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.

Subscribe

Tag: toronto condo market

  • Remember unfunded inclusionary zoning?

    Over the weekend, we spoke about how the “GTA condo market is in a state of economic lockdown.” What this generally means is that the math isn’t making sense to build new condominiums. And so the market is necessarily pausing.

    We spoke about what this will likely mean for supply in the coming years, but I think it’s also interesting to talk about this in the context of something else: unfunded inclusionary zoning.

    As a reminder, inclusionary zoning is, in its most basic form, a requirement to build a certain amount of affordable housing as part of new housing developments. And what I mean by “unfunded” is that there are no subsidies or other incentives being provided to the project.

    This means that the cost of providing this housing — and there is an additional cost — needs to be shouldered by the project, which ultimately means the market-rate units need to pay for it.

    Which is why if you look at most policy studies, you’ll often find recognition that, because of this economic reality, IZ tends to work better in areas where home prices/rents are higher. And again, that’s because the market-rate homes need to shoulder the cost.

    We have questioned, many times, on this blog, whether this is the right approach to delivering affordable housing, but I think this question becomes even more critical in our current market environment.

    If the entire market is, for the most part, in a state of economic lockdown, should we really be layering on additional costs and making it broadly more difficult to build any sort of new housing? It seems counterintuitive.

    For more on this topic, check out this recent Sightline article by Dan Bertolet.

  • Modest and beautiful

    It is hard to argue that this isn’t a beautiful building:

    Designed by Morris Adjmi Architects and located at the corner of Grand and Mulberry in New York City, it is exactly the kind of building that many of us would like to see more of in our cities. It has retail at grade and it’s, you know, modest in scale at only 7 stories, 20 units, and 35,765 square feet.

    Looking inside, here are some of the floor plans:

    Overall, I would say that these layouts are more generous than what you would typically find in new builds here in Toronto. For new condominiums, 686 sf would be considered large for a one bedroom. Many/most sales teams/departments would tell you to turn this into a two bedroom.

    But this doesn’t mean that developers in NYC are simply being more generous with their square feet. It all costs money. And according to StreetEasy, the average sale price in this building is US$1,979,210 and the average price per square foot is US$2,384 (19 most recent sales).

    This is another reminder that modest and beautiful can often equal expensive. It’s how you make the math work, or at least hope to.

  • Why are construction starts down?

    Last year in the Greater Toronto Area, condominium construction starts fell to a 9-year low of 15,891 homes. And this year, condominium construction starts are forecasted to fall to a 15-year low of 11,500 homes (though new sales are expected to rebound). Both of these figures are from Urbanation’s Q4-2023 market data.

    One possible explanation for this drop in construction starts could be that developers are somehow colluding to keep supply low and prices high. Another one could be that more developers are right now independently speculating that prices will be higher in the future, and so they think it’s better to just wait. But both of these explanations would be wrong.

    The correct answer is that more developers are unable to start construction because the market isn’t there. In the case of Toronto’s condominium market, this means that the pre-sales aren’t there. This might seem obvious, but there seems to always be a contingent of people who believe that developers can choose to build whenever they want.

    It is for this same reason that some people think that zoning approvals should have an expiry date. Call it a use-it-or-lose-it approach. But as I think we can see in the above numbers, developers don’t control the market. And so I would never want to be in a position where I need to start construction by a certain date, or else.

    That’s not entirely within my control. In fact, sometimes it’s completely out of my control.

  • The Livabl Launch podcast

    Matthew Slutsky (formerly of BuzzBuzzHome fame and now of Livabl fame) recently invited me on his podcast to talk about some of our current and upcoming condominium projects, as well as about the market in general.

    Despite my best attempts, I only briefly talk about NFTs and crypto (in the context of our One Delisle project). So if any of you are sick of hearing that from me, the episode should be overall fairly tolerable.

    To have a listen, click here. It’s about 30 minutes.

    Thanks again for having me, Matthew.

  • What does Toronto want to be?

    “On some level, we’re [Toronto] still trying to be a Victorian city.” —Peter Clewes

    It is not an exaggeration to say that Peter Clewes, of architects-Alliance, is one of the most important architects working in Toronto today. Over the last two decades, Toronto has built a lot of new condominiums and Peter’s firm has been behind many of them.

    I mean, I currently live in a building designed by architects-Alliance. My mom lives in a building designed by architects-Alliance. And the first condominium I ever lived in around 2005 or so, was naturally also designed by architects-Alliance.

    Peter’s work is everywhere. And it has been instrumental in helping to define this new Toronto. But what is this new Toronto? It’s hard to say really.

    Toronto may have built a lot of new things and added a lot of new people over the last two decades, but it has done so almost begrudgingly and without the confidence to say, “we are building this way because this is the kind of global city we want to become.”

    I think Peter gets a lot right in this excellent interview with Azure about Toronto, condominiums, and city building. Despite everything that has changed, on some level, we are still trying to be a Victorian city.

    Of course, we are no longer that city. It’s long gone. Time to think much bigger.

    Photo by Dillon Kydd on Unsplash

  • Toronto’s condo market in 2021

    “If everyone is going left, look right.” –Sam Zell

    The right time to buy things is usually when other’s aren’t, which is why I’ve felt that this year was a great time to buy a centrally located condo. Cities aren’t going anywhere. This isn’t their first pandemic. Downtown demand will return as soon as urban life returns and the majority of people are back in their offices next year.

    I’ve also been predicting that the run-up in single-family home prices that we have seen this past year here in Toronto will eventually lead to a surge in demand for condos (and perhaps even for larger suites). It’s a question of relative affordability. And so it was interesting to see Shaun Hildebrand of Urbanation predicting the same thing for 2021 in this recent Toronto Star article.

    Hildebrand thinks the soaring prices of single-family homes will also push more buyers back to the condo market.

    As of November, the average price gap between condos and detached houses was $596,000. The gap between a condo and a semi-detached or townhome was about $217,000. Both of those were at their second-highest levels since the market peaked in late 2016-early 2017, he said.

    “This could really start to swing demand towards condos in the second half of the year,” said Hildebrand.

    Realosophy data shows condo sales were already up year over year prior to the holidays — 23 per cent the first week of December, 31 per cent the second week and 72 per cent the week of Dec. 14. That means 727 condos sold that week, compared to 418 in the same week last year.

  • Site Magazine: Why have Toronto condos become so %@$#$! expensive?

    Every year my friends at Urban Capital publish an annual magazine called Site. And every year it contains some great articles about the real estate development industry across Canada. (Some of you may also remember that I’ve written a few articles for it in previous years.)

    Well this year’s issue is out and there are a few featured articles that I’d like to draw your attention to:

    • What happens when 175 (mostly) women get together to design a condominium? Link
    • How (not) to build a public park Link
    • Why have Toronto condos become so %@$#$! expensive? Link

    This last one is a topic that we have talked about many times before on the blog. But here, UC has provided a quantitative comparison between a project they did in 2005 and a project that they’re doing today in 2020. Here’s what they found:

    Average condo prices in the City of Toronto are up about 150%. But…

    Land costs are up 160%.

    Soft costs are up 118%.

    Construction and related costs are up 91%.

    Financing costs are up 93%.

    Government fees, charges, and taxes are up 413%.

    And development charges (a subset of the above) are up 3,244%!

    At the same time, the profit margin over costs is down about 45%.

    (As a point of comparison, CPI only increased by about 26.5% during this same time period.)

    The point here is that condos are so %@$#$! expensive largely because of cost-plus pricing. Government fee increases are also outpacing every other cost bucket.

    If you’re developing new housing in Toronto, you have no choice but to accept these rising costs. You have to pay development charges and you have to pay them when you’re told, even if that means swallowing some new massive increase.

    So by necessity, end prices get continually pushed as a way to try and absorb these costs. You figure out what your costs are going to be and then you price accordingly. But of course, you also have to ask yourself: Can people actually afford this kind of pricing and can this neighborhood support it?

    Sometimes the answer is yes, which is why development continues. But sometimes the answer is no. In this case, the next step is simple: you don’t build.

  • Urbanation releases Q3-2020 market update — new condo sales reach record high

    Urbanation just released its Q3-2020 market update for the Greater Toronto Area and the data is very encouraging for the new condo market. Here are some of the highlights:

    • There were 6,730 new condominium unit sales in Q3. This represents a 30% year-over-year increase.
    • More of this growth happened in the suburbs (905) with 3,834 units sales vs. 2,536 unit sales in the City of Toronto (416).
    • Of the 6,694 units that launched for sale in Q3, about 3/4 of them sold. This is the highest absorption rate since Q4-2017.
    • The average selling price for a new condo launched in Q3 was $1,044 psf (GTA average). This is up 3.5% compared to last year.
    • New launches in the suburbs sold for an average of $915 psf. New launches in the City of Toronto sold for an average of $1,275 psf.

    I reckon that many of the people purchasing right now are looking through and to the other side of this current macro environment. They recognize that things will get better and that the Toronto region will continue to thrive. That’s certainly how I’m thinking about it.

    For the full Urbanation news release, click here.

    Photo by Warren Wong on Unsplash

  • Toronto condo market outlook

    BNN Bloomberg just published this article on the Toronto condo market. It is based on a roundtable discussion that was held at their Toronto office last week with Jim Ritchie of Tridel, Jared Menkes of Menkes Developments, Shamez Virani of CentreCourt, and Jane Renwick of Diamond Kilmer Developments.

    The overarching theme is that, after a couple of frenetic record setting years, the market should settle down in 2019, which is likely a good thing. Hopefully that will also temper construction cost inflation. We have been seeing double digit increases over the last few years (hence some of the cancelled projects).

    But as Jared points out, the fundamentals here are still strong and there are a number of supply constraints creating upward pressure on pricing:

    Jared Menkes, executive vice president of high-rise residential at Menkes Developments was unwavering for the future. “There’s a lot of red tape that’s slowing down bringing more product to market,” Menkes said. “I promise you, pricing is going up.”

    For the rest of the article, click here.

  • Average price of a new condo in Toronto is now above $1,000 psf

    Urbanation released its Q3-2018 condo market results for the Greater Toronto Area earlier this month. 

    Here are a few highlights:

    – The unsold inventory of new condos in development is currently 33% below the 10-year average of 14,806 units.

    – Year-to-date sales of new condominiums decreased to 14,055 units from 25,839 units (same period last year). 2017 was a record year.

    – The average price per square foot for new project launches in Q3-2018 was $1,044 psf. This is the first time the average has broken the $1,000 psf mark. 

    – This is a significant price increase from last year and it is being driven by low supply, stable demand, and rising development/construction costs (my opinion).

    – The average unit size for project launches in Q3-2018 was 714 sf.

    – The average opening quarter absorption rate remains above 55%. It has been this way since Q1-2016.

    For the full press release, click here.