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: housing market

  • Current state of Toronto’s new condo market

    Ben Myers of Bullpen Research & Consulting was recently interviewed by Newinhomes.com about the state of Toronto’s new housing market. Ben is always interesting. And these are the sorts of things that I read in my spare time. So here’s an excerpt:

    The average price of popular new condo floor plans in the City of Toronto in October 2019 was approximately $1,275 per-square-foot (psf) and with growth of 3% a year, prices would hit $1,475 psf in 2024. I wouldn’t be surprised to see annual average growth of 4%, which would get you to $1,625 psf in five years in Toronto.

    This data was taken from BuzzBuzzHome and — by “popular new condo floor plans” — I believe he means that these are the floor plans that buyers tend to click on and review when they visit the site. So it’s a good indication of buyer demand.

    Here’s another quote that stuck out:

    Part of the reason that price growth has spiked is a rise in construction costs, development charges, and land prices – this cost-push inflation is passed on to consumers.

    That sounds right. And I have been writing about this phenomenon all year. Most of us can probably remember when $1,000+ psf was a high water mark for new construction condos. Now it’s pretty much a floor.

  • Uncreative and greedy

    There’s a narrative out there that all developers are uncreative and greedy, and if only they would start being more creative and generous, we could solve the housing affordability problem that is plaguing many (if not all) global cities. In other words, the solution to increasing the supply of low and middle incoming housing is simply a psychological reframing on the part of developers.

    The problem with this mental model is that it ignores reality. Development happens on the margin. The market is competitive. It’s difficult to find developable sites. And it’s a challenge to make projects work. More often than not, you have to say no as a developer. No I can’t buy this land. No I can’t build housing here. And no the market will not support new office space here. Sorry, but no. (See cost-plus pricing.)

    Development needs to give back. On the blog we usually call this city building. And that’s because it implies a greater sense of civic responsibility. Developers aren’t just building one-off buildings, they’re building a city. I believe wholeheartedly in this. But the belief that projects can be saddled with an endless array of government fees and civic contributions is a problematic one. There are limits — because markets have limits.

    If only city building were that easy.

  • Dubai’s housing crisis

    This week Bloomberg reported that Dubai is facing a “housing disaster” as a result of overbuilding. There’s simply too much supply coming onto the market. About 30,000 units are expected to be completed this year, which the industry believes is about 2x actual demand. As a result, the industry — yes, the development industry — is calling for a 1-2 year pause on all new construction in the city so that the excess units can be absorbed and demand can catch up.

    I’m not an expert on the Dubai market. And I’ve only been to the city once. But my sense is that there are relatively few barriers to new supply, especially compared to markets like Toronto and San Francisco. And so it’s not surprising to hear that supply is and has been outstripping demand. According to Bloomberg, the market peaked about 5 years ago.

    For the industry to call for a moratorium on new construction it must mean that there’s concern of a prolonged housing slump and perhaps even some sort of systemic collapse. But if the objective is more affordable housing, than you might argue that Dubai has been doing a pretty good job of that. Here is a global city with a “housing crisis” on the opposite end of the spectrum. So what is it that makes Dubai different than, say, London or San Francisco?

    Photo by David Rodrigo on Unsplash

  • New rental supply needs to double in Toronto

    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.

  • People are camping out in Opendoor’s homes

    Inc. Magazine just did a profile on Opendoor, which is a company that we have, of course, talked a lot about on this blog and that I continue to follow closely.

    It’s interesting to read about some of the challenges that they’ve been having as a result of their frictionless open houses. Since all you need is a smartphone, the company has been having the ongoing problem of people camping out in their listed homes. Sometimes for weeks. They’ve been working to address this by restricting the hours (6AM to 9PM) and by installing motion detectors. I am sure they will figure it out.

    The company is also having to be careful in terms of how it positions itself alongside realtors. There are many livelihoods at stake here. Here’s an excerpt from the article:

    During interviews, Wu has chosen his words carefully when discussing Opendoor’s potential to replace Realtors. “The reality with Realtors today,” he said on stage at the Startup Grind Global Conference in Silicon Valley in February, “is their role is shifting from project management–especially in our ecosystem, where we’re automating a lot of the processes–to advisement.”

    Fred Wilson (venture capitalist) has argued many times before on his blog that business model innovation is far more disruptive than technical innovation. I think it’s valuable to keep that in mind in the context of this discussion.

    Opendoor continues to charge a commission fee (sometimes a higher one than is typical), but it also makes money on the flipping of homes and it has plans to vertically integrate other aspects of the real estate business.

    Will that do it?

  • Average living space per person in Hong Kong

    This recent NY Times article — which makes the case that the current protests in Hong Kong are at least partially a result of inequality — has a pair of interesting diagrams that speak to the city’s tight housing market.

    The first compares average living space per person in Hong Kong to Paris and New York City. New York City appears palatial compared to the illegally subdivided apartments that are discussed in the article.

    The second looks at housing affordability as a multiple of median household income. Hong Kong is over 20x. I am curious what median incomes were used for each of the cities. A small denominator makes the multiples look worse.

    In this chart, New York also includes the entire metropolitan area, which would help to improve its affordability ranking. So one could argue that this isn’t really a fair comparison.

    At the same time, none of this changes the fact that Hong Kong has some of, if not, the most expensive housing in the world.

    Images: NY Times

  • Smart home market penetration in Canada and the US

    Here are the results of a Global Consumer Survey that was conducted in Canada this year (2019) and that asked respondents whether or not they own a smart home device. That is, a device that can be controlled via a smartphone / internet connection.

    Even with all of the concerns around privacy, virtual assistants (such as Amazon Alexa and Google Home) appear to be the most popular device with Canadians. Next are connected speakers and smart thermostats.

    The vast majority of respondents (68%) stated that they don’t own any smart home device. However, if you look at the trend lines for Canadian household penetration in the “smart home market,” this is naturally changing:

    Curiously, there appears to be a household penetration rate spread between Canada and the US, with the US exhibiting meaningfully higher numbers. Here is the US chart:

    Based on these charts, the lowest penetration rate appears to be for “energy management” devices, which would include anything that helps households reduce energy consumption. The rates are the lowest in the case of both Canada and the US.

    This is a bit unfortunate given that energy management is an important one. But it’s also one that isn’t best addressed with only a few smart devices. It should involve a more holistic approach to the way in which we design and build homes.

    All charts and data taken from Statista.

  • 17 years of inventory in Miami

    Miami has historically had a volatile housing market because of its position as a second-home destination and because of its dependency on Latin American buyers. There is perhaps no other housing market in the US with the same kind of overall reliance on capital from abroad. This recent article by Candace Taylor in the WSJ is yet another reminder that we are once again in one of those cycles. Below are two excerpts that I found interesting. Note the stats, particularly the last bit in bold. It is also a reminder that when housing supply exceeds demand, usually something happens: prices come down.

    At the same time, new condos launched just as the owners of older units looked to cash out. There were 691 condo sales in Miami Beach in the first quarter of 2019, down 24 percent from 909 in the first quarter of 2015. During the same period, single family homes sales dropped to 81 from 117. The threat of climate change has had some impact on Miami home buyers’ decisions. A 2018 study showed that the value of single-family homes near sea level in Miami-Dade County rose more slowly than that of homes at higher elevations. But agents said a greater threat to the high-end market is inventory buildup.

    Meanwhile, a strong dollar incentivizes international buyers to sell the units they already own, even at below-market prices. The result is a glut of condos for sale, both new and resale. In December 2018, there were 3,663 condo listings for sale in the greater downtown Miami area—more than double the 1,591 for sale in December of 2013, according to an Integra Realty Resources report. Sunny Isles, where new buildings include the 53-story Jade Signature, the Porsche Design Tower and the Turnberry Ocean Club, is estimated to have about 17 years of inventory of condos priced at $5 million and up.

  • Software developers are half of the homebuyers in San Francisco

    A couple of months ago I wrote about the relationship between IPOs and home prices. It was in response to the current wave of tech companies — most of which are headquartered in San Francisco — that have gone public or are expected to go public this year (2019). What impact will this have on the city’s housing market?

    I cited this academic study on the topic, which already discovered a “positive and significant association between local house price changes and firms going public.” But today I stumbled upon another interesting study by a San Francisco real estate agent, name Deniz Kahramaner, who happens to also be a Stanford-trained data scientist.

    What Kahramaner wanted to figure out was, who tends to buy residential real estate in San Francisco?

    So he started with title data and then scraped the internet to try and match up individual buyer names with specific companies and industries. Since not everyone has some sort of public profile and because real estate is sometimes held within a company, he was only able to traceback about 55% of home purchases in San Francisco last year.

    Still, the data looks pretty clear. About half of the homes bought in 2018 were by individuals whose employment has roots in “software.” The next biggest buyer segment was “finance.”

    The other interesting thing about this data set is that it shows where people have been buying (at least last year). Historically, the north end of the city has been the wealthiest, but the above data shows things moving in a southeasterly direction. Though, it remains to be seen what all of this will look like when the dust settles after this current crop of tech IPOs.

    Chart: The Atlantic

  • US cities with the highest millennial homeownership rates

    Across the 50 largest metro areas in the US, about 31.9% of millennials — those aged 18 to 34 — owned a home as of 2017. And according to recent census data (via the Redfin), only 5 of these cities had a millennial homeownership rate higher than 35%. They are as follows:

    The top spot goes to Salt Lake City, which sits at just over 40%. It also has the highest share of businesses owned by millennials at 8.4%. Not surprisingly, the cities on this list all have relatively affordable home prices, with Detroit being the most affordable.

    I think you could interpret this list as a bit of a leading indicator for US cities on the rise. Affordability, and walkability, may be the draws today, but as millennials lay down roots, start businesses and earn more money, I am sure we’ll see these cities transform even further.