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Month: January 2023
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What is the correlation between urban density and housing affordability?
There’s lots of data out there to suggest that there is a correlation between urban density and housing unaffordability. Take Hong Kong. It is very dense, and also one of the most expensive housing markets in the world. But I think the real question is: does urban density actually cause housing unaffordability, or do the two simply tend to be correlated when you plot a country’s biggest cities?
One the one hand, there are factors that do drive up home prices when you build more densely. Building a reinforced-concrete high-rise is always going to be more expensive on a per square foot basis than building a wood-framed bungalow. But of course, the former also uses land a lot more efficiently, which is what you need to do in big and supply-constrained cities.
Michael Lewyn’s view (credit to Robert Wright for sending me the article) is that density is incorrectly used as a scapegoat to fight compact development. It does not actually cause higher rents. One counter example he gives is that of Manhattan, which went from 2.3 million people in 1910 to just under 1.7 million in 2020. In other words, it got less dense, while at the same time its rents grew exponentially.
Like most important city matters, the answer is complicated. But this is an interesting topic that I think we should spend more time on here.
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Multiple on land cost
Following yesterday’s post about the most expensive home in Brooklyn’s Dumbo, Jed Bryne of Oak City CRE fame shot me a note asking about the typical land multiple that developers need in Canada in order to make a project feasible. In other words, if your land cost is $X, what multiple on this would your top line number need to be in order to have a project? And he mentioned that in North Carolina, he often sees multiples in the range of 3-5x the land acquisition cost.
My initial response was that we don’t typically look at this metric. Many years ago, the rough rule of thumb for new condominiums here in Toronto used to be 10x the land price per buildable square foot. So if you were buying development land at $100 per buildable square foot (calculated as land price divided by the total gross floor area of the project), then you likely needed to sell your condominiums for somewhere around $1,000 per square foot.
On some level this can be a useful metric, because it allows you to quickly tell if a parcel of land is too expensive. And in some situations, it might allow you to compare sites/markets. If you have two different markets and land at the same $X price pbsf, but one requires a 10x multiple to be feasible and the other a 5x multiple, then it tells you something about the cost structures of these two markets. Construction costs probably won’t vary all that much (assuming similar builds), but project timelines, development charges, and many other things sure can.
But again, this isn’t a number that we typically care a great deal about.
There are a lot of variables in a pro forma and the “required” multiple can change overnight. Maybe it’s 10x today, but then development charges go up by 49% and now you need an even higher multiple in order to make the project feasible. So for us, the salient land number is the price per buildable square foot. What is the price per pound of development density? And the way you determine if you have a reasonable number is by doing a residual land value calculation.
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The most expensive home in Brooklyn’s Dumbo neighborhood
The most expensive home in Brooklyn’s Dumbo neighborhood is currently under contract and is expected to close in the next few months (at least according to the WSJ). It is a 4,270 square-foot penthouse, with a 500 square-foot terrace, that occupies the full top floor of Olympia Dumbo.
The asking price / contract price is $17.5 million, which works out to be about USD 4,098 per square foot (or CAD 5,486 per square foot based on the exchange rate right now). Based on this price per pound, an equivalent 600 square foot suite would cost you about CAD $3.3 million.
The land was purchased in 2018 for about $98 million. I don’t know what the total GFA of the building is, but it does have 76 residences, so that works out to about USD 1,289,473 per suite (or CAD 1,726,624 per suite), for the land cost alone.
This should give you an indication of what the end suite pricing would need to be to make this development feasible, and likely also speaks to its average suite size. New York City tends to build much bigger suites. Certainly compared to here in Toronto.
Also, notice that I didn’t say unit?
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Global electric vehicle adoption
This is the current state of global electric vehicle adoption:
- Last year was the first year that global electric-vehicle sales reached 10% of all car sales — the total was around 7.8 million cars (see above chart)
- Fully-electric vehicles accounted for about 5.8% of all car sales in the US, 11% of all car sales in Europe, and about 19% of all car sales in China — China is leading in this department
- The US saw 807,180 fully-electric vehicle sales last year — Tesla remains the biggest EV maker in the world
- In Germany, electric vehicles accounted for about 25% of all new vehicles produced last year — BMW reported a 5% decline in new-car sales, but saw its EV sales more than 2x
- Similar story with Volkswagen: 7% decline in new-car sales; 26% increase in EV sales
- This year, some are predicting that China will see EV sales increase to every third car, and that it will reach its tipping point sometime between 2025-2030
It is obvious where all of this is heading. It is simply a question of how fast, and who will be the leaders at the end of the day.
All data sourced from the WSJ
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Canadian complacency
The founder and Editor-in-Chief of Monocle Magazine, Tyler Brûle, recently had a nice trip to Ottawa:
If you’ve never been to Ottawa, don’t bother. Of all the G7 capitals, it’s one that hardly conjures up much in the way of attractive images. Don’t believe me? Try it. What comes to mind? What stands out? You see what I mean? No Big Ben, no Lincoln Memorial, no Eiffel Tower. Ottawa might have had an easier time when Germany was partitioned and Bonn was its capital but that credit ran out when Berlin was reinstated as Haúptstadt and the Brandenburg Gate roared back as a symbol for the Federal Republic’s capital.
He and his mom also thoroughly enjoyed their hotel:
We walked into the bar and the whole space seemed gripped by a similar force that plagued the front desk: no speed, movement or sense of urgency. A man-child showed us to the table and barely said a word. His colleagues at the bar were having their own discussion, disconnected from the patrons around them. I started to laugh. My mother urged me to stop. “It’s incredible that this is the best that our country can do for people coming to the capital, no?” I said.
As an unabashedly proud Canadian, this is deeply upsetting. It is upsetting because a lack of movement, a lack of urgency, and an overall lack of engagement are truly terrible qualities to possess. But more importantly, it is upsetting because one could argue that Tyler’s Ottawa and hotel experiences were a microcosm of some broader national issues around Canadian complacency.
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Most of Europe is getting denser
Here is an interesting set of maps (from this study) showing density trends, population trends, and residential area trends (i.e. sprawl), across Europe between 2006-2012 and 2012-2018:
The key takeaway is that, broadly speaking, there is — or at least there was five years ago — a new density trend across most European cities. From 2006 to 2012, the prevailing trend was de-densification. That is, fewer people per hectare. However, from 2012 to 2018, that trend largely reversed. With the exception of the Iberian Peninsula and Eastern Europe, the majority of cities flipped to densification.
The study tells us that there are two main reasons for this switch. The first is that more cities started growing again. During the first period, about 60% of cities in the sample size of 300+ cities, were adding people. In the second period, this figure increased to 75%. It’s also worth noting that this growth is being largely driven by immigration, and increasingly so. The number of cities with positive natural growth diminished from 67% to 51% between the two study periods.
The second driver is a reduction in sprawl. Though almost every city in the study continued to expand outward, the rate of expansion was much lower between 2012 and 2018. So less land consumption, and more people. That’s how you increase your urban density. Of course, it would be interesting to see if any of this has changed or reversed (again) as a result of the pandemic. 2018 kind of feels like eons ago, doesn’t it?
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The 12 best design districts around the world
Architectural Digest has just published the perfect article for gratuitous self-promotion. It is a list of “the 12 best design districts around the world”, and it includes The Junction, here in Toronto:
Located in a tree-lined historic area of the city, The Junction gets its name for its past as the heart of the Canadian Pacific Railway. Mix with locals on the main drag of Dundas West at boutiques including the minimalist homeware store Mjolk and modern stationery shop Take Note. A short 20-minute walk from this charming retail center, the Museum of Contemporary Art is worthy of a stop in too. (Current exhibitions include a site-specific commission by artist Sarah Badr and Seeing the Invisible, an augmented reality experience in the museum’s Jerusalem Botanical Gardens.) Then take a tipple at The Junction Brewery, which serves local craft beers within an Art Deco building that offers a glimpse of the neighborhood’s rich history.
Early on in high school, I used to come downtown to primarily do two things: skateboard and walk Queen Street. This was the street. It was weird and artsy and we loved it. And so we would start at University Ave and walk west for as long as the street was interesting.
For a period of time, it felt like things kind of fell off after Spadina Ave. So we would often stop there. But then west of Spadina started getting cool and interesting too.
Years later in 2004, the Drake Hotel would open up on what felt like a far off location on Queen Street. And then seemingly overnight, all of Queen Street was cool. Parkdale had a taco place with absurdly long lines and loud hip-hop music, and cool started moving up Ossington Ave, presumably because Queen had run out of space.
Of course, neighborhoods have cycles. Before it was the Drake Hotel, it was Small’s Hotel. And when it opened in 1890, it was located in one of the wealthiest areas of Toronto. Then the area became a lot less wealthy, and eventually the hotel became a flophouse, before once again becoming cool again. These are the cycles.
There is no doubt that Queen Street remains one of the greatest streets in Toronto. But in my mind, 2018 was a turning point. This is when when the Museum of Contemporary Art (MOCA) left Queen and moved to the Junction Triangle (or the Lower Junction, or just the Junction, depending on what you prefer to call it).
This to me didn’t signal that Queen had in any way peaked. Far from it. But I think it did solidify the Junction as one of Toronto’s next cool and artsy neighborhoods. And now here we are with Architectural Digest calling it one of the best in the world.
It would be hard for me to be more biased. But I’m a big fan of the Junction. And I am really looking forward to erecting our placemaking art later this year. It is one of the things that our team is most proud of, and we proposed it simply because we thought it would be cool and interesting. That’s important.
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Immigration to Canada is back
According to the Globe and Mail, Canada’s census metropolitan areas (or city regions) grew by about 574,000 people for the year ending July 1, 2022. This is the highest number on record (or at least since Statistics Canada started tracking this figure in 2001), which is not entirely surprising given that immigration flows slowed dramatically during the pandemic.
The other thing that the pandemic did was accelerate a trend of people leaving the biggest city regions for other parts of a province. During this same time period, Vancouver saw a net intraprovincial migration loss of about 14,300 people, Montreal saw about 29,500, and Toronto saw 78,077. But again, this was a trend that was building prior to the pandemic:
It is perhaps no surprise that these losses follow the order of our largest city regions. And it once again suggests that we are not doing enough when it comes to housing supply/affordability and homes for young families. These intraprovincial losses are not because these city regions aren’t desirable. It’s in fact the exact opposite.
