Brandon Donnelly — Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly. — Page 351

Here is a study by three researchers out of California that asked Americans to predict the impact of a supply shock on various things, such as durable goods, commodities, labor, trade, and yes, housing.

For basically all of these items, people tended to answer correctly. Usually by a factor of at least two to one. In other words, when asked what reducing the supply of new cars would do to the prices of used cars, the majority of people responded saying that it would lead to an increase in prices.

However, when asked about the impact of a 10% increase in housing supply, about 40% said that it would cause prices and rents to rise . Only about a third believed they would fall (the correct answer). This is fascinating because it shows that housing seems to be an outlier. Most people don't have the same intuitive sense.

Why is this? Well, one commonly held belief is that building market-rate housing leads to gentrification, and that this ultimately leads to the displacement of existing residents. This might have been why some people responded saying that new housing will cause an increase in prices and rents. It'll lead to all housing going up.

However, there's research to support that this isn't the case. The problem isn't outward displacement following new market-rate housing. The greatest driver of gentrification is actually "exclusionary displacement", which is the inability of people to move into areas because of a lack of housing. (This study was based on 2010-2014 housing data from the UK.)

The thing about housing supply is that it relieves pressure across the entire market. Instead of a high-income person buying an old home to renovate (and causing outward displacement), they can instead choose to buy a new home (and not cause any outward displacement).

By doing this, they also leave behind a home that can then be absorbed by lower earners. One US study found that for every 100 new market-rate homes that are built, somewhere between 45 and 70 people move out of a below-median income neighborhood.

It is for reasons like these that, time and time again, increased housing supply has been shown to moderate home prices and rents (see above regarding Minneapolis and the Midwest as a whole). So if you're worried about the cost of housing, the answer is to build more. And if you're worried about gentrification, the answer is also to build more.

Our intuitions are telling us that this is true for most things. But for whatever reason, housing feels different. It's not, though.

Source: The charts and studies in this post are from this great FT article by John Burn-Murdoch.

Today, one of the top landscape architects in Canada -- Claude Cormier -- died from complications associated with something known as Li-Fraumeni Syndrome. He was only 63.

Claude, and the firm he founded CCxA , have been responsible for some of the most beautiful, whimsical, and critically acclaimed public spaces in Canada.

Those of you familiar with Toronto will know Berczy Park, Sugar Beach (pictured above), the new Love Park, and others. These are easily some of the most successful public spaces in the city, and for good reason.

CCxA is also the landscape firm behind our 100 Lombard project, where we have been similarly working to create a new and whimsical public space in downtown Toronto.

We're all sorry to see you go, Claude. Canada is a better -- and more fun place -- because of your work.

Photo by Filip Mroz on Unsplash

Big news today in development land. The federal government just announced that it has removed sales tax (GST/HST) from new rental housing effective immediately. This is a significant step in the right direction, and something that we have spoken about many times before on the blog .

Here's how things used to work :

In the case of a newly constructed or substantially renovated multiple-unit residential complex or addition to a multiple-unit residential complex, the builder must generally self-assess GST/HST on the fair market value of the whole of the substantially completed multiple-unit residential complex or addition when possession of the first unit is given under a lease, licence or similar arrangement as a place of residence of an individual.

What this is saying is that if you build new rental housing, and even if you plan to continue owning it forever, you need to determine the fair market value of the property and then pay HST on that amount. In Ontario, the HST rate is 13%. However, the effective rate was a bit lower because of new rental rebates. Let's say it was somewhere around 11%.

Now that this no longer needs to be paid, a lot of rental projects that were flirting at the margin should suddenly make economic sense. Which is why I tweeted earlier today that every housing developer in Canada is right now dusting off their "what if we built rental" development pro forma. It didn't work yesterday, but maybe it does today!

Today is a good day for new rental housing supply in Canada.

Update: This announcement only relates to the federal portion of the HST. The feds are now calling on provinces to follow suit.