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

  • Landed is helping teachers buy homes

    The average salary of a teacher in the United States was approximately $61,730 last year. This can make homeownership in high cost areas a challenge.

    Here is a chart from Curbed:

    Landed is trying to solve this problem by offering downpayment assistance to “essential professionals” — starting first with teachers — so that they can buy homes in and near the communities that they serve.

    The way it works is pretty simple.

    They’ll contribute up to half of a traditional 20% downpayment — so 10% of the value of the home — in exchange for a 25% share in any future gains, or losses.

    Put differently, for every 1% that Landed contributes, it takes 2.5% of any future appreciation (or depreciation). However, on an equity basis, they are actually putting up 50% of the required cash (in the maximum scenario) in order to get 25% of any future gains.

    There’s no monthly payment associated with Landed’s money, but it does need to be repaid at the end of 30 years or when the homeowner exits the agreement, whichever comes first. Homeowners are free to repay Landed at any time should they decide to sell the property or they just want to pay them out.

    Landed pitches the service as another version of “the bank of mom and dad.” And for many prospective homeowners, I am sure that it makes all the difference in the world.

    At first glance, it would seem that each homeowner also benefits from a kind of positive leverage. They only put up 50% of the required equity, but they get to enjoy 75% of the potential gains. However, each homeowner is also responsible for 100% of the carrying costs.

    I ran a couple of quick return scenarios, assuming a $500,000 purchase price and a 10 year hold, in order to test whether Landed or the homeowner would receive a higher IRR once the property gets sold.

    I didn’t carry any transaction costs, but I did factor in principal recapture, as well as utilities, insurance, and maintenance.

    My rough numbers suggest that it depends on the annual rate of appreciation. If appreciation stays close to the rate of inflation, it could tip in favor of Landed because they don’t put out any money after t = 0.

    But at higher rates of appreciation, the homeowner starts to benefit from the favorable 75/25 split at the end of the hold period.

    Either way, Landed is providing a service to people who may not otherwise be able to afford to buy a home. That has value. Here’s some more information on how it works, in case you’re interested.

  • Redfin is rolling out an online purchase option for homes

    There’s a lot of money at work right now trying to reinvent the way that homes are bought and sold. Perhaps the most popular trend is “instant buying” or algorithmic home buying. I have been writing about this for years, mostly because of Opendoor. But now there are lots of companies competing in this space. With this model, home sellers get the benefit of an almost immediate sale, though usually it’s at a slightly lower price.

    Redfin, on the other hand, is returning to something that it first tried out back in 2006: a buy now button on its online listings. It failed back then. But maybe it was simply too early. The feature allows unrepresented buyers — that is, buyers without an agent — to make online offers. Naturally, it’s far from a single click process. But when accepted, the seller ends up paying about half the amount of commission.

    According to the New York Times, the company started testing the feature in late March in the Boston area. Of the 120 homes listed on Redfin with a “start an offer” button, 5 ended up being purchased via an online bid. That’s more than I would have expected. But Redfin positions these offers as being the stronger option because they save sellers money. There’s also an option to tour the home on your own.

    Given this initial response, the company is now working to roll out this feature nationally, market by market. Is this the future of home buying?

  • Laneway suites all across the city

    As of August 2018, the City of Toronto has allowed laneway suites (accessory dwelling units) to be built as-of-right in the Toronto and East York area of the city (subject to meeting some criteria).

    This was a tremendous step forward for the city. And I know a number of people who are currently taking advantage of these new planning permissions.

    Toronto is now looking at expanding these permissions across the entire city and they have just started their community engagement phase. The first public meeting took place today and the next three will be taking place over the course of this month. Click here for the when and where.

    This is a natural extension of the policies that have already been put in place around laneway suites and I’m excited to see this moving forward.

    For those of you who already own property in Toronto & East York and are considering building a laneway suite, there are two programs that you should be aware of.

    The first one allows eligible property owners to defer development charges on the new secondary dwelling unit for up to 20 years. This is meaningful. And the second is a $50k forgivable loan if you make the laneway suite an affordable rental for at least 15 years. (The cap is the City of Toronto Average Market Rent.)

    I still remember what happened when I tried to build a laneway house almost 10 years ago. I was told, by the city, that a house cannot be built behind another house. I knew that would change. Now look at how far we’ve come.

    Image: Lanescape

  • How are condos in Canada used?

    Jens von Bergmann (data analyst and mathematician); Nathanael Lauster (sociologist); and Douglas Harris (law professor) have been working since 2018 on a study of how condominiums are used and occupied across Canada. The goal is to use the results to better inform public and academic debate.

    They recently presented some of their early findings at the National Housing Conference in Ottawa and have since made that information public. It is still a work in progress, but already there are some interesting takeaways. To start, here is a chart showing occupied housing units in Canada and in select CMAs:

    Not surprisingly, Canada is broadly speaking a nation of single-detached houses. But in our three largest cities — Toronto, Montreal, and Vancouver — apartments/condominiums are doing a lot of the heavy lifting.

    Vancouver has the highest proportion of condominiums. It is a geographically constrained metro area and it is one of the first cities in the country to adopt condominiums as a housing tenure. And in Montreal, there are more apartments under 5 storeys than there are single-detached houses. Not surprising. There’s no “missing middle” in this city.

    But the really interesting question is, how are these condominiums being used and occupied? It’s a challenging question to answer, which is why it’s so often debated, but here’s what the researchers have found so far:

    The owner and renter categories are self-explanatory. Temporary, which is the least common type of tenure, is where the owner has declared their principal residence as being somewhere else. In other words, the condominium is a second home.

    The vacant category is effectively that city’s condominium rental vacancy rate. These are condominium units which are empty, but that are at the same time listed for rent. There are relatively few of these. In Toronto and Vancouver they’re virtually non-existent in this dataset (2016).

    Finally, we get to unoccupied units. This one is tricky and the researchers aren’t exactly clear on what is driving this number. They chalk it up, at least partially, to the flexible nature of condominiums. For example, it could be empty because the unit is switching from owner-occupied to rental, or vice versa.

    That said, it is very interesting to note that Toronto and Vancouver actually have the lowest percentage of unoccupied condominium units. This may be surprising to some of you given the public discourse around investor units in these two cities.

    Generally, they found that in Canada’s three largest metro areas, the following rule of thumb seems to apply: For every 10 condominium units built, 6 will become owner-occupied, 3 will enter the rental stock, and 1 will go unoccupied. Does that seem right to you?

    If you’d like to dig into the methodology that the researchers used, you can do that over here at Mountain Doodles. All of the charts and data used in this post were taken from there.

  • What’s in a roof?

    Over the weekend I stumbled upon this illustrated Medium post by Alfred Twu comparing sloped and flat roofs. The argument is that these two roof types are coded. In this part of the world, at least, sloped roofs signal low-rise “house” and flat roofs signal big city “high-rise.”

    I’m not yet convinced of this association with height, or of all the claims made in the article. Did New York City really make the flat roof commonplace in our cities? But the idea that a roofline can trigger certain associations — or even become divisive — is a fascinating one.

    Take, for example, Am Fischtal in Berlin. On one side of the street you have, still to this day, homes with flat roofs. And on the other side you have homes with sloped roofs. This clean divide is the result of a supposed “roof war” that took place during the Weimar Republic.

    At this moment in time in the suburbs of Berlin, the kind of roof you chose to live under was a proclamation of your political orientation. I’m not sure roofs have as much gravitas as they did in the 1920’s on Am Fischtal, but they still do say something.

    Image: Alfred Twu

  • 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.