Brandon Donnelly — Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly. — Page 174

Here's an interesting Twitter thread by Zoë Coombes describing the crossroads that Toronto finds itself at when it comes to housing. We know we need to build more urban housing geared towards families. But unfortunately, the economics underpinning new housing bias the opposite: smaller homes. And in our current market environment, it's a real challenge to even build any new housing. Period.

Zoe argues that we have two options: we can either open up the greenbelt (i.e. sprawl) or we can make it more feasible to build infill apartment buildings catering to families. In her words, "there's no third option." I am a strong proponent of the latter over the former, and so here are a few things we really ought to be doing to improve the feasibility of these housing types in Toronto:

• Greater as-of-right permissions across the city. The new Major Street policies are a huge step in the right direction, but, in my opinion, more will need to be done to unlock a greater number of sites. Land use planning, by virtue of its political affiliation, is an especially iterative process.

• Eliminate the Site Plan Control process for larger projects. Currently, projects with more than 10 units are subject to Site Plan Control. This is an unnecessary barrier that adds cost and extends project timelines. My understanding is that this change is already underway. Good.

• Eliminate or greatly reduce Development Charges on new infill housing. I've already written a lot about this topic, so I won't repeat myself. But know that it's material to development feasibility. Here's some positive news from the end of last year.

• Allow buildings with a single exit stair . This is crucial for smaller-scale projects where every bit of efficiency counts (net rentable area to gross construction area). It will also help to unlock better floor plans, including dual-aspect suites.

• Streamline environmental approvals. In Ontario, if you are "converting" a site to a more sensitive land use (such as residential), you are required to obtain a Record of Site Condition from the Ministry of the Environment, Conservation and Parks. Depending on the conditions of the site, this process can take years. Human safety is obviously the number one priority, but lengthy review timelines do make small projects entirely infeasible.

Again, the good news is that some of these changes are already underway. So we're at least headed in the right direction. But is there anything else you would add to this list?

Cover photo by Kai Pilger on Unsplash

Here is a chart, via the New York Times , showing the US states with the greatest net migration in 2023:

This is calculated by looking at the difference between arrivals and departures for each state, but only within the US. And for the first year since 2014, Texas has overtaken Florida, though admittedly not by much.

I saw some discussion about this on Twitter, but I think it's important to point out that this is only domestic migration. Between 2023 and 2024, the US grew by some 3.3 million people. And 84% of this growth (about 2.8 million people) came from international migration.

So let's include those numbers (data via the US Census Bureau ).

Here are the most populous states:

Here are the top 10 states by numeric growth:

And here are the top 10 states by percent growth:

When looking at overall numeric growth, Texas and Florida still land at the top. (They're also among the highest in terms of percentage growth, despite already being the second and third most populous states.) But now states like California and New York show up on the top 10 list, which speaks to their ability to draw people from around the world.

None of this is particularly surprising, but I still think it's valuable to see the numbers.

Cover photo by Courtney Rose on Unsplash

This post is ultimately going to be about real estate, but bear with me for a minute. In Warren Buffet's 1989 letter to shareholders , he describes something that he refers to as the "cigar butt" approach to investing. This has been talked about a lot since this letter, but the general idea is that if you buy a company cheap enough, it doesn't matter that there may only be "one puff left." Your low cost basis will make that puff all profit.

This has a logic to it, but Buffet goes on, in this same letter, to call this a "bargain-purchase folly." You may think you're getting a good deal and an enviable discount to market, but if the company sucks, you're likely in for a rough ride at some point. This lesson learned is what resulted in his famous adage that it's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.

Now, let's consider something that Howard Marks wrote in the memo that I cited yesterday . He calls it one of his guiding investment principles and goes like this:

"There's no asset so good that it can't be overpriced and thus dangerous, and there are few assets so bad that they can't get cheap enough to be a bargain."

Interesting. I agree with the first piece. It doesn't matter how good an asset may be -- and we can now start to turn our minds to real estate -- there's of course a way to pay too much. But is this second part entirely or at least mostly true? I'm not so sure. It might be a cigar butt.

One of my own rules for real estate is that just because an asset is cheaper than it was before, it doesn't necessarily mean that you're getting a good price. And that's because I have seen "bargain prices" drop even further. In fact, when it comes to real estate, including development land, sometimes the value that you should be willing to pay might even be negative or less than zero.

What this means is that someone would need to pay a rational market participant in order to take on the asset or development project (usually this comes in the form of a subsidy and it means the market isn't functioning on its own).

"Buying below market" and "buying below replacement cost" are commonly sought after features in the real estate industry. And indeed, buying well is critically important. But I do think that it's important to be just as worried about overpaying as you are about buying a shitty asset. Buying too cheap can also be a problem, assuming the market is pricing the asset accurately. It means you probably don't want to own it.

Cover photo by Simone Hutsch on Unsplash