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

  • Thoughts on Opendoor Exclusives

    My most recent post about Opendoor, the so-called iBuying company, is about how it wants to become the “transaction layer for homes.” What that means is they would like to start facilitating third-party transactions between buyers and sellers, and move away (either partially or completely) from actually owning homes for a period of time.

    The company is still trying to sell homes that it purchased in Q2-2022, which, as we all know, was a very different kind of housing market. So by doing this, Opendoor would be both reducing the market risk that it takes on and making its business model less capital intensive.

    Knowing this, I actually think that “iBuyer” is the wrong moniker for their business. As I see it, the long-term objective is not to just be an iBuyer of homes. The objective is to ultimately facilitate transactions in a capital efficient kind of way. The point of iBuying is/was to seed their two-sided marketplace with sellers.

    As we have discussed before, two-sided marketplaces usually always have a chicken-and-egg problem. No sellers equals no buyers, and vice versa. So you have to figure out a clever way to attract one side. Of course, now that Opendoor has sellers, the company can start to aggregate the demand side (i.e. buyers). And that is exactly what it is doing with Opendoor Exclusives.

    Exclusives works like this:

    • The inventory consists of “off-market” homes that have yet to be listed on MLS
    • The homes are discounted about 2-4%
    • They are available for 14 days
    • You can’t negotiate the price — it’s first come, first served
    • If your appraisal comes in lower, Opendoor will price match
    • And finally, Opendoor will not pay any buyer commissions (which is reflected in the above discount)

    As I understand it, if the home doesn’t sell, it then gets listed on MLS and all of the normal terms and practices would apply. But before that happens, the key objective is to facilitate a quick transaction in one of two ways.

    The first way is for the seller to request an offer from Opendoor’s network of buyers. In this scenario, Opendoor never needs to own the home or perform any improvements (which is usually what it does when it iBuys). It is an intermediary earning some sort of take.

    The second way is for Opendoor to do its usual thing and make an instant offer to buy the home. But here’s the thing. With enough buyers on its platform and by creating a sense of urgency (hey, here’s a lower price!), presumably the idea is that it may never need to close on a number of these homes. It just needs to find another buyer within 14 days.

    If it works, this could be an interesting business.

  • 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.

  • 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?

  • A home not a unit

    I dislike the term residential unit.

    It makes a home sound like some sort of widget. When have you ever heard someone say, “unit sweet unit”? Never. And yet this is generally what we use to refer to housing that comes in an apartment form and is not grade-related.

    If you build low-rise houses, you’re a home builder. But anything beyond that, and the home moniker apparently needs to fall away.

    There is, of course, a very good reason for this and it is that we have a longstanding history of not liking apartments. And so this is in all likelihood some sort of carryover of that bias. Surely there’s no way to create a morally-correct home in an apartment. So let’s use a more utilitarian sounding name, like unit.

    I’m sure that I have used the word “unit” countless times on this blog throughout the years. But I am working to remove it from my vocabulary. And now you can all hold me accountable to that.

  • Los Angeles approves new “mansion tax”

    If you’re looking to pass a new ordinance and/or create a new tax, it’s important to have the right name. Take, for example, Los Angeles’ new “mansion tax.” The majority of people do not have a so-called “mansion.” And so signaling to people that you’re going to tax this thing and then redistribute the funds to help others with better housing is, not surprisingly, attractive to many. Here’s how the new tax works:

    Known as Measure ULA — for “United to House LA” — the ordinance marketed as a “mansion tax” will impose a 4% tax on property sales above $5 million, rising to 5.5% on sales above $10 million. So a $5-million sale would include a $200,000 tax, and a $10-million sale would include a $550,000 tax, which is typically paid by the seller.

    Of course, if you’re a rich person with a mansion, your first thought is going to be, “how do I avoid having to pay this?” Here are two unproven and possibly illegal options that I am not condoning in any way:

    For example, if a homeowner is selling a mansion for $15 million, they’d be slapped with a $825,000 tax bill. But if they split up the property into three parts owned by three different entities and sold all three pieces for $4.999 million each, they would hypothetically elude the tax since it only kicks in at $5 million.

    Another strategy might be to hatch deals off the books to keep a sale under $5 million. For example, if a seller wanted $7 million for their house, they could reach a deal with a buyer to sell it for $4.999 million, thus avoiding the tax, but then sell the furniture in the home for $2 million.

    I don’t have a mansion, so I’m fortunate enough not to have to worry about such things. But I do think about the impact on things like new rental supply. My understanding of the ordinance is that if you’re a developer of rental housing, and you buy a lot for $4.99 million, build a mid-market apartment, and then turn around and sell it to a pension fund for $10.01 million, you would be subject to this new tax.

    Hmm. I wouldn’t call this a mansion.

  • World’s largest 3D-printed community

    I’m not sure how I missed this before, but ground has just been broken on what is being called “the world’s largest 3D-printed community.” Co-designed by ICON and Bjarke Ingels Group and “implemented” by Lennar, the community, which is located north of Austin, Texas, will consist of 100 homes ranging from 1,500 to 2,100 square feet. There are 8 different floor plans and 24 different elevations to choose from. Each home will also come with rooftop solar panels.

    Here’s a short description on how the overall construction process is working:

    To automate the manufacturing of homes ICON is using its Vulcan robotic construction system, a large, transportable printer that can be used in tandem with Magma, a cement mixing machine. The homes are being constructed out of Lavacrete, a durable-concrete polymer added in layers to form the structure’s facade and foundation by Vulcan. Their design blends Texas ranch vernacular with sustainable technology, providing a model for the future of large-scale 3D construction. The residences will adhere to a common design, featuring metal roofs, concrete floors, and distinct curvilinear and rib-textured concrete walls, which are the product of 3D printing.

    It is quite a different looking construction site:

    Now, there is certainly a conversation to be had about what these machines are building as a housing typology: This is still suburban sprawl, regardless of how the homes are being made and if there are solar panels on the roof. But if you ignore all of this for a minute, there is obviously something pretty incredible about 3D printing being able to now deliver stuff at the scale of a suburban housing project. It represents a fundamental change in how we build, in an industry that has a long history of changing very little.

  • Are elevators bad?

    So, I of course think this is silly. But here’s a claim that living in high-rises — that is, buildings with elevators — is bad for people’s physical and mental health:

    In the midst of a Vancouver civic election where housing is a hot issue, Vancouver councillor and mayoral candidate Colleen Hardwick stated that “highrises are not good for people’s physical and mental health.”

    Last week we asked Hardwick to expand further on her views about health and building types. She told The Tyee she believes highrises radically reduce chance encounters between people because they separate people from the street and from each other.

    “Ground-oriented housing typologies are ideal,” she said, referring to housing that allows a resident to reach their place of residence using stairs, perhaps, but not an elevator.

    Apparently what happens when you get into an elevator is that you immediately lose your ability to interact meaningfully with other humans. Yeah, I’m not the only one who disagrees:

    “Coun. Hardwick is cherry-picking her data” about highrise living and the isolating effects of structures with elevators, accused urbanist and author Charles Montgomery. A six-storey building with an elevator, he told The Tyee, is “the most social place I’ve ever lived.”

    Cities, it turns out, are complicated. And there are always trade-offs to be made. During the pandemic, some people thought it would be nice to live in a ground-oriented home in the country and now they are realizing that the country lacks things like amenities and, you know, other people.

    Personally, I will happily take an elevator over a soul-crushing commute to a home without one. I also agree with Charles that multi-family buildings can be very social.

  • Waterfront vernacular

    Marseille, France

  • 3 things about Le Corbusier’s Cité Radieuse

    I have written about Le Corbusier’s Cité Radieuse in Marseille many times before on the blog. It is one of the most influential multi-unit buildings of the 20th century. For better and for worse, it inspired a generation of architects. But up until this afternoon, I had yet to actually see it in person. Now that I have, here are 3 takeaways.

    The corridors throughout the building were thought of as “streets” in a vertical village. Because of this, each street had a mailbox and each front door came equipped with an elaborate delivery system. The large curvy thing pictured above was for general deliveries (mostly food I’m guessing). And the smaller door below was for ice block deliveries (i.e. refrigeration). In both cases, these doors could be accessed from inside the kitchen.

    The two “streets” in the middle of the building were dedicated to commercial uses. And by being in the middle of the building, they were equidistant from residents living either above or below. I was told that when the building first opened in the 1950s, these streets were actually quite successful — filled with everything from bakeries to grocery stores. So you can imagine people running deliveries up and down to the other streets. But that quickly fell off as the retailing landscape developed in Marseille and in France. Today, this portion of the building houses mostly offices, art galleries, and specialty boutiques. Though there remains a widely-used 21-room hotel (pictured above).

    To fully appreciate what the Cité Radieuse meant for housing in France, you kind of have to imagine what the rest of its stock was like at that time. The introduction of duplex and dual aspect units with modern kitchens and bathrooms and with views of the sea, represented meaningful progress at the time. But it is interesting to see how much ceiling heights have changed over the years. They’re really low here — well under 8 feet. And that is probably its greatest Achilles’ heel today.

    If ever you happen to find yourself in Marseille, I would encourage a visit to the Cité Radieuse. Many of the things we do today started in this building. And there are some other ideas here that might also be worth bringing back.

  • The average wait time for a rent-controlled apartment in Sweden is now over 9 years

    I’m not all that familiar with Stockholm’s housing market, but according to this recent article, it would appear that, like most big cities, there isn’t enough affordable housing to go around. This is despite the fact that everyone in Sweden is technically entitled to it.

    As of December 2021, there were 736,560 people (in Sweden) in the queue for a rent-controlled apartment, resulting in an average wait time of about 9.2 years. So basically what you want to do is put yourself on the list as soon as you turn 18. And then hope that at some point in the future you’ll be granted an affordable apartment.

    Given this dynamic, it makes sense there would be a long waitlist. If everyone is entitled to a rent-controlled apartment, you are effectively giving people two options: pay the market price or put yourself on this list, wait for a decade, and then pay less than the market price.

    Why wouldn’t you at least try to pay less?

    The problem with this approach is that supply will almost certainly never keep pace with demand. It also appears to be fuelling a robust (and I guess illegal) secondary sublet market. Because if you have a below-market contract that is yours to keep forever and that lots of other people want, you have a valuable asset.

    Getting housing right certainly isn’t easy.