Tag: housing

• Productizing the delivery of new housing

  

  One of the co-founders of Juno — a new mass-timber and modular housing company — was recently interviewed by Dezeen. Prior to cofounding Juno, BJ Siegel was Apple’s design director and spent 19 years designing and working on their stores. And so this is the lens that he and his partners are bringing to the real estate development space. (I also just learned this morning that their head of real estate is a former classmate of mine from Penn.) Here is an excerpt from the Dezeen article that speaks to their goal of productizing the delivery of new housing:

  The third is Apple really challenged us to think about the way we deliver the project more like the way they deliver products through a kind of owner-furnished direct source supply chain model.

  And that actually spurred a lot of investigation as to how to translate that work from a product into this industry [real estate development], which is really kind of not focused on that.

  So that really was a big, big focus.

  The company recently announced that they have broken ground on their first project in Austin, Texas. It is a five storey 24-unit residential project that is being positioned as “middle-income, market-rate” housing. They’ve reduced the building down to about 33 standardized parts and are using a secret type of mass timber that is manufactured in the US. Supposedly it’s better than cross-laminated timber, but the company is keeping it as part of their secrete sauce right now.

  Juno is not the first company to identify this gaping problem in the development and construction space. The typical construction process is antiquated, inefficient, and filled with far too much waste. Which is why modular / pre-fabricated housing has been a goal of architects, builders and others for generations. Eventually we will figure out how to better productize the delivery of new housing and bring down its costs. And in my view that will be a great thing for consumers.

  Rendering by Engraff Studio via Dezeen

  2021.09.11

• What is the premium for a home in a walkable community?

  According to this RedFin data from 2019 — which looked at normalized sale prices and Walk Scores above 50 — it is about 23.5% or $77,668 for 16 major US metro areas. Again, this is 2019 data and so things may have changed a bit, especially with the whole COVID thing.

  It also varies by metro area in this data set. The premium in Boston, for example, is almost 30%. Whereas the premium in Oakland is actually a slight discount (-1.3%). There are going to be local conditions that play a role.

  But as a whole there is an economic trend here that makes intuitive sense to me. Though it’s not just a question of how pricey your home is. You also need to consider your transportation costs, the value of your time, and the health benefits of living in an environment that promotes consistent and moderate activity.

  When you factor all of these things, maybe “premium” isn’t the right way to look at this.

  2021.09.04

• South Korea’s idiosyncratic and counterintuitive home rental system

  

  Over the weekend I learned about a unique feature of South Korea’s housing market. It’s called jeonse. And the way this housing contract works is that, instead of tenants paying a monthly rent to their landlord, they pay a huge lump-sum amount up front. Usually this “key money” is equal to somewhere around 50% of the value of the home, but oftentimes it’s even higher (60-90% range). In 2014, the average cost of a jeonse deposit in Seoul was somewhere around US$300,000.

  In exchange for this huge lump-sum amount, jeonse tenants are able to live in the property for a period of time (usually 24 months) without having to pay any rent. Because what they are actually doing is paying via the opportunity cost of having their money tied up during their occupancy. Jeonse landlords are free to invest these lump-sum deposits however they see fit. The money they make from investing is their “rent” on the property. (The deposits are secured through a lien on the home, but of course that isn’t without some risk.)

  At first glance, this seems entirely counterintuitive. If you have hundreds of thousands of dollars available to you, why not buy? Why hand it over to a landlord so that they can go invest in things? Well, usually when there’s a marketplace for something it is because both sides stand to benefit. And in this case, the jeonse system supposedly emerged as the country was developing and people were rapidly urbanizing. Credit wasn’t widely available and so the jeonse system grew to help both tenants and landlords.

  For tenants, it was cheaper than owning a place outright and the “rent-free” period allowed them to more easily save up so that they could eventually buy. And for landlords, it was access to low-cost capital and the opportunity to invest in other money-making stuff. Some even credit the jeonse system with being instrumental in South Korea’s rapid rise in the second half of the 20th century.

  But is it still relevant today? Good question.

  The data suggests that it could very well be on the way out. Jeonse deposits have been declining for years and, based on this, it was overtaken in 2012 with more people choosing to pay rent on a monthly basis. As of 2019, it had grown to over 60% of tenancies in Seoul. And so it feels like the end could be near. But if any of you have first-hand experience with renting in South Korea, I would love to hear from you in the comment section below.

  Photo by Cait Ellis on Unsplash

  2021.08.16

• Architect Bjarke Ingels announces new “design living” company

  News has just dropped that architect Bjarke Ingels, Roni Bahar, and Nick Chim are launching a new “design living” company called Nabr. Their website says that it is “coming soon to Silicon Valley” and so presumably there will be tech involved and we should actually be calling it a startup.

  The video embedded at the top of this post (link here) will tell you a little bit about it. But from what I can glean from their website, the focus is on using technology and modular construction to deliver housing that is more personal / adaptable, more sustainable, and more attainable. There is a note on their site about buying with only 1% down.

  We have talked a lot on this blog about the antiquated and slow-moving nature of design, development, and construction. So what it absolutely clear is that there are many problems to be solved here. I am excited to see what the team brings forward.

  2021.08.11

• At what point does one start appreciating new housing?

  When you look at some of the most iconic home designs from around the world — which Bloomberg CityLab has been doing — there are some trends that emerge. One of them has to do with desirability. Whether we’re talking about Stockholm or Montreal, a lot of the housing that is today cherished, started out as fairly utilitarian. There was a need for housing and so governments and developers stepped up to build, often as cost effectively as possible. The result was housing that a lot of people seemed to dislike. At least initially.

  Here are a few excerpts from a recent post by CityLab talking about Montreal’s famous walk-up apartments:

  Their shape was dictated by the dimensions of the lots sold by developers: Narrow at the front, they run as deep as 120 feet and open onto an alley, leaving enough space for backyards and sheds behind. Inside, the units are not particularly big, with duplex apartments, often rectangular in shape, typically from 750 square feet to 1,000 square feet. Triplex apartments are a little larger and sometimes configured in an L-shape, a trick that builders used to make the most of the lot’s depth while getting some side light. Rooms unfold on one or either side of a corridor, with the kitchen at the back.

  Despite their reputation for charm today, the plexes were long criticized for their overcrowding and lack of light. Working-class homes were sometimes known as “the poor man’s coffin,” says Noppen. 

  “These are very narrow, dark, long buildings, which above all, were overcrowded,” he says. Today the apartments may be sought after, as “part of a considerable gentrification movement, but that’s because, two, three people live inside — that used to be 15.”

  I think most people forget that the housing we love today was probably built by a developer and almost certainly done in the pursuit of profit. Which begs the question: What has to happen before people suddenly start appreciating? Eliminating overcrowding certainly helps. But is it also a question of time? Do we just need time for the housing to settle in and get absorbed into the market? Or do we simply tend to dislike that which is new and so we need something even newer to hate before we can appreciate the now old?

  2021.08.06

• 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.

  2021.07.27

• Project Profile: 100 Franklin by DDG Partners and Palette Architecture

  

  100 Franklin is my kind of project. Developed by DDG Partners, 100 Franklin is a small boutique condominium project that was completed last year in New York’s Tribeca. From what I can tell, there are only 10 residences in the project, ranging from 1,427 to 3,673 square feet.

  A number of things are interesting about this project, particularly when you compare it to how and what we typically build in Toronto.

  One, it’s kind of an awkward site. It is made up of two triangular lots that one could have easily dismissed as being not all that developable. (Granted space is a precious commodity in Manhattan.) But DDG made it work (they have an in-house design team). They also managed to stitch the two buildings together so that they read as one big awesome street wall.

  Two, it’s only about 30,000 square feet. I mention this because, you don’t see a lot of development at this scale here in Toronto. With entitlements taking as long as they do (among other reasons), it can be a real challenge. So if you’re not capital constrained, you may as well take advantage of the economies of scale associated with going bigger.

  Three, I think it speaks to differing cultural attitudes around housing. By Toronto standards, these are very large suites. The average size of a new condominium in downtown Toronto is probably somewhere in the low 600s (square feet). I think that tells you a lot about who is buying and how they think about living in a multi-family building.

  Four, it’s downright just a beautiful building with some really terrific brickwork. For photos, check out here and here.

  Image: Robert Granoff via DDG Partners

  2021.07.23

• Pine Hill Homes launches call for artists to design new laneway house facade

  

  My realtor friend Mark Savel tagged me in this earlier today.

  Pine Hill Homes has recently completed a laneway suite here in Toronto and they have now put out a call for artists to come up with something creative for its front facade. I think this is a great / fun idea and so I’m sharing it today on the blog.

  I think it also speaks to one of the differences between laneway suites and the main houses that now host them. Could you imagine a builder doing a call to artists for the front facade of a house not on a laneway? It seems less likely to me. But I think that the laneway side is viewed as a little less precious, and that creates an opportunity for playfulness.

  This, in my mind, is a great thing.

  If you decide to participate and your work is selected, you’ll have all of your materials paid for and you’ll also get an honorarium. I don’t know how much the honorarium is, or where this house is actually located, but I’m sure you can find these things out by contacting Pine Hill.

  I’m looking forward to seeing what ultimately gets selected and put up.

  2021.07.19

• Q2 2021 rental market update for the Greater Toronto Area

  

  The Greater Toronto Area builds a lot more condominiums than purpose-built rental units. This isn’t the case everywhere though. I was recently reading an article about Salt Lake City and how developers there don’t want to build condominiums. It’s mostly rental housing. There’s simply too much risk and liability with condominiums. I guess this is one of the reasons why real estate is often said to be a local business.

  In any event, because of this dynamic in Toronto, condominium rentals are often used to measure the health of the overall rental market. There are simply more recent comparables to point to when you’re trying to figure out what is “market.” The Toronto Regional Real Estate Board recently published its Q2-2021 rental market report and here is what they found when it comes to condominium apartment rental transactions in the Greater Toronto Area:

  Q2-2021 – 14,920 transactions

  Q1-2021 – 13,168 transactions

  Q2-2020 – 7,300 transactions

  What this report tells us is that rental demand is returning. Transactions and rents are up compared to the first quarter of this year and certainly compared to Q2 of last year (2020), which was the low point of this pandemic. We are not yet back to where we were in Q1-2020 when the city was firing on all cylinders, but I have no doubt that we will get there and ultimately surpass those figures.

  For the full rental market report, click here.

  Photo by Narciso Arellano on Unsplash

  2021.07.17

• Canada’s national net worth spiked largely because of home prices

  Here are some interesting figures from a recent Statistics Canada article about Canada’s national net worth.

  In the first quarter of this year, Canada’s national net worth increased by over $1 trillion or 7.7% to reach nearly $15 trillion. This is, as I understand it, record-breaking. National net worth is defined as the sum of national wealth and Canada’s net foreign asset position, the latter of which is assets that Canada owns abroad, minus the value of any domestic assets owned by foreigners. Most of the increase this past quarter was in national wealth.

  Here is a chart that speaks to this (quarterly change in national net worth by component). Again, the light blue is national wealth. It is the biggest bar.

  

  On a per capita basis, which is much easier to contextualize, national net worth rose from $365,184 to $392,496.

  The other metric that is up is household savings. We’ve talked about this before on the blog, but check out this chart. In the first quarter of this year, it was 13.1%. And at the beginning of the pandemic, back in Q2-2020, it was 27.4%. I believe these figures represent the percentage of after-tax disposable income that is saved. Either way, a double digit savings rate is not typical for Canadians.

  

  So what is driving this increase in national wealth? A big part of it is the value of residential real estate, which increased 9.4% in the first quarter. StatsCan is calling this “unprecedented” but I don’t know how far back they are looking to make this claim.

  Because of this, increases in net worth have been, not surprisingly, unequally felt. For households that own their home, net worth increased by over $730 billion last quarter. For households that rent their home, net worth increased by approximately $43 billion. On a per household basis, this translates into net worth increases of approximately $73,000 and $8,000, respectively.

  This is a meaningful spread.

  For the full Statistics Canada article, click here.

  2021.06.20