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: canadian housing

  • Let’s get serious about building more homes in Canada

    I live in a condominium. I find it extremely desirable. I don’t yearn to live anywhere else. And I think of it as my home. But there is of course truth to this Globe and Mail article:

    Canadians, by and large, continue to think of condos and apartments as housing, not homes. That’s hardly surprising given the way Canada builds them: small units in tall towers clustered in downtown cores or near busy transit hubs. They’re the one- and two-bedrooms young people rent in their 20s (and, increasingly, their 30s). The starter homes. The initial landing spot for newcomers. But they are not desirable homes for two large swaths of the population. Young families need multiple bedrooms and proximity to parks and schools. Retirees looking to downsize often say they want to remain in the same neighbourhood. A dearth of higher-density homes for these two groups has dire consequences for cities.

    The problem is twofold.

    Our land use policies are too restrictive, though that is slowing starting to change for the better. And it is simply not economically feasible to build larger, family-sized apartments at any sort of meaningful scale. This is not a developer unwillingness problem, it is a math problem.

    Toronto, for instance, would be far better off if we had European-scaled apartment buildings all across the city and a lot more family-friendly housing. I believe this to be true at least. But in order to achieve this, we need to get serious. This is not serious.

    We need to dramatically reduce development charges and other government fees. We need to get rid of the site plan control process for smaller buildings. We need to remove required amenity areas (the city is the amenity for small-scale neighborhood apartments). And the list goes on.

    So if anyone in government is reading this and is truly serious about building more affordable housing in this country, please give me a call. I will gladly come into your office and run you through a development pro forma so that you can see what it’s going to take. We can fix housing.

  • Density is good

    Here is an interesting chart (source) showing housing starts in Canada, by type, between 2000 and 2023:

    As recent as 2000, single-family houses accounted for 61% of total starts and multi-family housing accounted for 39%. This flipped somewhere around the financial crisis and, last year in 2023, the percentages were 23% and 77%, respectively. This is a meaningful inversion which has helped our cities become more vibrant and more conducive to non-car modes of transport.

    But in this recent article about Canadian housing, Donald Wright more or less argues: so what? We’ve been densifying our cities for all these years, but it hasn’t helped our affordability problem. Supply must not be the answer to our housing crisis.

    I’m not exactly sure what he believes to be the solution, but I don’t think this problem is as simple as “we’ve built some housing, we made our cities denser, and yet housing is still expensive — more supply must not be the answer. Let’s move on.”

    Among many other things, it’s important to understand what kind of density we’ve been building. Because up until very recently, we’ve basically taken the position that single-family neighborhoods should never be touched, and that density should only go in very specific areas — and only after a lengthy and expensive rezoning process has been completed.

    We’ve designed new housing to be expensive.

    But attitudes are changing all across North America. We are now starting to do two very important things: (1) we are opening up more of our cities to intensification and (2) we are now allowing more multi-family housing on an as-of-right basis. Meaning, no lengthy rezoning exercises and no risk of community opposition.

    These are two fundamental changes that should alter the kind of density that gets built. And in my view, it’s going to be a positive thing for Canadian cities.

  • How effective will a catalog of home designs be at improving housing supply?

    Last week, the Canadian federal government announced that it will be developing a catalog of pre-approved housing designs in order to accelerate the delivery of new homes.

    This is not a new idea. A similar approach was taken after the Second World War in order to quickly house veterans returning home. But in this current iteration, the catalog is expected to be focused on missing middle housing such as small multiplexes and student housing, and then later on higher-density construction.

    We have also spoken about this idea before in the context of ADUs in Los Angeles. And at that time, I wrote that the way to encourage more of something is to reduce friction. I continue to believe that this is the case, and so I do think that pre-approved designs are a positive thing, especially for smaller projects.

    However, it’s important to keep in mind that this is not the biggest barrier to new housing supply. The problem is not that developers and builders are all sitting around thinking “if only I had a design for a 5-unit multiplex.” The problem is that they’re sitting around thinking “if only I could make some money building a 5-unit multiplex.”

    So while reducing the barriers to entry is a good thing, the really important question for the designs in this upcoming catalog is: Can developers actually make any money building them? Because if the answer is no, it doesn’t matter that they’re pre-approved and ready to go. They won’t be built.

    Hopefully somebody is thinking about this because it will take some work. Every market is different. What works in one place, may not work in another. On top of this, what works today, may not work tomorrow.

  • The neutral rate and housing supply

    Below are two interesting excerpts from this recent Globe and Mail interview with Tiff Macklem (the current governor of the Bank of Canada of the former dean of the Rotman School).

    The first has to do with where he believes the “neutral rate” will be in the foreseeable future. He believes it will be higher than where it has been in the past:

    We have different models we use to estimate the neutral rate [the central bank’s estimate of where its policy rate would settle if the bank were neither trying to stimulate nor restraining the economy]. … Those models, based on the data we have, still suggest a neutral rate in the range of 2 to 3 per cent.

    When we look forward, and we look at a number of the forces, it seems more likely that the neutral rate is going to be higher than that … [rather] than lower than that. We don’t have that data yet. But there are a number of factors.

    More people are retiring. The labour market looks like it could be sort of structurally tighter going forward. Globalization has at least stalled, if not reversed. That could create more cost pressures. We’re going to need a lot of new investment in cleaner technologies if we’re going to meet our emissions-reduction targets. When I say ‘we,’ it’s the world – so that’s going to affect global real interest rates.

    So when you look forward, it seems more likely that the neutral rate is higher, not lower. And the message is that households, businesses, governments, the financial system, they need to be prepared for that possibility.

    The second is about his view on Canadian housing:

    The fundamental issue in the housing market, and this has been an issue in Canada for 10 years, at least, is structurally the demand for housing is growing faster than the supply. And so yes, interest rates go up, the housing market will slow. But it’s only going to slow so much because there is a sort of structural shortage of supply relative to demand.

    I think what you’re seeing is that with supply growing less than demand, the housing market has started to tick back up, housing prices have started to tick back up. That’s something we need to take into account in monetary policy. But we’re not targeting the housing market. We have one target: CPI inflation.

    These two forces are opposing ones. Higher rates create downward pressure on home prices. But, as we all know, a structural housing supply problem does the opposite. Where these two forces balance out is anybody’s guess. But as Tiff mentions above, his concern is not home prices; it is inflation.

    I am not an economist, but my view is that the broader real estate market is still going through its reset. There will be more pain and less housing supply overall in the short-term. Risk and leverage are still being unwound and that takes time. It also sucks.

    Because of this, I think if you ask most people today, they will likely tell you to wait: “We haven’t yet hit the bottom of the market.” This is likely true. But I have zero ability to time the bottom of a market. And at the same time, the future does feel a lot more knowable compared to a year ago.

    My philosophy is more akin to what I blogged about earlier in the week: If it’s cheap, if the thesis is sound, and if you have the ability to think long-term, then these downturns are when you want to buy. And that is how I’m starting to feel about things right now. This includes everything from real estate to NFTs.

    Disclaimer: This is not investment advice.