Brandon Donnelly
Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly.
Brandon Donnelly
Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly.
In the olden days here in Toronto, approved development land used to sell for a premium compared to unapproved land. This was true because approved land meant you could start construction much sooner. And since time has value, this was worth something.
Today, this is far less valuable to developers (if at all) because, in most cases, the market does not support new construction. So, the land may be approved, but what does one do with it?
Rather than speed, I would say that the most valuable feature right now is the ability to be patient. Developers need to be able to stay solvent long enough for the market to return. But this does not mean that there isn't a cost to permitting, approvals, and lengthy pre-construction periods.
Here is a recent paper (that I discovered via Thesis Driven) by economists Evan Soltas (Princeton) and Jonathan Gruber (MIT) that asks: "How Costly Is Permitting in Housing Development?" What they discovered in the Los Angeles market is the following:
Developers have been willing to pay roughly 50% more for pre-approved development land (averaging about $48 per square foot).
The permitting process in Los Angeles accounts for about 40% of the time required to develop and construct a new housing project.
Approximately one-third of the gap between home prices and construction costs can be explained by permitting costs and delays.
This last point is an interesting one to focus on because it tells you how much regulatory fat there is in the system. In a perfectly free and efficient market, the market price of a home should, in theory, be roughly equal to the cost of the land, construction costs, and the developer's margin.
When you have a massive gap between the cost of the physical materials and labour required to build the home and the price of the home, it means that there are other costs being shouldered. The paper refers to some of these as "pure wait" (time) and "capitalized hassle" (dealing with bullshit).
This is an important way to think about the efficiency of housing markets, because minimizing the gap is a clear way to make housing more affordable.
Cover photo by Josh Miller on Unsplash
I'm a big fan of walking. I like it for the health benefits, the freedom to explore, and the simple luxury of being able to walk to things. In fact, it's an important housing prerequisite for me: can I walk to stuff?
But as we often talk about on this blog, the ability to do this depends largely on the prevailing land use patterns, the overall built environment, and, to a great extent, when a neighborhood was built.
It is commonly argued that the "best" neighborhoods were all built before the widespread use of the car, and there's a lot of truth to this. (This makes me wonder if self-driving cars will eventually create a similar "pre and post" divide in our built environment.)
However, not everyone sees it this way. I just read an article about how residents in the suburbs of Minneapolis-St. Paul are vehemently opposed to the construction of sidewalks in areas where there are currently none.
Perhaps I haven't been paying enough attention to the suburban sidewalk wars, but this is the first time I've seen this level of opposition. Some people view sidewalks as a feature, and some people view them as a bug. Clearly, there are residents in the Twin Cities who view them as the latter.
Why? Because they interrupt large front lawns:
“I chose my home with the nice big lawn out front,” Edina resident Melissa Cohen told the mayor and City Council at a Dec. 8 hearing about proposed sidewalks for streets in Prospect Knolls. “We are in a quiet neighborhood. This does not require a sidewalk.”
And for some people, they're unsightly:
In 2007, a Golden Valley resident named Charles Upham told the Star Tribune “sidewalk is a four-letter word. U-G-L-Y.”
You could call it a kind of rural ideology, where sidewalks symbolize the opposite: the city. I suppose there are also practical considerations, like the fact that snow removal on sidewalks often becomes the homeowner's responsibility.
But it appears to me that a large part of this opposition stems from wanting to maintain some semblance of pastoral exclusivity, even if we're talking about higher-density suburbs and the opposition is masquerading as an environmental preservationist movement.
In the olden days here in Toronto, approved development land used to sell for a premium compared to unapproved land. This was true because approved land meant you could start construction much sooner. And since time has value, this was worth something.
Today, this is far less valuable to developers (if at all) because, in most cases, the market does not support new construction. So, the land may be approved, but what does one do with it?
Rather than speed, I would say that the most valuable feature right now is the ability to be patient. Developers need to be able to stay solvent long enough for the market to return. But this does not mean that there isn't a cost to permitting, approvals, and lengthy pre-construction periods.
Here is a recent paper (that I discovered via Thesis Driven) by economists Evan Soltas (Princeton) and Jonathan Gruber (MIT) that asks: "How Costly Is Permitting in Housing Development?" What they discovered in the Los Angeles market is the following:
Developers have been willing to pay roughly 50% more for pre-approved development land (averaging about $48 per square foot).
The permitting process in Los Angeles accounts for about 40% of the time required to develop and construct a new housing project.
Approximately one-third of the gap between home prices and construction costs can be explained by permitting costs and delays.
This last point is an interesting one to focus on because it tells you how much regulatory fat there is in the system. In a perfectly free and efficient market, the market price of a home should, in theory, be roughly equal to the cost of the land, construction costs, and the developer's margin.
When you have a massive gap between the cost of the physical materials and labour required to build the home and the price of the home, it means that there are other costs being shouldered. The paper refers to some of these as "pure wait" (time) and "capitalized hassle" (dealing with bullshit).
This is an important way to think about the efficiency of housing markets, because minimizing the gap is a clear way to make housing more affordable.
Cover photo by Josh Miller on Unsplash
I'm a big fan of walking. I like it for the health benefits, the freedom to explore, and the simple luxury of being able to walk to things. In fact, it's an important housing prerequisite for me: can I walk to stuff?
But as we often talk about on this blog, the ability to do this depends largely on the prevailing land use patterns, the overall built environment, and, to a great extent, when a neighborhood was built.
It is commonly argued that the "best" neighborhoods were all built before the widespread use of the car, and there's a lot of truth to this. (This makes me wonder if self-driving cars will eventually create a similar "pre and post" divide in our built environment.)
However, not everyone sees it this way. I just read an article about how residents in the suburbs of Minneapolis-St. Paul are vehemently opposed to the construction of sidewalks in areas where there are currently none.
Perhaps I haven't been paying enough attention to the suburban sidewalk wars, but this is the first time I've seen this level of opposition. Some people view sidewalks as a feature, and some people view them as a bug. Clearly, there are residents in the Twin Cities who view them as the latter.
Why? Because they interrupt large front lawns:
“I chose my home with the nice big lawn out front,” Edina resident Melissa Cohen told the mayor and City Council at a Dec. 8 hearing about proposed sidewalks for streets in Prospect Knolls. “We are in a quiet neighborhood. This does not require a sidewalk.”
And for some people, they're unsightly:
In 2007, a Golden Valley resident named Charles Upham told the Star Tribune “sidewalk is a four-letter word. U-G-L-Y.”
You could call it a kind of rural ideology, where sidewalks symbolize the opposite: the city. I suppose there are also practical considerations, like the fact that snow removal on sidewalks often becomes the homeowner's responsibility.
But it appears to me that a large part of this opposition stems from wanting to maintain some semblance of pastoral exclusivity, even if we're talking about higher-density suburbs and the opposition is masquerading as an environmental preservationist movement.
Bruno Carvalho has just published a new book that is right in the wheelhouse of this blog. It's called The Invention of the Future: A History of Cities in the Modern World.
The book starts in the mid-18th century with cities like Lisbon, Paris, and London. However, more than being just a history of cities, it is (from what I've read) the story of how city builders throughout history have tried to predict and create the future, only to often get it wrong.
In the words of Carvalho (via CityLab): "The constant of urbanization is change, so we have to always imagine our solutions as being contingent."
The same is, of course, true today. For example, building tunnels for Tesla cars may seem like a clever and futuristic solution to urban traffic congestion, except that it's hard to imagine it actually working (also via CityLab):
"One of the values of history is to give us a sharper sense of what’s new in the present. Many people imagine solutions that to them represent the great rupture, but that’s not always the case. The tunnels are a good example; they bring together the problems of cars having very low carrying capacity and subways being very hard to build. That doesn’t strike me as a very futuristic approach to mobility, but rather one that just hasn’t learned enough about the past."
I now have Carvalho's book on my reading list, and I thought I would share it here in case some of you would like to do the same.
Cover photo by Michiel Annaert on Unsplash
On the flip side, there are practical benefits to sidewalks. They give you a safe place to walk. So, what I wonder is to what extent are the people opposing these sidewalks also anti-walkers? Or is it that the traffic flows in these neighborhoods are so low that people simply feel comfortable walking on the street, like here?
Not surprisingly, there's lots of data to support that people who live in neighborhoods with sidewalks are significantly more likely to walk and be active. If you want people to walk more, build sidewalks. If you want people to ride bikes more, build bicycle lanes. And if you want people to drive more, build roads and highways.
This is how this behavioral stuff works. We're not completely independent actors; we're products of our environment.
Cover photo from The Minnesota Star Tribune
Bruno Carvalho has just published a new book that is right in the wheelhouse of this blog. It's called The Invention of the Future: A History of Cities in the Modern World.
The book starts in the mid-18th century with cities like Lisbon, Paris, and London. However, more than being just a history of cities, it is (from what I've read) the story of how city builders throughout history have tried to predict and create the future, only to often get it wrong.
In the words of Carvalho (via CityLab): "The constant of urbanization is change, so we have to always imagine our solutions as being contingent."
The same is, of course, true today. For example, building tunnels for Tesla cars may seem like a clever and futuristic solution to urban traffic congestion, except that it's hard to imagine it actually working (also via CityLab):
"One of the values of history is to give us a sharper sense of what’s new in the present. Many people imagine solutions that to them represent the great rupture, but that’s not always the case. The tunnels are a good example; they bring together the problems of cars having very low carrying capacity and subways being very hard to build. That doesn’t strike me as a very futuristic approach to mobility, but rather one that just hasn’t learned enough about the past."
I now have Carvalho's book on my reading list, and I thought I would share it here in case some of you would like to do the same.
Cover photo by Michiel Annaert on Unsplash
On the flip side, there are practical benefits to sidewalks. They give you a safe place to walk. So, what I wonder is to what extent are the people opposing these sidewalks also anti-walkers? Or is it that the traffic flows in these neighborhoods are so low that people simply feel comfortable walking on the street, like here?
Not surprisingly, there's lots of data to support that people who live in neighborhoods with sidewalks are significantly more likely to walk and be active. If you want people to walk more, build sidewalks. If you want people to ride bikes more, build bicycle lanes. And if you want people to drive more, build roads and highways.
This is how this behavioral stuff works. We're not completely independent actors; we're products of our environment.
Cover photo from The Minnesota Star Tribune
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