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

  • 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.

  • 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

  • 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.

  • 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

  • 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.

  • A story about oranges

    A friend of mine circulated this tweet storm over the weekend. It is an explanation of how NYC’s housing market works using the example of oranges. The author ends by saying that, “it is a parody and an exaggeration, but I promise you it’s not much of one.”

    The crux of this story about oranges is that if you don’t deliver enough to meet market demand, you’re going to invariably run into a problem of affordability. If people really want oranges, they are going to bid up the price of whatever oranges they can get their hands on. The same is true for housing.

    But there are, of course, some obvious differences between homes and oranges. People don’t live in oranges. And I would imagine that there are other ways to get your daily recommended intake of vitamin C.

    As far as I know, people also don’t buy oranges with the hope that they can derive a rental income stream and/or that they will be worth more tomorrow. And so I’m sure that many of you will be quick to point out that it is perhaps the speculative nature of housing that makes it different from most oranges.

    Still, there’s no denying that, in most cities around the world, we do a lot to make it exceedingly difficult to build new housing. We constrain supply — such that we perpetually underserve the market — and then we wonder why prices continue to rise.

    Disagree with this take? Let me know in the comment section below.

  • Ground-related housing vs. apartment permits across the Greater Golden Horseshoe

    Here are two charts from a recent blog post by Ryerson University’s Centre for Urban Research and Land Development. The charts compare residential building permits issued for ground-related housing vs. apartment suites.

    Over the last two quarters (Q4 2020 and Q1 2021), the Greater Golden Horseshoe (GGH) issued a record (all-time record?) number of permits: 39,734 housing units. This represents a 56% year-over-year increase.

    The biggest contributor to this increase is, not surprisingly, apartment units. These permits saw a 73.6% year-over-year increase. There’s simply no other way to deliver this amount of new housing — at least in the context of the GGH. You have to go up.

    But given the price increases that we have seen across the region for ground-related housing, Ryerson’s CUR concludes that there must be a strong home buyer preference that is simply not being met by the amount of low-rise supply we are delivering.

    Notwithstanding this potential mismatch, I don’t see things changing anytime soon.

  • Small suites — responding to the market or social engineering?

    Let’s talk some more about floor plan designs and the economic constraints that form part of the decision making process. There continues to be a narrative out there that for-profit developers only want to construct small apartments (a form of social engineering perhaps) and that they aren’t focused on livability. So let’s dig into some of the constraints.

    Consider that the average price of a new construction condominium in downtown Toronto last quarter (Q1 2021) was $1,419 per square foot. And I bet that this number has already increased. Now consider that, in the City of Toronto, the “growing up guidelines” suggest that an ideal family-sized three bedroom suite should be around 1,140 square feet.

    When you multiply these two numbers together, you get an “ideal” three bedroom suite that costs just over $1.6 million. Of course, this is without parking. So if you want downtown parking, add another $100-200k (which, at this price point, is still almost certainly going to be a loss leader for the developer).

    All of a sudden, you’ve now got a $1.7 – 1.8 million residence. This will work in some submarkets and in some locations, but certainly not all.

    So what happens is that the end price becomes a constraint. And in order to make the suite more affordable, the developer will naturally look for ways to make it smaller. Turn this into a 900 square foot three bedroom and all of a sudden you shave off over $300k from the price.

    The point I am hoping to make is that developers generally aspire to respond to what the (sub)market wants. If the (sub)market wants a certain price point, developers will try and meet that need. If the (sub)market wants massive apartments, developers will gladly deliver. (We’re working on combining some supremely awesome suites at this very moment in fact.)

    It is “what if” instead of “should be” thinking.

    Photo by Loewe Technologies on Unsplash

  • Floor plan comments, and thoughts on inset bedrooms

    I came across the above floor plan over the weekend. I reshared it on Twitter and there was then a pretty good discussion about what people like and don’t like. I mean, who doesn’t like looking at floor plans?

    The suite is 790 square feet with 2 bedrooms and 1 bathroom. It rents, at least according to Bobby’s original tweet, at $2,600 per month. That’s $3.29 per square foot. I’m guessing that the apartment is in Philadelphia solely based on Bobby’s location.

    The divisive thing in this floor plan is the two inset bedrooms. Some people don’t like these. But designing a good floor plan is like working through a puzzle. You have all these constraints (some of which are just personal preference) and you have to find ways to work around them.

    When you’re working with a deep urban floor plate, you pretty much have no choice but to design floor plans with inset bedrooms. Otherwise, the suites get too big and they stop making economic sense. I have talked about this a few times before on the blog.

    So what you do is “bury” the bedroom(s) and keep the main living space as open as possible. In this case, the living/dining dimensions are about 17′ wide x 10′ deep. So a pretty good size, and certainly a very good width.

    An alternate solution might be to flip one of the bedrooms up towards the main glass (keeping the second one inset). But given that you only have 17 feet to work with here, something is going to have to give. So if you made the living room 9′ wide, you’d then only have somewhere around 8′ for your bedroom.

    Personally, I don’t mind inset bedrooms, especially if they allow for more generous living spaces. So I think that this is a fairly reasonable and functional suite layout. I would have absolutely lived in an apartment like this when I was going to school in Philadelphia. (Is this even the right location?)

    But if I were to make a few tweaks:

    I would compress the bedrooms slightly to enlarge the living space even more. (Though if the target market is student roommates, perhaps the idea is to allow for a desk in the bedroom.) I would then flip the closets to the partition wall between the two bedrooms to improve sound attenuation.

    I would also try and get the kitchen out of the hallway and into the main living/dining area. I don’t know where all the plumbing stacks sit (see, constraints), but perhaps it just slides up toward the glass. Another solution might be on the other side of the upper bedroom (where there is currently a closet).

    But what are your thoughts? Would you rent this apartment? Comments welcome below.

  • What if versus should be city planning

    Witold Rybczynski makes an interesting comparison between military and civilian (city) planning in a recent blog post called, “The Fog of Life.” Here’s an excerpt:

    Good military planning, as I understand it, is based on preparing for “what if,” that is, developing different scenarios. What if this happens, or that happens? City planning is different, more like advocacy, that is, what should happen. This advocacy is based on certainties: open space is good, density is good—or bad, depending. The problem is that what planners think should happen—separation of pedestrians and cars, superblocks, megastructures—often runs into trouble when it hits the fog of life.

    These are two very different perspectives. “What if” planning responses assume that a thing has already happened. You’re not working to affect a particular outcome, you’re responding to one that already exists. Does this necessarily make this approach more reactive than proactive?

    Either way, what should happen implies that the thing isn’t currently happening, but that it should — presumably because the thing is nice and desirable. It could also imply that the thing is sort of happening, but just isn’t happening quite enough.

    Let’s use the example of 3-bedroom condominiums and apartments, which is a topic of discussion that has been circling in Toronto for as long as I’ve been in the business. Developers here, are generally encouraged or mandated to build a certain number of larger family-sized suites in every new housing project. Oftentimes this number is 10% of the total unit count.

    The reasoning behind this is sound. Cities should be inclusive and they should work for the young, the old, the single, and for families, among others. The problem is that, for a variety of reasons, the market, when left to do its own thing, tends to build more small units than large units. At least that’s the case here in Toronto. (I’ve talked about some of the reasons why in previous posts.)

    There is a view that if only developers built more large units that more families would choose to live in apartments. It’s an issue of supply and availability, and also a question of design. You need to design for families too. This you could say is a “what if” approach. Families want to live in multi-family buildings; so let’s build more and better family-sized housing.

    But is this really the case or is there some advocacy going on here? All things being equal, does the market want low-rise or does it prefer higher density? It’s a fascinating set of questions, but unfortunately all things aren’t equal. It’s not just a question of availability and design, it’s also a question of economics. Large family-sized units cost money.

    I suppose this is the fog of life.