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 policy

  • Condominiums — affordable or luxury?

    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?

    Photo by Marcos Paulo Prado on Unsplash

  • Adding missing middle housing in Vancouver

    The City of Vancouver recently published this video talking about missing middle housing. For those of you who are following this trend (and reading this blog), there won’t be a lot that is new in the video (although Uytae Lee is great). But I’m sharing it here, anyway, for three reasons. One, it’s an example of Toronto being ahead of Vancouver, which wasn’t the case with laneway housing. Vancouver started allowing these first. Two, it is further evidence that this shift toward intensifying low-rise residential neighbourhoods is really happening — and gaining momentum — all across North America. And three, the City of Vancouver is about to bring forward new multiplex housing policies. So now is a good time to get involved and say things.

  • What are the opportunity costs of not building new housing?

    The stated policy goal of inclusionary zoning is to to produce more affordable housing. We can debate who ultimately pays for this below-market housing, and we have many times before on the blog, but for the purposes of this post let’s just focus on its stated goal.

    Given this ambition, it makes sense to carefully measure the number of affordable homes produced. And that is ordinarily what is done: “We implemented this new policy on this date, and since then we have produced X amount of new affordable housing.”

    It is then likely that we will take X and form opinions on whether it was a successful policy or not. If X seems like a lot, then maybe we think it’s a good policy. And if X doesn’t seem like a lot, then maybe we think it was a bad policy, or perhaps just an ineffective one.

    But what is largely impossible to measure with any real precision is the number of new market-rate homes that are now not being built as a result of a policy. Let’s call this number Y. It is, of course, possible to come up with an estimate by looking broadly at rents across the city, plugging in some development costs, and seeing what pencils. But this is a rough approximation.

    It does not capture the countless times that a developer has looked at a possible housing site, only to come to the conclusion that it is not feasible to build. There is no official Y figure. And any amorphous estimates of Y are going to be easy to ignore by the general public anyway. Unbuilt homes? Opportunity costs? What?

    I am saying (okay repeating) all of this because I continue to feel like most people believe that development will just happen no matter what is thrown at it. There is a housing shortage, right? So developers should just do what they do best and build today. Surely they could if they were genuinely nice people and really wanted to. Hmm.

    What many people seem to ignore (or not know) is that development, and in turn new housing supply, operates under this very simple decision tree:

    • Find development site
    • Underwrite said site
    • If math works, seek capital/investors and then build
    • If math does not work, do not build
    • If math works, but capital doesn’t like it, also do not build (most can’t in this scenario)
    • Repeat

    Just because you aren’t seeing or noticing something, it does not mean that it doesn’t exist and that it’s not happening behind the scenes.

  • No more foreign buyers

    Here’s the thing about housing:

    The delegates insisted on one hand that “housing is for living not speculation”, but on the other, emphasised the critical importance of real estate to China’s economic growth.

    In other words, things are complicated. We want housing to be affordable to more people, but at the same time, we recognize that housing appreciation is kind of useful for overall economic growth. So we’re a bit conflicted. And that may be why we tend to take contradictory actions.

    Broadly speaking, the current playbook in Canada seems to be as follows: heavily tax new housing, force those who can afford new market-rate housing to subsidize those who can’t, and then tax/ban foreign buyers.

    Canada’s new foreign buyer ban came into effect on January 1 of this year. And for the next 2 years, it prohibits companies and people who are not Canadian citizens or permanent residents from acquiring non-recreational, residential property in Canada. (What is the definition of non-recreational?)

    While this may sound good to some — finally, more homes for Canadians — we’re talking about a relatively small portion of the market, which is likely why there’s also little evidence that any of our foreign buyer taxes have been all that effective.

    It’s really hard to imagine this one working much better. But it certainly sounds like something.

  • How 20% affordable can impact development pro formas

    This Twitter thread by Richard Wittstock of Domus Homes (developer out in Vancouver) is a timely follow-on to yesterday’s post about housing supply, land-use regulations, and specific policies such as inclusionary zoning. What Richard clearly describes in his thread is the economic impact of a Community Amenity Contribution (CAC) that requires developers to provide 20% social housing.

    The thread will walk you through all of the specific numbers, but I think there are three important takeaways:

    1. Everything has a cost. It is entirely disingenuous for anyone to refer to inclusionary zoning or other similar policies as a mechanism for “no-cost” affordable housing. Even if you believe it is the right public policy approach, there is still a cost. Social housing doesn’t just appear out of thin air.
    2. In Richard’s thread, the remaining market rate condominiums end up needing to be sold for $1,750 psf in order for the entire project to pencil. This is a significant number. But in this case, it is a result of these homes needing to shoulder the cost of the social housing. It is basically saying “housing is too expensive, so let’s make it more expensive so that we can use some of the incremental proceeds to finance less expensive housing.”
    3. If the math doesn’t work, developers will not build new housing.

    P.S. Thank you Volodya Gusak for pointing out Richard’s thread to me.

  • How to repair America’s broken housing systems

    As a general rule I don’t like to recommend books that I haven’t read yet. And so I’m not here today to recommend Jenny Schuetz’s new book about how to repair America’s crumbling housing policies. Instead, I’m just telling you all about it. You can then do your own research and decide if it’s worthy of your time. The premise sounds good though:

    Unequal housing systems didn’t just emerge from natural economic and social forces. Public policies enacted by federal, state, and local governments helped create and reinforce the bad housing outcomes endured by too many people. Taxes, zoning, institutional discrimination, and the location and quality of schools, roads, public transit, and other public services are among the policies that created inequalities in the nation’s housing patterns.

    This may be confirmation bias at work but I continue to feel like there’s a groundswell of interest in housing reform. In particular, there seems to be a growing interest in rethinking the privileges that we have decided to bestow upon low-rise housing (at least in this part of the world). But of course, that’s only one part of what is ultimately a complex set of systems.

  • New Zealand just abolished single-family zoning (for the most part)

    New Zealand has been in the news lately for sweeping housing legislation that effectively abolishes single-family zoning throughout most of Auckland, Hamilton, Tauranga, Wellington, and Christchurch.

    But before I get into how this will all work, here’s a bit of background from an article that Matt Gurney wrote talking about Toronto’s inability to build affordable housing and create safe streets:

    Now it’s time to segue back to the New Zealand thing, and there’s no particularly graceful way to do it, so I’ll just be blunt and inelegant: the federal government in New Zealand intervened on local housing rules because there was a crisis that local leaders were unable or unwilling to address. New Zealand has severe housing-affordability challenges (though Canada seems determined to close the gap). This has been a problem in New Zealand for years, and not enough was done, so the federal government stepped in… The government expects this to immediately spur construction of new housing units.

    It is no doubt a top down approach. But we all know how difficult it is to build anything at all when you start from the other end.

    So the way this new legislation will work is that it forces local councils to allow landowners to build up to 3 homes and 3 storeys on most lots. This is instead of 1 home per lot. The maximum site coverage has also been increased to 50%. And all of this will be available on an as-of-right basis, so no special permissions or variances needed.

    The pitch is that this will unlock as many as 105,000 new homes in already built-up areas. This is, of course, a good thing for a whole host of reasons. It uses land and infrastructure more efficiently, it makes public transit more viable, and it increases housing supply in a highly constrained market.

    I suspect that we will be seeing a lot more of this in the coming years.

  • The numerical impacts of inclusionary zoning

    Our cost consultant, Finnegan Marshall, gave our team a presentation today on what’s happening with construction costs in Toronto and across Canada. I’ve said this before, but hard costs are no joke right now.

    One of the areas that they focused on was the impact that inclusionary zoning is likely to have on development economics here in Toronto. To illustrate the point, a sample high-rise condominium pro forma was used. Think something in the 30-35 storey range.

    Assuming a requirement of 10% affordable (the policy details are still TBD), there is going to be a real cost to development pro formas that will need to be somehow paid for.

    One school of thought is that land prices will simply adjust downward. In this case, the landowner would be the one paying. I don’t think this will be the case (land prices tend to be sticky), but if they were to adjust downward, it would need to drop by $44 per square foot buildable to maintain the project’s margins in this example. (That’s $13.2 million on a 300,000 sf project.)

    If, on the other hand, the price of the remaining market rate condominium suites were to increase to offset the cost of the affordable component, they would need to increase by $91 per square foot. This translates, in the above example, into a sticker price increase of approximately $60,000 per suite.

    These numbers are, of course, not exact. That is not the point of this post. Every project is different. But hopefully it gives you an idea of some of the levers that will invariably need to be pulled when inclusionary zoning comes into force.

    My sense is that this latter scenario is more likely to happen. I have yet to see land prices adjust downward in the face of rising costs. So all of this is likely to be bad for broad-based affordability, but good if you want to be bullish on market rate home prices.

  • Should rooming houses be allowed across the city?

    One of the debates I came across on Twitter this week was about multi-tenant houses (also known as rooming houses) in Toronto. Currently, they are allowed in the former city of Toronto, parts of Etobicoke, and in York. But they are illegal everywhere else in the city.

    The reason why the rules differ is simply because they weren’t harmonized following amalgamation in 1998. And so right now we are debating whether or not things should be changed so that multi-tenant houses are permissible across the city.

    As you can probably guess, it’s a divisive issue.

    The more urban councillors believe that rooming houses are vital because of their relative affordability. The more suburban councillors are, on the other hand, speaking for their constituents and saying that homeowners really don’t want them in their communities. It’s about “protecting the integrity of single-family communities.”

    No surprise here.

    For this reason, a recent vote on the issue was deferred. It’s expected to come back to council in September. Maybe there will be more support at that time. Or maybe there won’t be. Either way, rooming houses will continue to exist all across the city. Some of them may just be illegal.

    If I had any say in the matter, I would vote “yes.”

  • The America we need

    The New York Times is running an opinion series right now called, The America We Need. It is all about how the US might emerge from this crisis “with a fair, resilient society.” This piece by Carol Galante covers many of the topics that we discuss on this blog. Carol is a former city planner and nonprofit housing developer. She is now the faculty director of the Terner Center for Housing Innovation at UC, Berkeley. Here are a couple of excerpts from her article that I think will resonate with many of you:

    There are two things we know: The U.S. economy will recover. And the recovery will start in and be strongest in the same cities that were thriving before the pandemic. Economies in places like Seattle, San Francisco, New York and Boston are driven by the innovation, technology and biotech sectors, which are proving to be remarkably resilient to the impacts of Covid-19.

    We have an obligation to ignore the short-term reactionary impulse to blame density for the spread of the coronavirus and instead use this opportunity to rethink the policies that impede the construction of new housing, at more price levels, in the places where housing is most needed.

    In my subsequent career as a nonprofit housing developer working in prosperous coastal California communities, I spent far too many nights in City Council meetings working to get apartment buildings for lower-income older people and families approved. Underlying the “density” battle was almost always a battle over who has access to the opportunities of a place and who doesn’t, cloaked in arguments about neighborhood character and traffic impacts.