This is one of Tim’s favorite books.
Does “favoritböcker” have to be one word? Does it make sense, written down, if it’s split in 2? Orally it obviously doesn’t matter but I’ve never come across something like this before. Is it common to join 2 words in this way?
Yes, one word! 
Differently from English, Swedish and the other Scandinavian languages (and Finnish) favour composite words, even when the result is a bit unwieldy.
If you split the word, you’re doing “särskrivning”, which is frowned upon. Most of the time it makes sense anyhow, but it makes for uncomfortable reading and sometimes it can lead to misunderstandings.