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: vancouver

  • The irony of neighbourhood stability

    From a planning perspective, Toronto’s low-rise Neighbourhoods are considered to be “physically stable” areas, meaning that any change must be gradual and sensitive to the existing scale. In practice, however, we know that these areas can be anything but stable once you look deeper.

    A recent Globe and Mail analysis of census data for both Toronto and Vancouver once again reveals what we already know: Canadians are living longer, having fewer children, and consuming more square footage per person. The result is a declining population base in many — and in some cases most — parts of our already built-up areas.

    The Globe compared figures from the 1971 and 2021 censuses for both Toronto and Vancouver, examining the population of “dissemination areas” – each one an area of a few blocks, typically home to about 500 people.

    In the Vancouver region, 21 per cent of those areas declined in population over those 50 years, losing 76,424 people in total. Many other areas failed to keep up with the quick growth of the region.

    In the Toronto region, the pattern is much more stark: Almost three-quarters of those established areas had declined by 2021, shedding a total of 540,789 people.

    Here lies the irony: policies designed for stability led to losses equal to the size of a small city. And it’s one of the reasons why there’s such a groundswell of interest in intensifying existing neighbourhoods. It’s a way to correct for a demographic shift that has hollowed out neighbourhoods, closed schools, and left existing infrastructure underutilized.

    Maybe we’ll even get them back to what they once were.

  • An unsold condo tax misdiagnoses the real estate market

    When developers build new, for-sale housing, they are incentivized to sell that housing. That’s the business. If developers are sitting on unsold inventory — there’s an estimated 4,000 newly-completed unsold condominiums in the Vancouver region — it’s typically indicative of market conditions; meaning developers are sitting on inventory because they have no other choice, not holding inventory because they’re trying to price gouge.

    Last week, BC Premier David Eby announced that, if re-elected, his government would impose a new 2% tax on recently completed condominiums if they sit empty for more than 1 year. This would be levied against the assessed value of the property and increase by 1% for each additional year. So, by year three, the tax would be 3%.

    This would be a punitive tax that seems to suggest developers are not already incentivized to sell their housing inventory. Eby positioned the tax as a way to encourage developers to further lower their prices and sell homes at price points that people are willing to pay. While it would certainly be a “stick” for developers, why punish home builders? That’s less than optimal for long-term housing supply.

    A valuable indicator of current market conditions can be found in Ontario’s new enhanced HST rebate. It represents a meaningful cost reduction on the price of new housing and all signs point to this rebate being passed through to purchasers at or close to 100% of the value. It’s a sign that developers are not looking to price gouge. They’re trying to balance competing objectives and ultimately move their inventory.

  • Toward smaller condominium apartments

    Statistics Canada recently published some data (from 2022) looking at investors in the condominium apartment market. Here is what they believe to be the share of condominium apartments used as investment properties in Ontario’s 10 largest census metropolitan areas:

    It’s worth noting that this is after excluding condominium buildings where every single suite is owned by a single investor. This is/was most prevalent in London, and it’s the result of there being property tax benefits to registering a condominium (individual unit assessments), even though for all intents and purposes it’s a rental building (building in its entirety assessed).

    The article goes on to rightly suggest that the prevalence of investors, and the way that condominiums are financed, could be leading to the construction of more buildings with smaller suites. Here’s the proportion of new condominium apartments under 600 square feet by period of construction:

    The unsurprising takeaway is that condominium suites have gotten smaller. In the 1990s, the average condominium apartment built in the Toronto CMA was 947 square feet. This is compared to 640 square feet after 2016. And the same thing happened in Vancouver, which went from an average of 912 square feet to 790 square feet.

    Investor preferences certainly have something to do with this. But what the article doesn’t specifically mention is that this phenomenon is also a direct response to rising build costs: making suites smaller was how the market tried to maintain some level of affordability. Put differently, imagine how expensive new condominiums would be if the average size was still 947 square feet.

    But there are obviously limits to this. I was with one of our architects the other week and he made an interesting comment to me. He said, “Brandon, before when build costs used to go up and things got less affordable for consumers, we could just make the suites smaller to offset the impacts. But I don’t see how we can go any smaller now. We’ve reached the limit.”

    This is one of the reasons why I think this downturn is going to ultimately be a good thing for Canada’s housing markets. It’s a reset. It’s forcing everyone out of complacency and, hopefully, it means that when the next cycle begins we’ll be starting from a better foundation.

  • Vancouver’s social housing initiative

    Vancouver just put forward a bold proposal to encourage more social, or non-market housing, across the city. As drafted, new social housing projects up to 6 storeys would be permitted as-of-right in “villages” and social housing between 15-18 storeys would be permitted as-of-right in “neighborhood centers.” This is a big deal. I mean, look at the above map. Between these two area designations, big chunks of the city would receive these new permissions. For more information on the proposal, check out this short video.

  • What rules should we be breaking?

    Here is another great video from About Here talking about how breaking certain rules could make for better apartment buildings.

    The basis for the video is a design competition put on by Urbanarium, called Decoding Density, which asked participants to propose creative solutions for “six-story plus apartment forms in Metro Vancouver.”

    More specifically, the competition asked: How might Vancouver intensify its single-family neighborhoods with small-scale wood-frame apartments?

    The About Here video covers some of the common themes from the submissions and, not surprisingly, the first is single-stair buildings. Requiring only a single point of egress can really unlock small sites.

    Some of the other ideas are, perhaps, a bit more adventurous; but these are valuable exercises. Many rules are dumb. So it’s important that we continually question them and search for better ways.

  • This slash that

    Maison Kitsuné is a French-Japanese lifestyle brand that was founded in 2002 as both a record label and a fashion house. Apparently, the founders — Gildas Loaëc and Masaya Kuroki — started out by DJ’ing in order to promote their brand and clothes.

    In 2005, they released a full ready-to-wear collection and, according to Wikipedia, fashion has come to represent about 90% of the company’s revenue (2020 figure).

    In 2013, Kitsuné opened their first coffee shop in Tokyo. And since then, they have expanded around the world, opening cafes in Paris, Vancouver, Shanghai, and many other cities. As of today, I think they have 35 around the world.

    Their latest venture is something a bit new though. It’s called Desa Kitsuné, it’s located in Canggu, Bali, and it’s their first ever clothing shop/restaurant/club. It also comes with a pool and the idea is that you can do lots of different things here: shop, lounge during the day, and/or party at night.

    I always find it interesting when different ideas and approaches are combined. And that’s what Kitsuné continues to do. They also plan to do more of it. According to Monocle, the company wants to reach 100 cafes/restaurants around the world in the next 5 years.

    So keep an eye out for more foxes in your city.

  • Do great cities need tall buildings to help them thrive?

    In other words, are tall buildings a prerequisite to competing in today’s global economy? It’s an interesting question. And Jason Barr — professor of economics at Rutgers University-Newark — does think they are an important ingredient. So much so that he wrote a book on the topic called, Cities in the Sky: The Quest to Build the World’s Tallest Skyscrapers. While Jason does acknowledge that not every city needs them, he does suggest that not having them could hinder a global city:

    If you look at Paris’ global ranking in terms of its importance in the world economy, as measured by the size and number of international firms, it’s falling. Paris in 2000 was ranked fourth, and by 2020, it was down to eight, losing out to skyscraper cities such as Singapore and Dubai.

    In the last decade, Paris has shrunk by 122,000 residents. As reported by Forbes, “Many of those leaving are choosing either the suburbs or countryside around Paris, or they are relocating to France’s smaller cities such as Bordeaux, Lyon, and Toulouse.” By limiting its building stock, Paris is driving up housing prices, pushing out residents, and causing suburban sprawl.

    While I agree that tall buildings are important “geography-shrinking machines”, what we’re really talking about is using land more intensely. We’re talking about urban density. But you don’t necessarily need tall buildings to have high population densities. Consider Barcelona, which is one of the densest cities in Europe, and consider this comparison between Paris (few tall buildings) and Vancouver (more tall buildings).

    So is the argument simply that density is good for cities, and that tall buildings are one way to achieve that? Or is it that, now that cities like Paris are built out (albeit at very high densities), the only option for growth is to go up? I guess I’ll have to read his book.

  • Why your city is still struggling to build missing middle housing

    About Here makes excellent videos about cities. Here’s their latest about missing middle housing:

    In my view, there are two key takeaways.

    The first is that cities need to spend way more time understanding the economics of missing middle housing. As Uytae Lee says in the video, our land use policies need to respond to real math and overall financial viability.

    The second is that there’s real potential here. Uytae gives the example of Auckland which, according to the video, managed to deliver 20,000 new missing middle homes in a 5-year time period.

    This is meaningful! And, it is suggested that this has reduced rents in the city by somewhere between 13-35% compared to where they might have gone had this new housing not been built.

    As I’ve said many times before on the blog, the devil is in the details. The headline may sound really great that some city is now allowing 4 or 6 homes on every single-family lot, but that doesn’t necessarily mean that any new homes will actually be built.

    It’s important we change that.

    P.S. Thanks to Michael Geller for sharing this video with me.

  • BC has proposed building more housing near transit

    These days, it is cool to be pro housing.

    Unaffordability has apparently gotten so bad that we are now seeing a groundswell of support for increasing overall housing supply. So politicians are doing things. And this week, the Province of British Columbia proposed some new legislation related to transit hubs.

    As proposed, the legislation will require BC municipalities to designate Transit Oriented Development Areas (TOD Areas), mandate minimum heights and densities within certain radii (broadly 800m in the case of rapid transit stations), and remove parking minimums.

    Not surprisingly, a lot of people are excited about this and, there’s no question, that this is directionally the right thing to do. But I have two immediate thoughts.

    The first is that the devil is always in the details. This all sounds good, but: Are the proposed minimum densities and heights going to be enough to stimulate development? For example, is 4 the right minimum FAR for 300m from a transit station?

    The second thought has to do with the level of excitement surrounding this announcement. (I’m going strictly based on Twitter, which admittedly could just be my bubble). The fact that city builders are so excited about this announcement tells us a lot about the current state of affairs.

    Because what this proposed legislation is more or less saying is the following: “Hey, here’s a great idea! Let’s build more housing around higher order transit and not force the market to build unnecessary parking.”

    Is this really something that should be considered novel? I thought this was just how cities should work.

  • The cost of slowing down housing

    Urbanist Alain Bertaud — who is author of Order without Design — was recently in Vancouver for a talk about planning and housing matters.

    One of the things that he argued, according to The Hub, was that Vancouver “cannot complain about high housing prices and, at the same time, drastically limit the amount of land available [for development].”

    This should be an obvious thing. But then again, many people seem to believe that housing follows its own unique set of rules when it comes to supply and demand. So let’s look at some basic math to illustrate what it means to, not even stop or limit development, but just slow it down a little.

    Consider a development site that yields 300,000 sf of gross floor area. If I were to pick a number out of the air and apply a land price of $175 per buildable square foot, this is a site worth $52.5 million.

    In today’s environment, a land or acquisition loan for a site like this might come with a 50% LTV and an interest rate of 10%. What this means is that in a simple interest-only scenario, the annual debt service on this loan would be around $2.6 million ($52.5 million x 50% x 10%).

    Now let’s think of this on a per suite basis. Assuming an efficiency of 80%, 300,000 sf of GFA might equal 240,000 sf of saleable/livable area. Divide that by an average suite size of 625 sf, and you end up with 384 new homes on this piece of land.

    If you now divide the debt service by this many homes, you get to an annual land loan debt service cost of approximately $6.7k per home. This means that if it takes two years to start construction (and take out the land loan), that’s about $13.5k of land interest costs per home.

    Of course, if the approvals process takes even longer, this cost goes up. Let’s say that it gets decided that a “community working group” should be formed in order to further consult the community on the impacts of this proposed development.

    If this adds another year to the timeline, you now have an over $20k bill per home just to cover the land loan interest. And this does not just get magically “absorbed”, it needs to be added to the cost of the new home.

    This also does not include the cost of the actual construction loan, or any of the other hundreds of costs associated with building new housing.

    Obviously this is one of the costs of doing business. It is what developers sign up for when they look to build new housing. But I think it’s important to remember that limiting development, or even just slowing it, has real financial implications: it makes housing more expensive than it needs to be.