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

  • 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.

  • New condo sales totaled 5,385 units last quarter

    Urbanation released its Q1-2021 quarterly condo market update for the Greater Toronto Area at the end of last month. And there’s some good stuff in it. New condo sales totaled 5,385 units in the first quarter of this year, which is higher than the 10-year average of 4,924 units and only slightly below sales from a year ago (Q1-2020). By and large, the numbers are starting to feel a bit pre-pandemic-like.

    If you remember what happened back in the second quarter of last year, there was a quick shift in demand toward the suburbs and outskirts of Toronto. Part of this was driven by affordability. But I guess part of this was also driven by the fact that some people seemed to think that our cities had never before experienced a health crisis and were going to somehow die. Or perhaps it was because Zoom is so much fun (and not at all exhausting) and that this time was destined to be different. Either way, I never understood this.

    Fast forward a year and the core is not surprisingly coming back. The oldest part of the city (former City of Toronto) saw 2,886 new condo sales in the first quarter of this year. This is actually higher than sales in Q1-2020. New condo openings in downtown Toronto sold for an average price of $1,419 per square foot. And overall absorption was about 76% in the quarter, which is the highest it has been since 2017.

    Some of you may be looking at these numbers and thinking WTF. But when developers look at the costs in their pro forma, as well as what’s on the horizon — ahem, inclusionary zoning — it’s usually that same feeling. So it’s hard to imagine average prices and rents going anywhere but up.

  • The Monocle Book of Homes

    Monocle has new book coming out called The Monocle Book of Homes. It’s a guide to 20 exceptional residences from around the world, spanning everywhere from Mexico and Australia to Finland and Lebanon. In addition to these home tours, the book is intended to serve as a kind of how-to guide for improving your own living space. There’s also a portion dedicated to inspiring neighborhoods and community-driven urban projects. I don’t have a copy of this book and so I can’t vouch for its life-enhancing abilities. But Monocle generally has good taste and always takes nice photos. So I think many of you will appreciate this book. It’s available for pre-order over here.

  • Penthouse at 388 Richmond Street West sells for $2.4 million

    My friend Christopher Bibby — who is a real estate agent here in Toronto — is in the Globe and Mail today talking about how Toronto-area buyers have returned to downtown. The article is by Carolyn Ireland and in it Bibby cites two of his recent deals: A large 2 bedroom suite at 168 King Street East that just sold for $1.2 million and an even larger penthouse at 388 Richmond Street West that just sold for $2.4 million.

    (Sidebar: 388 Richmond Street West is one of my all-time favorite buildings in the city and was developed by Howard Cohen nearly two decades ago. For more on Howard, check out this post I wrote back in 2016.)

    These are two examples of buyers who want to live in the city. Of course, there are countless others who are making moves right now. As Bibby points out in the article, the mood has certainly shifted from what we were seeing last year in the condo space. Condo buyers today are even starting to comb through expired listings in the hopes of finding off-market deals.

    I view this kind of real estate activity as a leading indicator for what’s to come in the the city. Rental activity is naturally going to lag until people starting returning to offices en masse and downtown life fully resumes. It’s more of a short-term “buying” decision. But as a condo purchaser, it’s easy (and probably better) to look through the short term.

    I think that’s what people are doing right now and they’re saying to themselves, “yeah, I want to be in the city.” I know that’s how I feel.

  • From social housing to highly desirable in Stockholm

    Feargus O’Sullivan is back with another Bloomberg CityLab article about “the iconic home designs that define our global cities.” In this recent article he focuses on the Barnrikehus of Stockholm (and also talks about Sweden’s housing market in general). Originally built in the 1930s, the slab-like midrise buildings were largely intended to address two pressing problems: 1) the need for affordable housing and 2) Sweden’s incredibly low birthrate (supposedly the lowest in Europe at the time).

    The Barnrikehus template was deployed on the edges of Stockholm and other Swedish cities. The designs were/are fairly simple. Very little ornament (this is Scandinavia). Four or five storeys usually. And no more than about 12 meters deep. This allowed for better natural ventilation, which was important for stymying the spread of tuberculosis. The rents were also heavily subsidized and declined even further with every child in the family. In other words: the more kids you had, the less rent you had to pay.

    The suites were fairly compact, with many around the 430 square foot mark. This kind of space might have housed a family of six according to O’Sullivan. But compared to the other available housing options at the time, this was a significant improvement. Perhaps not surprisingly, these “child-rich houses” (which is how the name translates) developed the same kind of social housing stigma that was prevalent in many other countries and cities around the world.

    But that perception changed over time and, today, these rent-controlled apartments are apparently highly sought after. (Here’s a listing to give you a taste of what they’re like.) Originally on the fringe of cities like Stockholm, they are now very well located and offer a high standard of living. (You also can’t go wrong with white walls and pale woods.) To learn more about the evolution of Stockholm’s depression-era housing, click here.

    Photo by Jon Flobrant on Unsplash

  • Second home and investor mortgage applications accounted for 14.1% of all applications in February

    As a follow-up to my recent post about the rise of the second home, here is a chart (via the WSJ) showing second home and investor mortgage applications as a share of all applications in the US. In February of this year (2021), second home and investment properties accounted for 14.1% of all applications. This is a record number going back to January 2010.

    What’s also interesting about this chart is that, but for COVID, it shows a general decline over the last decade. I’m not sure what the split is between vacation and investment properties, but can we conclude that pre-COVID Americans were becoming less interested or perhaps less able to own a second home? And could the reason be that instead of owning a second home, more people simply started relocating permanently?

    There is also an obvious seasonality to these applications. Each of the above valleys tend to correspond to the spring and summer months. It’s almost as if every fall/winter we start thinking to ourselves, “Right, winter. Let’s look for a place somewhere else.” Is it that, or are there other forces at work here?