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

  • Junction House featured in the Toronto Star

    This morning the Toronto Star published a profile piece on one of Junction House’s earliest purchasers: Barbara Martinez. Barbara downsized from a house to a 1-bedroom condominium in Roncesvalles, but then realized that she still wanted space to entertain and have guests over. So she decided to buy a 3-bedroom penthouse at Junction House with an approximately 350 square foot terrace. That’ll work. It is truly one of the nicest suites in the building, and will come equipped with a view of the Toronto skyline that looks something like this (see background projection below):

    I am quoted in the article as saying that mid-rise condominiums in Toronto’s neighborhoods naturally tend to attract a different set of buyers compared to, say, a downtown tower. That is true and we are seeing it play out at Junction House. Yes, we have 1-bedroom suites that are perfect for young professionals and/or investors, but we also have some spectacular 2-storey suites (the House Collection) and larger single-storey suites for people just like Barbara. Congratulations on your new home purchase!

    Photos: Steve Russell for the Toronto Star

  • IPOs and home prices

    Fred Wilson made an interesting remark in his recent post about the current “IPO bonanza” that is taking place in the tech space. He is, of course, talking about the recent IPO of Lyft, the recent S-1 filings from Pinterest and others, and the expected filings from Uber, Airbnb, and so on.

    After listing the benefits of going public, he went on to say that this bonanza will surely also mean that it is going to become even more unaffordable in the Bay Area. Part of this is perhaps self-serving, since he operates a VC firm out of NYC. (Take your money and move to NYC.)

    But the data suggests that there is truth to this.

    When Twitter when public in 2013, it was estimated that it created some 1,600 millionaires. This is great for the local startup ecosystem as many of these beneficiaries could go on to found their own companies and create a whole new batch of jobs. The money gets recycled.

    But what does it do to the local housing market — especially a supply-constrained one like that of the Bay Area where it is difficult to build?

    In 2018, Barney Hartman-Glaser, Mark Thibodeau, and Jiro Yoshida penned a paper called, Cash to Spend: IPO Wealth and House Prices. In it, they looked at the impact of IPOs on local home prices in California from 1993 through to 2017.

    What they found, among other things, was a “positive and significant association between local house price changes and firms going public.” The price increases were also found to be the greatest the closer you get to the headquarters of the firm that just went public.

    If you’d like to download a copy of the paper, you can do that here.

  • Homes for as low as $1

    I was reading today about some houses in Boca Raton, Florida selling for as low as $1.

    The reason they’re selling for nothing, in some cases, is because you’re required to join the local golf/country club as part of the purchase. Initiation fees could be in the range of $70,000 and that doesn’t include whatever ongoing fees you would also be responsible for paying.

    What this demonstrates is that there isn’t enough demand from the next generation to sustain the pricing for this housing type. Part of this probably has to do with simply cohort size (the number of people retiring), but I suspect that there may have also been some changes in consumer preference.

    Some of it is probably golf related. Participation in the sport is relatively tepid among Millennials. And some of it may be related to the fact that these communities don’t have the kind of (urban?) amenities that the next generation is looking for.

    But if you derived enjoyment from the home during your retirement years, maybe it’s not the end of the world that there isn’t a strong resale market.

  • Junction House is a finalist in the 39th Annual BILD Awards

    I am excited to announce that Junction House is a 2019 finalist in the 39th Annual BILD Awards. The project is up for the following 4 awards:

    1. Best Signage (it was probably the neon that did it)
    2. Best Suite Design (large suite)
    3. Best Innovative Suite Design (it’s a suite from our unique 2-storey House Collection)
    4. Best Mid-Rise Building Design

    This last one is a “Pinnacle” award, but I’ll be honest in that I don’t know what that means. It sounds impressive though.

    BILD received some 850 submissions this year, so kudos to the project team: Superkül, Dialogue 38, Vanderbrand, Unique Urban Homes, DTAH, WND Associates, and others.

    We spend an inordinate amount of time on our floor plans — they are people’s eventual homes. So it’s nice to see a bit of that effort reflected above.

  • How impactful will the new First-Time Home Buyer Incentive be?

    This week’s federal budget announced two measures that are intended to improve housing affordability.

    The first is a modification to the Home Buyers’ Plan. This is a plan that gives first-time home buyers the ability to do a tax-free withdrawal from their RRSP (it does, however, have to be repaid within 15 years). The withdrawal limit was increased from $25,000 to $35,000.

    The second measure, which is the one that got everyone’s attention, is the new First-Time Home Buyer Incentive. Through this program, CMHC will offer first-time home buyers (who have the minimum down payment required for an insured mortgage) the option of a “CMHC shared equity mortgage.”

    What this effectively means is that CMHC will give first-time buyers an interest-free contribution for 10% of the purchase price of a new home (5% in the case of a resale). There’s no interest, but it does need to be paid back at the time of a sale. The higher percentage for new build homes is intended to stimulate housing supply.

    It is still not clear whether CMHC will be expecting to participate in any increase (or decrease) in the value of the properties. But presumably, yes, since it’s called a “shared equity mortgage.” All of this is expected to come into force by the fall.

    Here’s an example of how this program is intended to work.

    If a first-time buyer purchases a new home for $400,000 with a 5% down payment, the insured mortgage amount would normally be $380,000. This is the highest loan-to-value you can get with CMHC mortgage loan insurance. With this new measure, the mortgage size would reduce to $340,000 and so the purchaser’s monthly debt service would drop accordingly, thereby helping with overall affordability.

    The caveat to all of this is that this incentive will only be available to first-time home buyers with a household income under $120,000, and the insured mortgage and incentive amount cannot be greater than 4x the participants’ annual household income.

    What this means is that this program really only touches the sub $500,000 market. And in highly desirable cities like Toronto and Vancouver, that market isn’t all that big.

  • European-style height, but not density

    As I wrote about last month in this pithy post, the relationship between building height and density are often misunderstood. They mean different things and so the implications for our cities can also be vastly different.

    I woke up this morning to a couple of tweets by John Michael McGrath that I think hit the nail on the end with respect to this duality. If you can’t see them below, click here.

    https://twitter.com/jm_mcgrath/status/1105500872979742720

    Paris is known, and largely celebrated, for its “European-scaled” mid-rise buildings. But as John points out, these buildings often line narrow streets (see above). They are typically also built across large blocks with compact internal courtyards and with few setbacks and/or stepbacks. The combined result is that Paris is one of the densest cities in Europe. It has mid-rise at scale.

    The North American context is quite different. The large majority of our land is usually reserved for low density housing. (Here in Toronto this land has been nicknamed the “Yellowbelt.”) We have a policy context that only allows intensification in select places, and that can create pressures to build up. It’s a bit like squeezing a closed tube of toothpaste.

    In 2012, Eurostat ranked Paris as the densest city in Europe with an average population density of approximately 21,516 people per square kilometer. Whereas, according to Wikipedia, the population density of metro Toronto was around 5,905 people per square kilometer in 2016.

    What is it, again, that we love so much about Paris?

  • New York’s “pied-à-terre tax” explained

    New York is close to implementing new “pied-à-terre tax.” If the bill passes, which the New York Times believes is likely, cities of a million or more people will be able to levy an additional property tax on non-primary residence homes worth $5 million or more. The additional tax would be based on the following sliding scale:

    So let’s say for argument sake that you own a pied-à-terre in New York City worth approximately $238 million. Based on the above, your additional tax would be $370,000 + [4% x ($238 million – ~$25 million)]. That’s almost $8.9 million. Most of the revenue from this tax is expected to come from this upper (and open-ended) valuation bracket.

    New York City estimates that the tax could bring in about $650 million annually. The state in turn believes it could then raise $9 billion in bonds. And the intent is that these additional funds could be used to fund things like transit and housing. I am curious how elastic the demand is for trophy real estate in New York.

    Another thing I noticed while reading up on this bill is that the New York State Senate has made it pretty easy to voice your opinion on proposed legislation. On the sidebar of every bill making its way through the system is a box that looks like this:

    This is probably the clearest engagement tool I have ever seen on a government website. Do you think something like this could work for new housing?

  • The new American condo

    Every year since 1984, the National Association of Home Builders (in the United States) has commissioned a home with the goal of showcasing new trends and technologies in the industry. At the same time, it also serves as a kind of dream home. This is what one should aspire to achieve. The initiative is called the New American Home (TNAH).

    The first home was built in Houston by Village Builders. The architect was Booth/Hansen & Associates and the home was about 1,500 square feet. It cost $80,000. Last year the home was in Montverde, Florida and was about 10,690 square feet (6,676 square feet of air-conditioned space). Not surprisingly, these homes have grown over the decades.

    According to a recent New York Times opinion piece by Allison Arieff — called, The New ‘Dream Home’ Should be a Condo — the square footage of this New American Home has been steadily rising:

    This is, of course, reflective of what has been happening in the market as a whole. According to Arieff, the average size of a new U.S. home today is about 1,000 square feet larger than it was in 1973. The average space per human has increased from 507 to about 971 square feet. As our wealth has grown we have naturally become more consumptive.

    But as Arieff asks in her article:

    What if the next New American Home was a condo? And what if there was a new American dream, not of auto-dependent suburbia, but walkable urbanism?

    She then contrasts last year’s 10,000 square foot “Tuscan style” New American Home against this 6 unit urban infill condo project in Los Angeles, where the average home is about 1,800 square feet and the building in its entirety is around 11,000 square feet.

    Which one would you prefer?

    Charts: New York Times

  • Price of a new condominium in Toronto increased 12.5% over the last year

    This morning BILD and Altus Group released their January 2019 new home sales figures for the Greater Toronto Area.

    Here are the highlights:

    • 1,362 new homes sold in January 2019 across the GTA. This is up 14% compared to last January.
    • Of these, 942 (~69%) were condominiums (includes low, mid, and high-rise, as well as townhouses). And 420 (~31%) were single-family homes (includes detached, semi-detached, and freehold townhouses).
    • Condominium sales volume is sitting only about 5% below the 10-year average and the benchmark price increased this month to $803,638, which represents a 12.5% year-over-year increase.
    • On the other hand, single-family home sales are down about 53% from the 10-year average and the benchmark price decreased by about 8.1% compared to last year. It is sitting at $1,130,046.

    While there continues to be a bifurcation in the new home market, we are seeing improvements across the board and the data is consistent with Altus’ prediction that 2019 will see an increase in overall sales.

    It is also important to consider how geography might factor into the above numbers. Here are the January sales numbers for the last three years broken down by region within the GTA:

    Just under 80% of the new condominiums sold last month took place in Toronto, whereas only about 1.2% of the single-family homes sold last month took place in the city. You can count them on one hand. There were only 5.

    So rather than just look at this in terms of housing type, I think the other way to interpret the data is that it could suggest strong and continued demand for centrally located and transit-oriented communities.

    And that just so happens to translate into a condominium.

    Photo by Eugene Aikimov on Unsplash

  • Algorithmic home buying — what’s the end game?

    Bloomberg recently published a good summary of Zillow’s business and their move into algorithm home buying and flipping. (They are trying to avoid the “flipping” moniker because of the negative connotations associated with it.)

    Zillow started buying homes directly from owners last spring. They charge the seller between 6-9%, so more than using a typical agent, but inline with their competitors. There’s clearly a segment of the market willing to pay a premium for the added convenience.

    The thinking used to be that discount brokerages were the way to disrupt the housing market. This is the opposite strategy.

    Interestingly enough, Zillow felt that they needed to make this pivot with their business model. It used to be about selling ads. They were definitive in that they were not a disruptor of real estate agents.

    But now:

    If getting an offer from an iBuyer became a crucial step in the selling process, they worried, Zillow could lose its audience and its advertising base. What’s more, market researchers kept finding that consumers said they’d pay a modest premium to get a cash offer. “People expect to press a button and have magic happen,” says Rascoff, a 43-year-old former Expedia executive who’d earlier started the travel search engine Hotwire, which he sold to Expedia for $700 million. Getting into the business of buying homes directly, Rascoff says, was “the only way to remain in a leadership position.”

    Here is a map of the companies in this particular space and the cities in which they operate:

    Some investors aren’t sold on this strategy and have begun short selling Zillow (according to the Bloomberg article). I keep getting the sense that there’s a greater end game in the cards here. It is about building up A (algorithmic home buying and flipping) in order to unlock B.

    But what’s B — a new end-to-end transactional model for the housing market?