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: multi-family housing

  • Toronto announces nothing plan to create more rental homes

    Yesterday, the City of Toronto announced that it would be “unlocking” 7,000 new rental homes — including 1,400 deeply affordable homes — by doing two key things:

    • Waiving development charges on rentals
    • Providing a 15% reduction on property taxes

    And by their estimates, the value of these benefits would be roughly $58k per new rental home:

    Great news, right?

    But wait, there’s a catch. If you read the details, you’ll see that in order for a project to be approved under this program, there is also a requirement to deliver at least 20% of the homes as affordable rentals.

    So let’s look at what this could mean.

    Here is a chart comparing a market rental suite at $3,000 per month to a more affordable one at $1,500 per month:

    MarketAffordableVariance
    Face Rent$3,000 $1,500 ($1,500)
    Suite Size$600 600 0 
    PSF Rent$5.00 $2.50 ($3)
    Annual PSF Rent$60 $30 ($30)
    NOI Margin70%70%$0 
    Annual Net Rent$42 $21 ($21)
    Cap Rate4.50%4.50%$0 
    PSF Value$933 $467 ($467)
    Per Unit Impact($280,000)
    20% of Units($56,000)

    Both are assumed to be 600 square feet. In the case of the market suite, the per square foot (PSF) value is estimated at $933 psf, and the affordable suite is estimated at $467 psf. This represents a halving of the value (which makes sense because I halved the rents).

    On a per unit basis (again, we’re assuming 600 sf), this is a loss in value of about $280k. But since only 20% of the units would need to be “affordable”, I multiplied this number by 0.2. The result is a per unit loss of approximately $56k.

    What this means is that we’re basically doing a whole bunch of stuff to get right back to the same place. Like, hey, we’re not building enough rental housing and we’re certainly not building enough affordable housing — because the development margins are so dangerously thin — so here’s a credit of $58k per unit. But at the same time, here’s a bill for $56k per unit.

    What’s the point, besides making it sound like we’re doing something to create more housing? This program will do absolutely nothing to spur the creation of new rental housing.

  • Density is good

    Here is an interesting chart (source) showing housing starts in Canada, by type, between 2000 and 2023:

    As recent as 2000, single-family houses accounted for 61% of total starts and multi-family housing accounted for 39%. This flipped somewhere around the financial crisis and, last year in 2023, the percentages were 23% and 77%, respectively. This is a meaningful inversion which has helped our cities become more vibrant and more conducive to non-car modes of transport.

    But in this recent article about Canadian housing, Donald Wright more or less argues: so what? We’ve been densifying our cities for all these years, but it hasn’t helped our affordability problem. Supply must not be the answer to our housing crisis.

    I’m not exactly sure what he believes to be the solution, but I don’t think this problem is as simple as “we’ve built some housing, we made our cities denser, and yet housing is still expensive — more supply must not be the answer. Let’s move on.”

    Among many other things, it’s important to understand what kind of density we’ve been building. Because up until very recently, we’ve basically taken the position that single-family neighborhoods should never be touched, and that density should only go in very specific areas — and only after a lengthy and expensive rezoning process has been completed.

    We’ve designed new housing to be expensive.

    But attitudes are changing all across North America. We are now starting to do two very important things: (1) we are opening up more of our cities to intensification and (2) we are now allowing more multi-family housing on an as-of-right basis. Meaning, no lengthy rezoning exercises and no risk of community opposition.

    These are two fundamental changes that should alter the kind of density that gets built. And in my view, it’s going to be a positive thing for Canadian cities.

  • The US is building a lot of apartments right now

    As of November 2023, it was estimated that there were 988,000 homes under construction in multi-family buildings containing 5 or more units. This is in comparison to 680,000 single-family homes, according to US Census data. (Looking at the below graph, it’s also interesting to see how the supply of single-family homes dropped off after the global financial crisis and multi-family apartments took off.)

    All of this means that in 2024, the US is on track to complete more apartments than it has in many many decades. In fact, exactly similar to what we experienced here in Toronto, if you want to find a comparable multi-family supply number, you need to go as far back as the 1970s (see below). Of course, the US had fewer people back then, and so on a per capita basis, it was building more housing.

    Still, all of this new supply is having an impact. Apartment List recently published its national rent report, over here. And overall, it found that:

    Rent increases are currently being moderated by a robust construction pipeline expected to deliver a decades-high number of new apartment units in 2024.

    More specifically, they found that the cities with the most supply are now seeing the largest rent declines:

    Many of the steepest year-over-year declines remain concentrated in Sun Belt cities that are rapidly expanding their multifamily inventory, such as Austin (-7.4 percent year-over-year), Raleigh (-4.4 percent), and Orlando (-3.9 percent).

    If you’re an apartment developer, this is not what you want to see. It means that increased competition is creating downward pressure on rents and that vacancy rates are probably rising. But if you’re someone looking to rent an apartment, this is exactly what you want to see. You want more affordable housing. And so, as a consequence, you want more homes to be built. Because when supply outstrips demand, this is what you get.

    Charts: Apartment List

  • Sub-divided mansions

    In the second half of the 19th century, the way Londoners had historically lived, started to change:

    In the 1870s, a striking change was occurring in the residential habits of London’s elite. After centuries of living close to the ground in houses, Charles Dickens Jr. (son of the famous writer) observed that wealthy residents were starting “to avail themselves of the continental experience … and to adopt the foreign fashion of living in flats.”

    The resulting housing typology was something known as the mansion block. And as the name suggests, one of the principal design ideas was that these blocks should, ideally, look like a single giant mansion. In other words, the individual homes were to be obfuscated:

    The mansion block was a grand building that borrowed elements of the English terraced house (as a row house is known in British English), particularly the elite “palace fronted” terraced houses designed by Scottish architect Robert Adam and his brothers a century earlier, which concealed individual houses behind a grand facade to resemble a single palatial structure.

    It is a design approach that makes sense. I mean, I can see wealthy people wanting to appear as if they’re living in a palatial mansion. That said, it is an approach to multi-family housing that feels somewhat foreign today. Most people don’t look up at tall buildings and wonder if it’s one person’s home.

    And we don’t aim for that.

    Presumably this is, at least partially, because scales grew, builders were looking for economies of scale, and because modernism told us that mansion-looking structures were outdated. Whatever the reasons, multi-family buildings today are not generally conceived of as sub-divided mansions.

    What’s maybe ironic about this shift, though, is that we went from elaborate and varied facade designs intended to communicate single structures, to modern and repetitive facade designs that, somehow, better communicate the individual homes.

    I suppose we got used to the “foreign fashion of living in flats”.

    Image: Josh Kramer for Bloomberg CityLab

  • Family-sized apartments are a luxury good

    My friend Alex Feldman sent me an article from the Philadelphia Inquirer this week called: Why is it so hard to build family-sized apartments in Philadelphia? As is the case in many/most North American cities, the article talks about how the majority of new multifamily builds are filled with studios and one bedrooms.

    It then goes on to suggest that some of the reasons for this include: cultural biases in favor of suburban living, antiquated building codes (such as the requirement for two means of egress), exclusionary zoning ordinances, bad urban schools, financing availability, and so on.

    This is something that we have talked about many times before on the blog and, while I do agree that it’s complicated and that there are many variables to consider, I think the key factor remains price. As I said before: “Everybody wants a 3 bedroom condo until they see what they cost.”

    So I think this is probably the most important point in the article:

    Partly that’s because Philadelphia, unlike Boston, New York, and Washington, has a vast supply of rowhouses that are still affordable to people in a position to buy. For those who prefer new construction, the past couple decades have seen a burst of modern rowhouse building.

    If large multi-family apartments were more cost effective than Philadelphia’s vast supply of rowhouses, I am certain that demand would increase markedly. But that is not the case. So I think a more accurate way to view large apartments is as a luxury good. They’re a terrific way to live, if you can afford it.

  • A worsening housing shortage is expected

    Last month we spoke about how our current economic environment is going to negatively impact housing supply in the short-term. Now here’s some further evidence for this argument (via Bloomberg):

    “As rates started ticking up, the faucet started to turn off,” says Jonathan Gertman, senior vice president for development at the NRP Group, one of the largest multifamily housing developers in the country. “The number of projects starting this year already has been cut significantly. Anything that started in 2022, in most of the country, comes online 18 to 24 months later. So by the middle of 2025, you see that new supply start to go down significantly.”

    This is also being reflected in Federal Housing Administration (FHA) loan applications for new multi-family housing:

    Or put another way: FHA multifamily loan applications are on track to total as much as $18 billion for FY 2023, compared with $29 billion for FY 2022, $51 billion for FY 2021 and $45 billion for FY 2020.

    The above article is specifically talking about a looming affordable housing shortage. But these exact same headwinds are also impacting new market-rate housing. Of course, there’s always a lag when it comes to development. So it’ll likely be a few years until we really feel the impacts.

  • IKEA has just hired photographer Annie Leibovitz to document normal people doing normal things in their homes

    Last year, IKEA went around the world interviewing some 37,000 people in 37 countries about what it takes to “make us feel at home.” And one of the things that they discovered was that nearly 50% of people do not feel like their home reality is authentically represented by what they see in the media. In other words, there is a disconnect between how we actually live at home and how the media suggests we are or ought to be living.

    To explore this disconnect a little further, IKEA has just announced that photographer Annie Leibovitz will be the company’s inaugural Artist in Residence. Leibovitz is best known for her celebrity photographs. But for this assignment, she’s going to be travelling to the US, the UK, Japan, Germany, Italy, India, and Sweden, to photograph normal people doing normal things in their homes.

    This is a fascinating idea because we know that there are all kinds of cultural biases around housing. Here in North America, for example, there is a longstanding history of hating apartments. If you wanted to properly raise a family, you needed a morally correct form of housing; meaning, a grade-related house. But this reality isn’t universally possible in most big cities today, and that is probably one of the reasons why we now have this disconnect:

    …why do people feel like they’re not represented in the media, that they’re left out? ‘In the same way that there has been a typical idea in the fashion industry about what size a woman should be, there’s been a typical idea of what a home is,’ wagers Leibovitz. ‘But now we’ve opened up in all sorts of ways, and there’s a difference between a home and feeling at home. And the latter can happen in many different places and maybe that’s more important now than an actual home.’

    On a more basic level, I think people are also just endlessly curious about how people live and what their homes are like. So regardless, this should be interesting.

    Photo by charlesdeluvio on Unsplash

  • California has a plan for 2 million new homes

    On July 1 of this year, a new California bill, called the “Affordable Housing and High Road Jobs Act of 2022”, will go into effect. And the goal of this legislation is to significantly increase the supply of new homes in the state by allowing multi-family construction on lands that are currently zoned for commercial uses.

    On some level, it is of course curious that there even needs to be this bill. Because what we are effectively saying is, “hey, we should allow people to build a mix of uses on our main streets and with high enough densities that we might actually be able to support transit.” Why was this not always the case? (Rhetorical question.)

    In the words of architect and planner Peter Calthorpe, who was recently interviewed here in ArchDaily, this is a “landmark piece of legislation” that has “received very little attention.” So that’s why we’re talking about it today.

    Calthorpe was actively involved in crafting this legislation, and his work apparently started with different scenario land-use models. The first experiment looked at a 43-mile stretch of El Camino running from San Francisco to San Jose (pictured below). And what they found was that this one strip alone could accommodate somewhere around 250,000 new infill homes.

    To put this into context, the state of California is currently building about 140,000 new homes each year, through a roughly equal (1:1) split of multi-family and low-rise single-family. Already this represents a shift, as supply used to be slanted (3:1) toward low-rise. (I don’t know when exactly this was the case, but Calthorpe mentions the figure in his interview.)

    Moving on from El Camino, Calthorpe and his team then ran a similar exercise for the five-county inner Bay area. And here they found that some 700 miles of commercial land could produce up to 1.3 million multi-family homes at “reasonable densities.” This was then expanded to the entire state of California and the number increased to 10 million new homes.

    Of course, as we have talked about before on this blog, not all of this land might actually be feasible for development. Sometimes the math doesn’t work even at a zero land cost; you might need a negative land cost in order to pencil a new development. Meaning, you might need to be paid, perhaps through some sort of subsidy.

    So what Calthorpe and the team did was use MapCraft to quickly run development feasibilities on the above sites. They had it run 6 different pro formas using local rents, construction costs, city fees, and so on. And what they determined was that this 10 million number drops down to 2 million when you apply the economic realities of the world.

    As a disclaimer, I’m not at all familiar with MapCraft. But I’m going to take this number at face value and say that this is still a lot of new homes. And this is what people are hoping for come July 1 of this year.

    Image: HDR / Peter Calthorpe

  • Walkable archipelagos are emerging across the US

    We have spoken before about how walkable urban communities punch above their weight. In the US, only about 1.2% of land is, on average, designed and built for walkability. And yet, walkable neighborhoods in the top 35 metro areas account for about 19.1% of total US real GDP.

    At the same time, because walkable communities are a rarified commodity, they usually come at a premium. According to some sources, it’s to the tune of 30-40% when you look at home prices and rental rates. This again suggests that humans actually like and want this type of urbanism.

    Which is probably why there’s a growing interest in building more of it. Here’s a recent article from Bloomberg CityLab and here’s a photo of Culdesac’s new completely car-free community under construction in Tempe, Arizona (this doesn’t look like the Arizona I know):

    But in addition to just giving people more of what they want, there are also real economic benefits to stripping out parking and to overall more compact development. Charlotte-based Space Craft is another developer focused on car-light and transit-oriented apartments, and they have seemingly managed to make their projects more affordable as a result:

    “Our product offered lower rents to residents, $100 to $200 below our competitors, and was the best product in the market because we were able to reinvest some of the savings from parking,” said [Harrison] Tucker, who sees walkable urban neighborhoods becoming their own real estate investment class. “The economic case was just very strong.”

    This also flies in the face of the common argument that developers will always profit maximize and charge whatever the market will bear for their spaces. So why even bother trying to make it easier and cheaper to build? But this is not true! Lower development costs, as we see here, can and will translate into lower rents and higher quality buildings.

    I also agree with Tucker that we will see walkable urban neighborhoods, and their associated building typologies, become an important real estate asset class. For all of the reasons that we talk about on this blog, this is where our cities are headed.

    However, it’s going to take some time. I like the metaphor (mentioned in the above article) that, right now, we are creating “walkable archipelagos” or walkable islands in seas of cars. With the right connectivity (transit, micromobility, and so on), these islands can do just fine. But over time, I suspect we’ll see a lot more land reclamation. Good.

  • Two multi-family booms

    Here is an interesting chart, from Mike Moffat, that looks at housing completions — both ownership and rental — in the province of Ontario. The way to read this chart is that, for each date, you are looking at completions for the previous 10 years. (It says 12, but that seems to be a mistake.) For example, Q4-1964, which is the start of this chart, equals all homes built between Q1-1955 and Q4-1964.

    Three things will probably immediately stand out to you:

    1. We built a lot of multi-family housing in the 1960s and 1970s. In fact, we built more than we’re building right now and that wasn’t just the case in Toronto and Ontario. In Canada as a whole, the majority of building permits (60%) issued between 1962 and 1973 were for multi-family buildings. More specifically though, this was a rental apartment boom, as opposed to a condominium boom.
    2. We then said: “Nah, let’s not build so many apartments anymore. Let’s go back to building more single-family houses.”
    3. And that’s what we did — by a fairly wide margin — until the early 2000s when the next great multi-family boom started to take hold. This time, though, it developed into a condominium boom.

    Both multi-family booms have mirrored periods of overall economic expansion. But you also need to look at what government was doing. In the 1960s and 1970s we made it attractive to build rental housing (whereas today it’s a very challenging asset class to underwrite). And then more recently, we decided that much of our growth should happen in existing built-up urban areas. That generally means more multi.

    But multi-family is a fairly broad term. Are we talking about 4-storey walk-ups or are we talking about 40-storey tall buildings? For those of you who are able to look through this chart to what’s happening in the market, you’ll know that we are far more effective at the latter. We have a lot of work to do when it comes to the in-between housing scales.