Brandon Donnelly — Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly. — Page 134

Here's an interesting figure from the Missing Middle Initiative showing the change in population of 0-4 year olds in Southern Ontario between 2016 and 2021:

What this shows is that the population of young children declined in the Greater Toronto Area and in Ottawa, but increased dramatically in areas further out, such as in Lanark County (outside of Ottawa) and Oxford County (between London and Hamilton). If you know what home prices are like in Southern Ontario, then this probably makes intuitive sense to you. Families are, as the old saying goes, "driving until they qualify."

But let's look at the data more closely. What the Missing Middle uncovered was that the metric most highly correlated with the population growth of children under the age of 5 was the increase in the supply of housing with three or more bedrooms. More specifically, though, it was highly correlated with an increase in the number of larger owner-occupied homes. Rental housing did not have the same correlation.

They go on to remind us that correlation is not causation, which is true. But regardless, there's a clear recipe here: If cities want to become more family-friendly, house more young children, and not lose them to exurban areas, then they need to figure out a way to unlock more 3-bedroom homes at price points that more families can afford.

Note: As is typical on this blog, I am using the term home to include all housing types, not just single-family housing. A home is not a housing type. It is simply a place where people, families, and households live permanently. Associating the term home with only single-family housing creates a cultural bias that I believe is suboptimal for cities.

Most global cities now have restrictions, and in some cases an effective ban, on short-term rentals. Here are some examples, along with their annual nightly rental cap as I understand them (and by this, I mean what ChatGPT is telling me):

• Berlin: Secondary residence rentals are limited to 90 days per year

• London: Annual cap of 90 nights

• Mexico City: Annual cap of 180 nights

• New York City: Only host-present stays allowed

• Paris: Annual cap of 120 nights

• Rio de Janeiro: Annual cap of 90 nights

• San Francisco: Annual cap of 90 nights

• Singapore: Minimum stay of 3 months for private properties and 6 months for HDB properties (Singapore's public housing authority)

• Sydney: Annual cap of 180 nights

• Toronto: Annual cap of 180 nights

These rules and caps will have nuances to them. Like if you want to rent your place on the third Tuesday of a month and your property faces west and has a view of an outdoor terrace with no more than 6 brass bistro tables, you probably require a special license. Okay, this isn't true. But broadly speaking, most cities now have strict caps in the range of 90-180 nights and differentiate between whole-home rentals and host-present stays.

What this, of course, means is that most big cities don't want people operating short-term rentals as a business. They'd like hosts to be people who maybe rent out their place while they're away on vacation and/or offer up an extra room when some conference or event is taking place in town. In other words, cities do not want short-term rentals to negatively impact their supply of long-term rentals.

It's no wonder that Airbnb is investing heavily in both its "experiences" and "services." It has to do this because its core "homes" business is facing significant regulatory headwinds. But what this also means is that the hospitality industry is now shifting toward other solutions — things like aparthotels/serviced apartments. These are purpose-built solutions that typically require commercial zoning.

Globally, the aparthotel segment is expected to be the fastest-growing subset in commercial lodging for the remainder of this decade. And that makes sense. With STR regulations only becoming more stringent and with the continued rise of digital nomadism , the demand for this kind of apartment-like product is going to need to be satisfied in other ways.

There's clearly a market for kitchens, washing machines, and a bit more space.

Cover photo by Aquilion Property on Unsplash

In yesterday's post I spoke about the practice of buying land, rezoning it for a higher-and-better use, and then selling it for a margin. It may not make economic sense to do this in the current market, but it remains an important step in the delivery of new homes and other forms of real assets. Before you can build, you need entitled land.

But as I have mentioned before , there are people who look down upon this practice. They view it as a form of land speculation; one that just drives up land prices and doesn't ultimately create anything of tangible value. They might even go so far as to say that, if this is what you do, then you aren't actually a real estate developer!

Of course, this would be false and it shows a lack of understanding of how development works. It's also insulting to developers who work hard in this part of the business.

Let's consider Wikipedia's definition of development :

Real estate development, or property development, is a business process, encompassing activities that range from the renovation and re-lease of existing buildings to the purchase of raw land and the sale of developed land or parcels to others . Real estate developers are the people and companies who coordinate all of these activities, converting ideas from paper to real property. Real estate development is different from construction or housebuilding , although many developers also manage the construction process or engage in housebuilding.

The two most important points for this discussion are bolded. One, development includes a range of activities that might include the sale of land or parcels to others. And two, real estate development is distinct from construction or housebuilding. So the more accurate way to describe a developer who sells land and doesn't build is to call them a developer who isn't also a builder. It's that simple.

But more important than nomenclature is the fact that there's nothing inherently wrong with securing development approvals and then passing off the land to a builder to complete the rest. Somebody has to do it.

Entitling a site often takes years — sometimes even decades. It’s a process that creates value and serves as a prerequisite to building new homes. Whether it’s done by one company or two shouldn’t matter.

Cover photo by Alexander Tsang on Unsplash