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 supply

  • A template for opposing new housing

    Okay, I really don’t want to make this — using ChatGPT to write my blog posts for me — a habit. But I was genuinely curious what would happen if I asked it to: “write a stereotypical NIMBY letter opposing a new housing development.” Here’s what it generated.

    Dear Sir/Madam,

    I am writing to express my strong opposition to the proposed housing development in our neighborhood. While I understand the need for affordable housing in our city, I believe that this project would have a detrimental impact on our community.

    First and foremost, the proposed development is simply too large for our area. The increase in population density would put a strain on our already overburdened infrastructure, leading to increased traffic congestion, noise pollution, and strain on our public services. Additionally, the construction of this project would result in significant environmental damage, destroying natural habitats and putting wildlife at risk.

    Furthermore, the type of housing being proposed is simply not in keeping with the character of our neighborhood. This development would bring in a large number of low-income residents, which could lead to increased crime rates and other negative social effects. It would also drastically alter the aesthetic of our area, replacing the existing greenery and open spaces with a monolithic, high-density housing complex.

    Finally, I am deeply concerned about the impact this development would have on property values in the surrounding area. The influx of low-income residents could result in a decline in property values, making it difficult for current residents to sell their homes and move elsewhere.

    In conclusion, I strongly urge you to reconsider this proposed housing development. While I recognize the need for affordable housing, I believe that this project is simply not the right fit for our neighborhood. Thank you for your attention to this matter.

    Sincerely, [Your Name]

    I must say that I’m impressed. It is a solid 5-paragraph letter that follows a tried and true formula. First, the entire letter is sandwiched between thinly veiled statements around the importance of housing. Both the introduction and conclusion speak to “the need for affordable housing.”

    And then in the middle of the letter, it hits on the holy trinity of opposition arguments: (1) overburdened/inadequate infrastructure, (2) neighborhood character, and (3) property values. I’m not sure there’s much to improve on here. These computers are good.

    So if you happen to need one of these, you may want to try ChatGPT.

  • Hong Kong is building new “light public housing” — why?

    We have spoken before about how the average wait time for public housing in Hong Kong is now over 6 years. This is a problem for the quarter million people who are on this list, and so the city has decided to start building modular housing as a kind of stopgap:

    The city has embarked on a $3.3 billion plan to build about 30,000 temporary apartments over the next five years, which Housing Secretary Winnie Ho has said is a “very important social project.” The aim of the program is to give people an option to move out of cramped quarters while waiting for public housing. Critics say it only shows the government’s inability to deliver enough permanent homes.

    I think many would agree that “light public housing”, which is what this is being called, is probably better than no public housing. But is this really the most effective move? According to some sources, this light varietal may actually cost more to build than their typical public housing.

    So why even bother? Is it just speed? I’m not sure.

    Also, it is interesting to note that even in a city as dense, built out, and in need of housing as Hong Kong, finding support for new development can be a challenge:

    “We understand that Hong Kong needs land to build public housing for people in need, so we never objected until this time,” said Andy Ng, an accountant who bought an apartment in the Upper RiverBank project early last year. The government is squeezing thousands of people on a single plot of land without planning or consultation, he added. “The district simply can’t stomach so many people.”

  • How affordable is a Nabr home?

    We have been speaking about Nabr and the productization of housing for the last year (and, more broadly, about prefabricated housing for probably as long as this blog has existed). And now it is possible to go on to Nabr’s website and reserve a new home in their San Jose project. Here’s what that looks like:

    What is immediately clear is that this is an obvious improvement over the way that new homes are typically purchased. The pricing is transparent. You can easily see the floor plan and features of each home. And if you’d like to reserve one, you can go ahead and do that right away for $1,000:

    You can also specify whether or not you’re interested in Nabr’s lease-to-purchase program (known as LEAP). More information on that can be found, over here.

    But the exciting question remains whether thinking about and executing on this new housing as a product, rather than as an individual project, will ultimately bring greater cost efficiencies and savings. In other words: can it make housing more affordable?

    Today, the base pricing for SoFA One looks something like this:

    • Home 1002: $1,415,000, ~1080 sf (excluding exterior space), $1,310 psf
    • Home 1003: $2,144,000, ~1547 sf (excluding exterior space), $1,386 psf
    • Home 1108: $938,000, ~795 sf (excluding exterior space), $1,180 psf

    These are just the first 3 homes that showed up for me when I opened the website. And while I’m not intimately familiar with the San Jose housing market, Realtor tells me that the median sold price is $1.2 million and that the median list price per square foot is about $766.

    Though not really an apples-to-apples comparison, this suggests to me that the above pricing may not be as affordable as some people were hoping for. However, it is more or less where I figured pricing would need to be in order to make a high-rise project like this pencil.

    Does this change over time with more product scale? I think it could.

  • Non-Canadians can’t buy a lot of real estate

    The Prohibition on the Purchase of Residential Property by Non-Canadians Act — which came into effect in January of this year and bans foreigners from buying residential real estate in the country for two years — is weird.

    We can debate whether banning foreigners from buying residential real estate is really helpful for housing affordability and if it’s the most impactful place to focus our attention (and we have talked about this many times before), but the part that is particularly odd is this feature here:

    …the law’s definition of residential property includes land that is zoned for residential use or mixed use, which covers huge swaths of commercial land across the country. As well, an entity is deemed foreign if a non-Canadian owns a minimum of 3 per cent of the entity.

    What this means is that the following scenario is now technically a problem (not actual legal advice!):

    • You own a commercial property with zero homes
    • You have long-term commercial leases in place that also generally preclude you from building new homes in the foreseeable future
    • The zoning of your property allows for residential uses (which you like having in your back pocket)
    • And your cousin from Italy owns 3% of the entity that owns the real estate

    This is a scenario where residential homes do not exist and they are unlikely to exist any time soon. It seems clear cut, but I suppose one could argue that it’s exceedingly onerous to try and figure out which sites are soft sites and could actually be developed with new residential. And so if you have the potential to build and then own residential, you should be regulated as if you might ultimately own some of it one day.

    But even here, I don’t know why we would want to restrict the supply side of the housing equation. If you’re a developer in Canada where housing is known to be kind of expensive and you want to build more of it for Canadians, isn’t that a good thing? And isn’t it also a good thing if we can get some non-Canadians to help pay for these new homes?

  • Victoria, BC passes missing middle housing initiative

    The City of Victoria, BC did a good thing last week: It passed its “Missing Middle Housing Initiative“, which means that up 6 dwelling units (their language not mine) will soon be permissible on every single-family lot in the city, and up to 12 dwelling units will be permissible in “corner townhouses”. These land uses changes come into effect on Sunday, March 12, 2023 (45 days after adoption).

    Here on the blog, we’ve been talking about this shift toward intensifying our single-family neighborhoods for many years. And momentum clearly continues to grow. At face value, this appears to be one of the more enlightened moves by a city: 6 homes and 12 homes. Though these headline numbers may have something to do with the average lot sizes in Victoria. Either way, the devil is in the details. And here are some of those details:

    What is positive to see is that a number of other zoning requirements have been updated. Because it’s not enough to just say, “Hey, we’re going to allow more homes on each lot. There, we’ve done something. Developers, go and do that.” Here, the allowable height has been increased, setbacks have been decreased, and the floor space ratio (site density) has been increased from 0.5 to 1.1 (assuming you do at least one amenity contribution).

    I don’t know if this is exactly right and if it’s everything that developers will need in order to start building a lot more missing middle housing in Victoria. (If you’re a local developer, please let me know in the comment section below.) But I think it’s certainly a step in the right direction.

  • 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.

  • Development is slow

    Whenever we submit a development application for a new project, we typically get a ton of inbounds from people who are looking to sell us something, partner in some way, or buy/rent space in the development. These can be positive connections and we have completed deals based on these sorts of inbounds.

    But what is clear to me is that many people do not understand the development process and how long it takes to actually bring a new building to fruition. By the time a development application is filed, it is not uncommon for the developer to have already been working on the project for at least a year, and oftentimes longer in the case of more complicated projects.

    And after the application is filed, it is not uncommon (at least in this city region) for the approvals process to take another few years. We have projects that are on year 7 and we still can’t put shovels in the ground. This is a bit of a unique situation, but even still, when it’s all said and done, a “typical” mid-rise or high-rise project could take 7-10 years from beginning to end. And sometimes longer.

    A decade is a long time. So it’s no wonder that low-rise sprawling cities with permissive land-use policies tend to have more elastic housing supply. Quicker builds. And quicker approvals.

    I say all this not because I expect everyone to understand how the development process works. I’m saying it because maybe if more people knew how long everything takes, they’d be more open to streamlining the delivery process and to encouraging the construction of more missing middle housing.

  • The effect of new market-rate housing construction on the low-income housing market

    Here is an interesting working paper that assesses the effect of new market-rate housing construction on the low-income housing market:

    Increasing supply is frequently proposed as a solution to rising housing costs. However, there is little evidence on how new market-rate construction—which is typically expensive—affects the market for lower quality housing in the short run. I begin by using address history data to identify 52,000 residents of new multifamily buildings in large cities, their previous address, the current residents of those addresses, and so on. This sequence quickly adds lower-income neighborhoods, suggesting that strong migratory connections link the low-income market to new construction. Next, I combine the address histories with a simulation model to estimate that building 100 new market-rate units leads 45-70 and 17-39 people to move out of below-median and bottom-quintile income tracts, respectively, with almost all of the effect occurring within five years. This suggests that new construction reduces demand and loosens the housing market in low and middle-income areas, even in the short run.

    This paper is not suggesting that everything will be fine so long as you build lots of new and expensive market-rate housing. But it is suggesting that a “filtering” of housing downward does oftentimes take place.

    When you build new supply, you tend to free up some existing supply, and that generally has the opposite effect of what we recently spoke about here, which is an instance of housing filtering upward.

  • What gentrification looks like

    One criticism that you will sometimes hear about development is that the construction of new housing can spur gentrification. The thinking, I think, is that when you create new market-rate housing, richer people will then move in and the area will begin (or continue) its ascent upwards.

    If on the other hand, one were to just stop developing new housing, then the neighborhood would remain stable and static and the fear of gentrification would simply go away. But the flaw in this line of thinking is that it assumes no infill development equals some sort of urban homeostasis.

    Cities are constantly changing. The reality is that what we are talking about, particularly in the case of low-rise single-family areas, is that we want the physical character of neighborhoods to remain more or less the same. But what happens on the inside is whatever.

    Here’s an example:

    https://twitter.com/LenniBug/status/1593645422370848777?s=20&t=goCZ5T0V7CX6VEclAdMnNg

    What you are seeing here are 4 electricity meters, meaning that at some point this structure housed 4 separate homes. But 3 of the 4 meters have now been removed, which presumably means that this structure has been converted (probably back) to a single-family home. So this is 4 homes being reduced to 1.

    I don’t know what this place looks like on the outside, but I’m going to guess that not much has changed in terms of its physical character. It probably looks about the same. But this is still gentrification; it is still an example of a neighborhood moving upmarket.

    The irony is that we tend to be generally okay with this change. We are okay with reducing the number of homes in a neighborhood so long as it happens in a largely inconspicuous and convenient way. But what we are (sometimes) not okay with is increasing the number of homes in a neighborhood. Apparently that creates too much pressure on the existing housing stock.

  • 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.