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: rental apartments

  • An overview of rental housing in France

    Rental housing in France is both heavily regulated and supported through dedicated public funds. Here’s a high-level overview of what that means (via this 2021 Brookings case study by Arthur Acolin):

    • Homeownership rates in France went from 35% in 1954 to 56% in 2001
    • As of 2018, 58% of French households own, 40% rent, and the remaining 2% supposedly get free housing from either their employer or a family member
    • Not surprisingly, younger households are most likely to rent (the figure is > 60% for people aged 18-29)
    • Household size seems to play a major factor in how likely people are to live in public housing
    • France has some 4.5 million public housing units and 17% of all households live in them (which represents about 43% of all renter households)
    • Within the unsubsidized rental market, 93.5% of households live in homes owned by individual investors (this is as of 2013) and only about 3.5% live in homes owned by institutional investors
    • This is pretty typical of Europe, where multi-family isn’t an established real estate asset class like it is in North America; so for those of you who like to hate on individual condo investors, check out France
    • In the decade between 2010 and 2020, 28 metro regions in France adopted some form of rent control and, in a few markets, like Paris and Lille, there are also maximum rents that can be charged for specific housing types

    If you’re interested in rental housing, Brookings also has articles covering the US, Germany, Spain, Japan, and the UK. They can be found here.

  • New rental apartments in Toronto by year of construction

    “Your local self-inflicted housing criss ouroboros” tweeted this chart out over the weekend, showing the number of new rental suites completed in Toronto since 1900. The data is from Open Data Toronto and it does not include any condominiums. It also only includes apartment buildings with 10 or more suites (which would be most of the supply anyway).

    This chart is a good example of what we spoke about yesterday: “If you want to negatively impact new supply, cap rental growth.” And that’s exactly what was done in the 1970s. But in reality, the changes were more broad than this. The 1970s saw a philosophical shift in the way Canada thought about new housing.

    Housing became rightly viewed as a basic human right. But because of this, the policy landscape shifted away from facilitating the private sector, to intervening and regulating the private sector. This included tax changes which negatively impacted new housing development and, yes, rent controls.

    Ironically, but not unexpectedly, this dramatically lowered the overall supply of new rental housing. To the point where we had effectively shut off the taps by the late 1990s. Thankfully, the condominium sector stepped in and started meaningfully delivering new housing — both for sale and for rent (via individual private investors).

    The supply of new condominiums in Toronto is not shown above, but there is no question that this (shadow rentals) has formed the vast majority of our new rental stock over the last two decades. But in my view, this shift was largely the result of policy decisions. We decided that we didn’t want the private sector building so many new purpose-built rentals, and so we told them to stop.

    It then listened remarkably well.

  • Two ideas for increasing the supply of new rental housing

    There are lots of ideas out there for how to improve the supply of new rental housing. But it is important to remember, at least here in our market, that the playing field is not level between new condominiums and new rental homes. We have spoken about this before, over here, where I compared the (per square foot) revenue generated from your average new condo against that generated by your average new rental home. Of course, since I wrote that post in 2020, we have seen upward pressure on cap rates (meaning downward pressure on values). So feasibility has gotten even more challenging.

    The important thing to remember is that developers do not have some philosophical aversion to building more rental housing; it is that the math is challenging. You generally need economies of scale (really big projects), patient long-term capital, and a belief that rents will continue to exhibit meaningful positive growth. If you want to negatively impact new supply, cap rental growth. But if you want to encourage new supply, somebody needs to pull out a development pro forma and make the call to improve the cost structure for new rental housing.

    In my opinion, two obvious line items to focus on are development charges (as well as the other government levies) and HST (our harmonized sales tax). The point of development charges, as we always talk about, is for growth to pay for growth. They are intended to pay for municipal services like roads, transit, water and sewer, and so on. In the other words, they’re supposed to capture of the cost impacts of new housing. But what about the impact of not building enough new rental housing? Are we thinking about this the right way? Especially if you consider the possibility of more new rental housing in our existing transit nodes.

    The HST charged on new rental housing is also significant. There is a new residential rental property rebate available to builders (not tax advice!), but the thresholds have not been indexed and so it’s grossly out of date compared to where values sit today. In any event, if the goal is more homes, why not make new rental homes exempt? Developers are simple. If the math works, they will build. If the math doesn’t work, they will not build. And these two line items, alone, would go a long way to helping the former.

    Photo by Pierre Châtel-Innocenti on Unsplash

  • Modular construction appears to be on the rise in Philadelphia

    This Philadelphia Inquirer article is behind a paywall, but I can tell you that it speaks to the city’s increasing use of modular construction for infill apartment buildings:

    Building modularly can save 20% on total construction costs, he said. Projects can be constructed in half the time, and rental revenue comes in sooner. Workers build apartments in pieces in a factory as others lay the foundation. Factory work doesn’t have to pause for inclement weather.

    Alterra Property Group has found that modular construction is cost- and time-effective when it builds between 100 and 500 units and between four and six stories. Under that, building on-site is more efficient, Addimando said. Above that, builders can run up against building code restrictions.

    Consider this recently completed project, called LVL North:

    • 1.5 acre site
    • Site acquired in February 2020
    • Construction commenced in June 2020 (was it already entitled?)
    • Over 500,000 square feet
    • 7 storeys
    • 410 market-rate apartments
    • Two levels of commercial spaces
    • Over 300 parking spaces in a two-level below-grade parking structure
    • Construction completed in 24 months (it’s currently being leased up)

    I am impressed by how quickly this was erected. Here in Toronto, it would likely take more than 24 months just to get through the rezoning process. Granted, a site this big in a central location next to transit would also likely beget multiple tall buildings.

    But this form and scale of housing seems to be working for Philly. It is allowing the city to both build quickly and to experiment with emerging construction methods.

  • A mapping of US rental housing rents, scraped from Craigslist

    This is an interesting way of seeing rental housing rents (national scale). And there’s a lot that you can glean from a mapping like this. But it’s also interesting in that what you are seeing here is a visualization of some 11 million Craigslist rental housing listings (taken from this study). The authors refer to it as a “nontraditional source of volunteered geographic information”, and they argue that it’s probably more granular and real-time than what is typically available when it comes to rental housing. That sounds right to me.

  • Adam Neumann has quietly acquired some 4,000 apartment units

    So it was announced today that Adam Neumann — the cofounder and former CEO of WeWork — has been quietly buying apartment buildings across the United States. According to the Wall Street Journal, he is involved in entities that have acquired more than 4,000 apartment suites valued at least $1 billion.

    The buildings, which seem to be fairly typical and have at least a few hundred doors, are located in cities like Miami, Ft. Lauderdale, Atlanta, Nashville, as well as in many other US cities. It’s not clear what the exact plan is for this real estate but people who claim to know things are saying that it will involve “redefining the future of living”, or something along these lines.

    Presumably this means catering to young professionals with cool design, fun amenities, and beer taps. Whatever ends up happening, it is interesting to see some of the cities that he/they are targeting. They are the cities that we’ve all been talking about for many years. You know, the ones that are growing quickly and have greater housing supply elasticities.

  • Demand for short-term apartment rentals grew in 2020

    Apartment List’s quarterly Renter Migration Report (Q4 2020) offers up some interesting insights into what may be playing out in the apartment sector right now. The most striking takeaway seems to be the surge in people looking for short-term rentals (leases of six months or less). And while the data has historically shown that those looking to move to a new metro are more likely to be looking for a short-term rental compared to those searching within their current metro, that spread really widened starting in the spring of last year. See above.

    And when you drill even deeper, the most popular inbound destination — at least according to Apartment List’s search data — seems to be Honolulu. In the second half of 2020, about 26.8% of users searching in Honolulu from somewhere else in the US were looking for a short-term lease. This is compared to 14.9% during the same time period in 2019. Intuitively this makes sense to me. If you’re in lockdown and working from home, why the hell not do it from Hawaii? We’ve all have this same thought.

    Apartment List goes on to speculate that this short-term rental spike could be an indication that the inbound and outbound flows we’re seeing right now with certain cities may not be all that permanent. People are simply optimizing for the current environment. Though this data is representative of intent, rather than of leases consummated. Either way, that would be my guess. But who knows. Maybe some people will discover that surfing in the morning and working from the beach is a pretty enjoyable way to live.

  • Vancouver approves new rental housing policy

    New rental housing measures were approved by Vancouver City Council this week. I haven’t gone through the policies in the detail (you can do that here), but they aim to increase rental housing supply by doing things such as “pre-zoning” for 6-storeys on main streets and by allowing rental apartments to be built on some side streets (up to 150m away from arterial roads).

    Here’s an excerpt from the staff report:

    Enabling new rental housing in all neighbourhoods would support an increase in supply and choice. The incentive programs have concentrated secured market rental development in selected neighbourhoods and along arterial streets. This has been effective at creating larger multi-unit projects, but has created an inequitable environment, where renters have limited housing choice. Expanding program coverage into low density areas, areas zoned for single detached housing and non-arterial locations to allow for a greater mix of structure types and densities (e.g. townhouses, small apartment buildings) are important considerations moving forward.

    It is yet another data point for what I wrote about here — the loosening of single-family zoning. Turns out, it can be difficult to meet the demand for new housing when you set aside a large part — or most — of your land for low-rise single-family homes. And there seems to be growing acknowledgement of that on the part of cities.

    Photo by Aditya Chinchure on Unsplash

  • Berlin approves rent freeze on existing apartment buildings

    Berlin just approved a five year “rent freeze” on apartments in the German capital. The rent caps will be implemented on January 1, 2020, but will apply retroactively to all rental agreements from June 18, 2019 onward (which is when the decision was made). It is estimated that this new law will apply to some 1.5 million apartments.

    The move is in response to rapidly rising apartment rents, which grew about 12% in 2017 alone. So I can appreciate where this is coming from.

    From what I have read, it will not apply to new construction, which is the first thing I checked when I saw the decision. That would have almost certainly choked off any new apartment construction in the city. With a capped top line, it wouldn’t take long for costs to increase and make new rental construction infeasible.

    That said, a similar squeeze is liable to happen for existing buildings. It is one thing to cap rents (revenue), but what about utility, maintenance, labor, and other operating costs (expenses)? As costs rise and operating margins tighten, it can become exceedingly difficult to reinvest in, or even maintain, an apartment building.

    For more on the announcement, here’s an article from FT.

  • One year of Inclusionary Housing in Portland

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    About a year ago, Portland enacted “Inclusionary Housing” policy requiring new apartment buildings of 20 units or more to offer up a portion of the units at below market rents.

    Developers are able to select from a few different options and the rents are calculated according to a percentage of the city’s median family income (30-80%). I’m not sure how this policy would apply to new condo buildings.

    This is an interesting account by The Portland Mercury of what this policy may be doing to the housing market. I say may because it’s only been a year and there could be other factors at play.

    Between 2013 and 2017, Portland typically built between 3,000 and 6,000 new units per year. Since the IH policy went into effect on February 1, 2017, 682 new units have applied for permit. 

    About half are coming from one developer who appears to be building the requisite affordable units in exchange for no parking minimums. They are now proposing buildings with zero parking.

    Again, in all fairness, it’s only been a year. But already Mayor Ted Wheeler is looking at other incentives to encourage more new construction in the central city. The biggest levers: height and density.

    All of this begins to speak to the very real impact of inclusionary zoning on development feasibility.

    Photo by Zach Savinar on Unsplash