Daily insights for city builders, delivered every morning at 6 AM ET. I’m Brandon Donnelly — a Toronto-based real estate developer and founder of Globizen. I’ve been writing here since 2013.
I have remarked this before, but I’ll say it again anyways: sneakers are very popular in Paris. Everybody seems to be wearing cool and colorful sneakers, regardless of what the rest of their outfit happens to look like.
Full business suit? Why yes, you should be wearing cool sneakers.
But why is that?
Paris is a famously walkable city. At any given time, you’re on average just about 500m from the closest subway station. So my entirely unproven sneaker theory is this: shoes follow built form.
If you build a city around people walking everywhere, one will ultimately choose the most appropriate kind of footwear.
One of the things that is common in Europe is that building floors often start with zero for the ground floor and then go both up and down from there.
This is different than most of North America where the ground floor is usually floor number 1 (regardless of what it might be called) and then the floors go up from there.
Using the pictured example (above), the key difference is that, with the ground floor as zero, you end up with the above-grade floors being off by 1 and the top floor being 6 instead of 7.
There is a certain rationality to the European approach that I like, but I am curious how suites on ground floors get typically numbered. I will seek this out and report back.
At Junction House, our ground floor residences follow 101, 102, 103, etc. Following the exact same logic, the European equivalent would be 001, 002, 003, etc. This, admittedly, feels a bit odd.
Which floor convention do you find more intuitive?
Either way, I’m thinking about adopting the European approach for no other reason than that height is a sensitive topic in the world of development, so one less “headline” floor could be helpful. (Half-joking)
This is a great diagram from Smart Density comparing the urban and regional rail networks of Toronto, London, and Paris. All are at the same scale.
What immediately stands out to me — besides Toronto’s relatively miniscule network — is Paris’ compactness. I have said this before on the blog (here, here, and here), but I will say it again: There seems to be a tendency to fetishize the scale and height of Paris.
But building height is only one component of its ubiquitous built form. Unlike Toronto, we’re not talking about midrises built up against single-family homes. Paris is far more dense and its buildings are far closer together (usually with interior courtyards)
Will this help Robson St return to its glory days? Or is the problem deeper? Retail has been shifting form to online and service for a while now. https://t.co/aiOlIq1o1G
When you buy commercial real estate, you are buying a stream of future cash flows. Sometimes these cash flows are already in place and sometimes these cash flows are based on future expectations. Either way, as a general rule, it is better to have more rather than less rent.
But there are some short-term exceptions to this rule. If there is a higher and better use for your property and you’re planning to redevelop it, you probably don’t want to encumber the asset with any leases. Certainly not with any long-term leases. So vacant is likely better.
Another possible short-term scenario might be that the market has moved and you’re no longer able to command the same rents. But instead of adjusting your expectations, which would negatively and immediately impact the value of your asset, you decide to hold out in the hopes that the market will return.
Yet another more dire scenario could be that the market has moved entirely and you’re no longer able to find tenants at any price. But this isn’t a choice and so I wouldn’t consider it an exception to our more-rent-is-better rule. This is a systemic kind of problem.
I am going to assume that for Vancouver to propose an empty stores tax the belief is that scenario two, or some permutation of it, is what is playing out on retail streets. It’s not that the tenants aren’t out there (because of changes in the retail landscape), it’s that landlords are greedy and want too much money.
But my view is that this proposal ignores (at least) two things.
One, you can’t punish and tax your way to vibrant urban streets, particularly if something structural is going on in the market. If this were the case, the way to revive a declining post-industrial city would just be to tax any vacant buildings.
And two, the fundamental value of commercial real estate is, again, determined by rents. So sooner or later the rule of more rent being better than less rent will take hold. Vacancies are not in anyone’s best interest.
One of the ways that you can turn a traditional real estate company into more of a web3 company is talk about how you’re going to tokenize the ownership of real assets. But what does that even mean and how would it work?
Here is one example that I recently discovered (but of course there are countless others and I’m not suggesting that you should use their product). Bricknest is a startup that is focused on buying vacation apartments in popular tourist destinations. They then split the ownership into 365 non-fungible tokens that live on the Solana blockchain.
Each token is intended to correspond to a day. And so if you own 1 token, you own 1/365 of the asset and you get 1 day. You can choose to either use it yourself on this day, or rent it out and get the rental income sent directly to your crypto wallet. If you own all 365 tokens, then it would be similar to you just owning 100% of the asset.
The obvious question is how is this different from, say, fractional ownership, which can be similarly found in high-demand vacation spots? And the dumb answer is that, well, tokens exist on a blockchain and fractional ownership shares do not. So I guess the real question is whether or not tokens will make this ownership model any different.
There is a long history of trying to democratize the ownership of real estate. In fact, this was the general idea behind REITs when they were created in the 1960s. So again, we are back to the question of whether tokenization will be any different from what we already have.
But I think that most people are asking this same question of crypto/web3 in general — why does all of this matter? And a big part of the problem is that crypto is generally hard to explain. One of the best explanations that I have come across is this one here by Albert Wenger.
Simply put, most internet companies today can be thought of as large privately controlled databases. Instagram, for example, is a database of all of our photos (among other things). But because it’s Instagram’s database, they get to decide what can be done with it. And naturally they are going to do what it takes to maintain their economic moat.
Blockchains are similarly databases. And right now they’re not particularly good databases. However, the key differences are that (1) they are public, (2) they are not controlled by a single entity, and (3) anyone can read and/or write to them. And so they directly attack the thing that gives many companies today their economic advantage.
Does this mean that tokenized real estate is the future? Does it make a difference that rental contracts can be programmed into the blockchain so that distributions are automatic? It still feels too early to tell. But I do think that most people are underestimating how disruptive a seemingly small change like this might be.
Electric scooters are an unsanctioned form of mobility here in Toronto, mostly because people think they’re dangerous, but also because I think people are worried about them cluttering up our sidewalks.
The problem with this position is that electric scooters are also a lot of fun to ride and people seem to find them useful. The last time I rode one was in Paris and it seemed perfectly safe to me, though it may have been because there were two of us on it and we were kind of overloading the thing.
In any event, lots of cities either have them or are piloting them. Seattle just finished year one of its pilot program and here’s what they learned:
From September 2020 to October 2021, Seattle saw 1.4 million trips taken by over 260,000 riders
Electric scooter ridership greatly exceeded that of public bicycles, with 300,000 scooter trips taken in September alone, compared to about 35,000 bike trips
54% of surveyed scooter riders said that they would have taken a taxi or driven their personal vehicle had a scooter not been available
21% of riders said that they used it to connect to public transit (helping to solve that pesky last-mile problem)
17 collisions involving a scooter and a car were reported during the pilot year (though, for what it’s worth, some/many of the incidents involved a scooter that was privately owned and not part of the actual pilot program)
As much as I love riding a bike, it’s a bit more of a commitment compared to riding an e-scooter, which is why I think the numbers look the way that they do here. Not everybody wants to bring a change of clothes and shower at the office.
So I think it’s really too bad that Toronto just shut these down before exploring ways to make them both safe and useful.
This isn’t new. And it’s maybe a bit random. But we’re probably overdue for a break from housing debate. So here is an interesting art project by Hans Hemmert (who is part of the German collective Inges Idee).
Called Personal Absurdities (1997), the project consisted of parties in Berlin in which everyone was equalized to the same height — 2 meters to be exact. The was done through blue stryofoam platform shoes ranging from 5 to 43cm in height.
Of course, if you already happened to be 2m tall, then no platforms were needed. If you were over 2m tall, I’m not sure how that was handled, but presumably the bouncer stopped you at the front door.
All of this seems interesting to me because most of us probably don’t fully appreciate the extent in which height impacts social dynamics. There are countless studies suggesting that we tend to have a more positive reaction to people who are tall — and this is in everything from business to who we vote for.
In fact, this connection between height and leadership is so strong that studies have found that, when faced with a strong likeable leader, we often overstate their height in our minds. We think they’re taller than they actually are because of how strongly we associate height with the ability to lead.
So what happens when you strip away this dynamic and you equalize everyone’s height — even if just for one night of revelry? I would be curious to find out. So if any of you are planning a “same height party”, please feel free to invite me. Thanks.
The typical way to measure carbon emissions is to think about it in terms of geography. You pick a particular place, such as a country or a city. You add up all the emissions that are taking place within its boundaries. And you’re then left with a territorial carbon footprint. If you’ve done any research on carbon emissions or climate change, you’ve likely encountered this method of accounting for carbon.
But there’s a flaw with this logic.
The problem with this method is that it considers each geography to being more or less independent. For example, let’s say you live in Philadelphia and you happen to be the owner of something called a computer. With territorial accounting, the carbon emissions associated with you powering your computer would get attributed to Philadelphia and the emissions associated with the actual production of the computer would get attributed to wherever it was made. Let’s say it was China.
One of the problems with this approach is that it penalizes the places that make a lot of stuff and it privileges the places that don’t make as much stuff, even if they may actually be the consumers of far more stuff. This might make you feel better about your life decisions if you happen to live in a dense urban knowledge economy that doesn’t really make anything physical — but is it entirely accurate?
An alternative measurement approach is consumption-based carbon accounting. The goal here is to capture all lifecycle emissions associated with a particular good or service, and then attribute it back to the consumer that arguably triggered the emissions. In the case of our Philadelphia computer example, the emissions associated with the production, transportation, and consumption of the computer would also get attributed locally to Philadelphia, instead of to China.
This more complex method of carbon accounting — which is something that the University of Pennsylvania has been working on over here (hence the Philadelphia computer example) — can be instructive for a whole host of reasons. It also has some relevance to city building.
It is widely understood that building up is more sustainable than building out. Because when you build out, you end up doing things like forcing people into cars. But the other side of this equation is that cities tend to also house a lot of rich people, and household wealth is a massive driver of carbon emissions when you account for them based on consumption. Some would argue it is more important than urban density.
In my opinion, none of this is to suggest that dense urban environments are bad. The point here is that territorial carbon emissions don’t fully capture the emissions caused by high consumers who might happen to live in an otherwise efficient urban environment. You can live in a compact apartment and walk to work, but what else are you consuming? And how might these consumption patterns change based on built form?
For more on this topic, check out this report by Daniel Cohen and Kevin Ummel (of the University of Pennsylvania) called, “The case for neighborhood-level carbon footprints.”
Deeply affordable housing is mostly infeasible to build.
This is why you don’t see the market naturally building this kind of housing on its own. It, for the most part, doesn’t make any economic sense to do so. So this is also why the US has fabricated things like low-income housing tax credits. They are a way to make up the economic shortfall that exists with low-income rental housing and get the private sector building this kind of housing.
We sometimes try to convince ourselves — or maybe it is a way of shirking responsibility — that there can be such a thing as no-cost affordable housing through things like inclusionary zoning. But I think we all know that there’s no such thing as a free lunch. Somebody is ultimately going to need to pay. The big question, of course, is who should that be?
By definition, we acknowledge that the people who will ultimately live in these affordable homes cannot afford to pay market rates. So by default, the subsidies will need come from somewhere else. But again, from where and from who? Should it be specific people who pay or should it be mostly everyone who pays?
If we return to the Toronto building industry’s favorite topic right now — development charges — you’ll see that under the current rates, every new 2 bedroom or larger apartment that is constructed must pay $3,727 toward affordable housing. Under the proposed rates, this will increase to $12,545 for every new large apartment. It’s by far the largest proposed percentage increase (237%) and also one of the largest service items.
This raises two interesting philosophical questions.
One, should the buyers of new housing be responsible for contributing to affordable housing in this way? Because what we are in effect saying to these people is, “Hey, you can afford to buy a new market rate home, so we’re going to collect some additional money from you — $12,545 to be exact — so that we can try and help those that aren’t in the same position as you. We’re also going to mandate additional affordable homes within your building and we’d like you to subsidize those too.” This is one way to redistribute wealth.
But if the goal is to try and create more broad-based affordability, an alternative approach might be, “Hey, you already own a home and it has gone up a lot in value, so we’re going to collect some additional money from you over time so that we can try and help those that aren’t in the same position as you.” This would be the property tax approach. It’s probably not perfect, but might it be a more fair and equitable way to redistribute wealth?
The second interesting philosophical question has to do with whether this is consistent with the dogma that growth should pay for growth. The idea behind development charges (also known as impact fees in some parts of the world) is that they should pay for the cost of new development. This makes complete sense. When you build new housing you certainly need some additional stuff — everything from additional school capacity to emergency services.
But the question here is whether the construction of new housing in and of itself creates a direct need for more affordable housing, and therefore should be charged for it. Asked in the opposite way, if you weren’t building this new housing, would you then no longer need this affordable housing, just like you no longer need that additional school capacity?
This is definitely not the case. In fact, I would argue that the opposite is true. If you don’t build any new housing in a growing city, you actually exacerbate the problem of affordability. So here’s a provocative thought. Rather than a charge, should this affordable housing line item actually be a credit towards each new project given that it benefits affordability?
While it may not make any economic sense to build affordable housing, I think that many of us would agree that it makes a lot of social sense to build affordable housing. We know that our cities are at their best when they are both diverse and inclusive. The problem is that we can’t agree on who should pay for it.
Today’s post is perhaps a good follow-up to yesterday’s post about housing supply in Ontario. Below are a few charts taken from a recent article by Wendell Cox looking at net domestic migration across the US. The takeaway here is that the shift from larger cities to smaller cities seems to be accelerating, following a trend that started before COVID.
The data in these charts is organized according to population and by Core Based Statistical Areas (CBSAs). At the bottom are America’s two megacities: New York and Los Angeles. Both have metro areas that exceed 10 million people. As you can, these two city regions have been losing the most people, both in terms of total humans and on a percentage basis. The goldilocks sweet spot seems to be cities in the 500k to 1 million range.
But the most telling figure is probably this one here:
This chart adds up all major metropolitan areas with a population greater than 1 million, and then shows net migration over the last decade. Here you can see when this trend started (around 2016) and how it has been accelerating. In this case, it does appear that COVID added some fuel to the fire. But the question remains: Why is this longer-term trend even happening?
Is it a short-term phenomenon? Is it because once a city reaches a certain size it simply becomes more annoying to live in it and people would prefer to live elsewhere? Or is it more about overall affordability? That is, if we could figure out how to deliver more affordable housing in our cities, could we stymie the bleeding toward smaller and more affordable ones?
I don’t know the answers to the questions. But they have been widely debated and I still think they’re interesting ones. If all things were equal (or closer to equal), how and where would most people choose to live? Put differently, how much of this is some sort of natural market outcome and how much of it is a direct result of our actions (or inactions)?
