Toronto Massey Tower Condos | 206.95m | 60s | MOD Developments | Hariri Pontarini

Actually yes smaller units does make more money. I'm not going to use any kind of judgement terms like "greed" but all things being equal you always come out ahead if you divide a building into smaller units. Small units usually trump even luxury in terms of generating money. This doesn't always work out if you are talking about long-term sustainable management of a property but then builders aren't thinking about long-term sustainable management of a property.
 
Big Daddy said:
Really? How does the cost of a few extra partitions and a little extra plumbing cost more that the minimum $300,000 per unit cost?
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Two 500 square foot units costs the developer more to service than one 1,000 square foot unit. The developer would rather sell the latter every time. The question is what people would rather buy.
 
Ramako said:
Two 500 square foot units costs the developer more to service than one 1,000 square foot unit. The developer would rather sell the latter every time. The question is what people would rather buy.
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And yet two 50 sq m units cost a lot more than one 100 sq m unit, so yes, this is definitely developer greed. The city needs to enforce a certain percentage of two+ bedroom units. I'm sure many are going to use the argument that larger units don't sell. IMO, if the city enforces two+ bedroom units, developers will be forced to price them more aggressively.
 
Ramako said:
Two 500 square foot units costs the developer more to service than one 1,000 square foot unit. The developer would rather sell the latter every time. The question is what people would rather buy.
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I agree with Ramako. Don't forget that there are increased municipal costs which are unit related (DC's, EC's) as opposed to GFA related (permit fees, parks levies). There are also building costs that increase with more units: the need for more elevators, the need for larger mechanical equipment, the need for more amenity space. Of course one has to factor (in the analogy of the cost difference between two 500 SF units vs. one 1,000 SF unit), the costs of the additional kitchen, appliances, bathrooms, and mechanical equipment.

Usually, the argument is made that it's all about the end price and that developers choose to do small units to keep price points down. A lot has to do with the height of the building. If we relate this discussion back to Massey Tower, we will see that the larger units on the upper floors (like the 3B) sold at higher end prices and $/SF than smaller units on the same floors. This is not the case on the lower floors. Pricing is not always black-and-white.
 
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DtTO said:
And yet two 50 sq m units cost a lot more than one 100 sq m unit, so yes, this is definitely developer greed. The city needs to enforce a certain percentage of two+ bedroom units. I'm sure many are going to use the argument that larger units don't sell. IMO, if the city enforces two+ bedroom units, developers will be forced to price them more aggressively.
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To use words like "greed" in this discussion is childish. Residential development is a business involving a lot of money and risk, and certain returns are necessary to undertake the risks. Unit sizes and end prices are market-driven. If larger units will not sell in certain locations, it doesn't matter if the city demands them, they simply will not get built.

You may want to ask the question instead as to why the city, between increased development charges, application and permit fees, Section 37 benefits and increased parks levies, actually lessens the affordability of new residential housing. Altus, in a report prepared for BILD estimated that government charges actually add up to 20% of the cost of new high-rise housing (or $64,000 per unit). Where's the "greed"?

http://www.bildgta.ca/BILD/uploadedFiles/Media/Releases_2013/altus_bg.pdf
 
thecharioteer said:
To use words like "greed" in this discussion is childish. Residential development is a business involving a lot of money and risk, and certain returns are necessary to undertake the risks. Unit sizes and end prices are market-driven. If larger units will not sell in certain locations, it doesn't matter if the city demands them, they simply will not get built.

You may want to ask the question instead as to why the city, between increased development charges, application and permit fees, Section 37 benefits and increased parks levies, actually lessens the affordability of new residential housing. Altus, in a report prepared for BILD estimated that government charges actually add up to 20% of the cost of new high-rise housing (or $64,000 per unit). Where's the "greed"?

http://www.bildgta.ca/BILD/uploadedFiles/Media/Releases_2013/altus_bg.pdf
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You've made some very good points, but that's not exactly what I was saying. The topic was smaller vs. larger units, and I do believe that developers do make a higher profit on smaller units, despite the added costs. Businesses are inherently greedy (i.e. attempt to maximize profit at the expense of the well being of their surroundings; in this case, the demographic structure of the city), and it is up to outside forces (the city) to ensure that a balance is kept. I do agree that the city's development costs are far too high. Perhaps if the federal government would stop increasing the military budget, environmentalists would stop sabotaging the economy, and the senate is abolished, we could allocate those funds to mass transit and other municipal works, and decrease the development fees.
 
thecharioteer said:
To use words like "greed" in this discussion is childish. Residential development is a business involving a lot of money and risk, and certain returns are necessary to undertake the risks. Unit sizes and end prices are market-driven. If larger units will not sell in certain locations, it doesn't matter if the city demands them, they simply will not get built.

You may want to ask the question instead as to why the city, between increased development charges, application and permit fees, Section 37 benefits and increased parks levies, actually lessens the affordability of new residential housing. Altus, in a report prepared for BILD estimated that government charges actually add up to 20% of the cost of new high-rise housing (or $64,000 per unit). Where's the "greed"?

http://www.bildgta.ca/BILD/uploadedFiles/Media/Releases_2013/altus_bg.pdf
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You may think calling it greed is childish, I think it's honest. Every choice a developer makes is driven to making the maximum amount of profit. You just rephrased it in a way to make that goal seem more palatable. It's still greed.

Long term planning and sustainable development requires thinking about more than sales numbers.
 
nrb said:
You may think calling it greed is childish, I think it's honest. Every choice a developer makes is driven to making the maximum amount of profit. You just rephrased it in a way to make that goal seem more palatable. It's still greed.

Long term planning and sustainable development requires thinking about more than sales numbers.
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I would ask you then, in such a black-and-white universe, if you believe there are such things as "good" developers and "bad" developers?

Why do we have developers like Daniels re-doing Regents Park? Why is MOD spending millions to restore the Bank of Commerce building, which was suffering demolition by neglect? Why is Freed doing complicated buildings like Fashion House if "every choice" is profit-driven?

Surely you can see that the "greed" argument ignores some basic aspects of what drives a number of better developers, such as the desire to give back to the community, to respect our collective past, and to create things of beauty, all motivators for many developers (while still making a profit, of course).

Remember also that historically some of the finest urban developments from John Nash in Georgian London to Hausmann's Paris to Rockefeller Center have been profit-driven.....
 
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So if developers sell more small units despite big units being cheaper to build (per sf), doesn't that mean demand is significantly higher for small units? So if you force developers to build more large units, they'll have to make up for it by charging more for small units. My question would be why is there so much more demand for the small units?
 
Memph said:
So if developers sell more small units despite big units being cheaper to build (per sf), doesn't that mean demand is significantly higher for small units?
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Demand is higher for smaller units, but not for the reason you stated. Yes, smaller units cost more to build per square meter than an equivalent larger unit, but they also demand a much higher price premium. There is no doubt that the profit margin on smaller units is higher.
 
Perfect example is 88 Scott, they went with larger units and it took forever to sell when it was the only building on the market doing so, there simply is no demand.
 
There are a lot of myths and false claims being tossed around regarding the factors driving smaller units sizes in the Toronto market. Profitability on a unit-by-unit basis is not one of those factors no matter how many times some individuals utilize loaded terms such as "Greed" (question, if I open a lemonade stand and turn a profit am I greedy?).

Let's examine a few factors and I'll break them down further later in the post:
  • Smaller units are more expensive to construct on a $psf basis for both hard construction costs as well as a range of soft costs
  • Smaller units are taxed higher on a proportional basis
  • Selling prices are generally on a $psf basis with some tweaks based on views, floor level, unit demand - there is not typically a substantial premium paid for smaller units

Basic numbers breakdown
  • 500sqf unit X $700 PSF = $350k vs 1000sqf unit X $700psf = $700k (builder grosses same $ for same amount of floor-space)
  • Developer has to net additional sales of a smaller units for every sale of larger unit
  • Twice the appliances for the smaller unit, plus twice the install costs for labour (kitchens & bathrooms most expensive components)
  • Additional heating, cooling, HVAC systems internal to each unit (cost more for many smaller units vs fewer larger units)
  • Other additional items: i.e drywall, mirrors, closets, doors - may not be much $ individually, but it all adds up over a large building
  • Twice Tarion enrollment fees
  • All additional legal and real estate internal soft costs associated with additional units
  • Substantially higher development charges for a building full of smaller units (1bdrm units are less than 2bdrm, but on a proportional basis a tower full of smaller units could be paying millions of dollars in additional DCs)
  • Cash-in-lieu of parkland dedication is based on a per-unit charge - substantial expense (especially in 905 municipalities where parkland charges can be over $20k even approaching $30k per unit) - a building full of smaller units could cost millions of additional dollars
  • Sec 37 - typically based on height & density, however # of units has direct impacts on community servicing and a building with substantially more smaller units can generate a higher charge
  • Internal servicing costs higher for a building with additional smaller units (i.e. water, waste water & some services in tower core that can eat up net saleable square footage + additional plumbing stacks required to service smaller units)
  • Additional staff requirements to manage additional units - especially the after-sales service for those units
  • Parking requirements substantially higher with additional smaller units vs fewer larger units - developers typically lose money on underground parking facilities - this is a major cost - furthermore if the number of additional parking stalls required results in addition sub-level floors being added this significantly lengthens construction timelines and adds to construction carrying costs.

If developers could move larger units just as fast as smaller units, they would be focus their efforts on the larger units as the municipal taxation implications, construction complexities as well as various hard and soft costs are lower when it comes to larger units. The issue comes down to affordability and with increasing taxes, land costs and construction costs impacting new condo pricing, developers are decreasing the size of units to bring the end price to the consumer down to an affordable level and down to at or near the $400,000 HST threshold level (2% marginal tax rate below that level & 8% above).

"Greed" has nothing to do with smaller units being constructed - market demand & housing affordability are the factors supporting smaller units. All things being equal, developers would rather build fewer larger units than additional smaller units.
 
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