously represent a rapidly growing market segment.
    • Adding all of this up, we get to 70% of Hong Kong’s housing supply being either (1) a subsidized unit or (2) a small unit under 40 square meters.

    This is how Hong Kong builds, and it clearly isn’t enough to meet demand.

  • 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.

  • The story of Los Angeles’ last Japanese boarding house

    Rooming houses or boarding houses are a divisive topic. Here in Toronto, they are permitted in the older parts of the city, but illegal everywhere else. Since 2021, we have been talking about changing that in attempt to increase the supply of what is typically the most affordable kind of housing. But there are lots of people who want to “protect the integrity of single-family communities”, and so a decision on this issue has been, as I understand it, punted until sometime next year. At some point, I suspect a decision will be made (though deferring is also a decision).

    While we wait, this recent piece by journalist and photographer Samanta Helou Hernandez tells an interesting story of Los Angeles’ last Japanese boarding house. But as you’ll see from her article, it’s labeled as a boarding house, but it really acted as a kind of community center. Boarding houses in this community have, over the years, served as a place for people to get back on their feet (after returning from internment camps following WWII) and as a place where they could speak their own language and build community.

    Looking back on the history of the area, it’s hard to fathom being comfortable with some of the exclusionary policies that were in place at that time, which effectively blocked immigrants and people of color from moving to certain areas. Then again, I’m sure posterity will look back on some of decisions being made today and wonder what we were thinking.

  • Why housing is so expensive

    A friend of mine sent me the above podcast episode this morning (click here if you can’t see it embedded above). I’ve only listened to a bit of it, but I plan to finish it up over the long weekend. Here are the topics it covers:

    We discuss why the states with the highest homelessness rates are all governed by Democrats, the roots of America’s homelessness crisis, why economists believe the U.S. gross domestic product could be over a third — a third! — higher today if American cities had built more housing, why it’s so hard to build housing where it’s needed most, the actual (and often misunderstood) causes of gentrification, why public housing has such a bad reputation in the U.S.; how progressives’ commitment to local democracy and community voice surprisingly lies at the heart of America’s housing crises, why homeownership is still the primary vehicle of wealth accumulation in America (and the toxic impact that has on our politics), what the U.S. can learn from the housing policies of countries like Germany and France, what it would take to build a better politics of housing and much more.

  • The mini mid-rise

    It is obvious that Toronto needs to find new ways to increase housing supply. And I have written before about how I think our major streets are a good place to look.

    The above proposal by Naama Blonder of Smart Density is one way to start thinking about how we could do that. Dubbed the “mini mid-rise”, the idea here was to show how a single lot might be intensified with a small multi-unit building.

    This is a great idea. It was one of five projects that just won the Ontario Association of Architects’ annual design challenge. But for it to have a chance at working, we’re going to need to remove all of the friction associated with building this kind of housing.

    These would need to be permissible as-of-right. No rezoning. No site plan control. Just straight to building permit.

    We would also need to eliminate all parking requirements (which we are thankfully doing). The market will very quickly correct if these homes cannot be rented without parking.

    We would need to ensure that these homes can be built without any cooperation from the adjacent neighbors. Because that cooperation may not always be there.

    We would need to ensure that there are no funny code requirements that might serve as an additional obstacle.

    And we will probably also need to look at subsidies and other incentives so that these homes are economically feasible to build. This might include development charge waivers and/or tax abatements.

    None of this is, of course, impossible. It’s just a question of how bad we want this to happen.

    Image via Smart Density

  • The definitive but crazy guide to creating more affordable housing

    Okay, so maybe this isn’t an entirely definitive guide. But the intent is to make this post a kind of working post. As new ideas emerge (from my end or from your ends), I will endeavor to update it, so that maybe one day it will become a bit more definitive. I also think it’s important to keep it a little crazy. Because housing affordability is clearly a tough problem to solve, so unless we start thinking differently and acting boldly, we may not get there.

    Here goes.

    • Encourage new housing at all scales (low, mid, high)
    • “Upzone” all major streets and transit station areas
    • Allow multi-unit dwellings in low-rise neighborhoods and ensure that any applicable codes and/or policies are not creating unnecessary obstacles to building at this scale
    • Work to make the largest possible housing scale permissible on an as-of-right basis — that is, remove the rezoning process wherever possible and allow builders to go right to a building permit (a lengthy rezoning process can cost millions)
    • Avoid the use of inclusionary zoning policies that do not provide an equal offset or subsidy (such as a density bonus)
    • Ensure that any development charges and levies are commensurate with the burdens created by new housing and that existing property owners are funding their fair share through property taxes
    • Identify the areas that are NOT seeing new housing and then create incentives to make development feasible
    • Search for underutilized land and other opportunities to add new housing — no land parcel should be considered too small
    • Incentivize small-scale prototypes as a way to test out new ideas and foster innovation — specifically with respect to climate change and construction productivity
    • Eliminate all parking minimums – no ifs, ands, or buts
    • Depoliticize the planning process as much as possible — local politicians are not generally incentivized to encourage new housing
    • Eliminate the ability for individuals to block or significantly delay new housing
    • Ensure that there are enough staff to expeditiously review and process development and building permit applications — if builders are hiring “expediters” in the hopes of moving these things along, it means something is broken
    • Put in place strict response and issuance timelines for building permits
    • Bonus city staff (and anyone else who touches housing supply) based on the number of housing units approved and permitted each year
    • Design smaller and more urban-friendly garbage trucks so that less space is lost in every new housing development
    • Reduce/eliminate complex urban design guidelines, such as Toronto’s widely used 45-degree angular plane guideline

    What is missing from this list? And/or what did I get wrong?

    Last updated: July 25, 2022

  • Interview with the mayor of Amsterdam, Femke Halsema

    Back in 2014, Amsterdam became the first city to have what is called a “night mayor.” The role of a night mayor is what the name suggests. They are intended to be the chief executive officer of a city’s nighttime economy. And so it was and it continues to be recognition that the night can be an important economic development tool.

    This seemed to work out well for Amsterdam, which is why many other cities quickly followed suit with their own night mayor elections. During this time, a number of us here in Toronto also started advocating for our own nighttime CEO. (FYI, here is a link to the current night mayor of Amsterdam.)

    But fast forward to today and the tone seems to have changed in Amsterdam. The city’s daytime mayor, Femke Halsema, is now actively concerned about over-tourism and, in particular, the way that some tourists behave when they check-in to Amsterdam.

    Here’s an excerpt from a recent interview that she did with Bloomberg:

    We have to tackle two problems. The first problem is what I’d call the London problem: Our city is becoming too expensive. That is also part of being an international city and having many expats living here. But it has consequences for the middle classes. It’s very difficult to find a house in Amsterdam except for the highest incomes, so our middle class — teachers, police officers, people working in health care — are leaving the city. We’re very alert about it. For a city to survive in the long run you need social stability and people from middle or lower classes to also feel at home.

    Our second problem is the Venice problem: The people who live here become estranged especially in the city center, because it’s no longer part of their city. We have to find a new balance, in being a home for people from Amsterdam and at the same time welcoming international visitors and tourists.

    More specifically, the Venice problem seems to be a problem of behavior:

    It’s not a form of tourism we welcome or don’t welcome — it’s a form of behavior. What we do not welcome is people who come here on a vacation from morals. They express a form of behavior they would not express at home. People coming here to lose their morals is a problem for us.

    It is for this reason that the city is hoping to relocate its red light district to outside of the city center. The intention is not to get rid of it, or for the city to turn its back on its long history of tolerance, but it does want to move it somewhere else in the hopes that Amsterdam will become more associated with culture than hedonism.

    But does moving it actually change any behaviors? If one were to develop a purpose-built “erotic center” from the ground up, is it even possible to make it more integrated with the broader city (minimize the Venice problem) and, to use the mayor’s words, make it more chic than what currently exists?

    These are all exceedingly tough city building questions that can’t really be untangled from questions of morality.

    For the full Bloomberg interview with mayor Halsema, click here.

    Photo by Azhar J on Unsplash

  • 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.