Month: July 2023

• America’s most affluent cities

  

  This is an interesting chart from Bloomberg showing the most affluent metropolitan areas in the US in 1949. As you can see, at the top of this list is Detroit, followed by mostly older industrial centers.

  Now here’s the list today:

  

  It’s largely a different list; but importantly, it’s not an entirely new list. San Francisco was a wealthy city in 1949 and it remains one of the wealthiest today. But could that be changing? Given the city’s current challenges, some are questioning whether it might end up as another Detroit.

  I don’t see that happening. And for what it’s worth, here’s evidence of nearly 75 years of resiliency.

  Images: Bloomberg

  
  

  2023.07.21

• The end of the single-family home hegemony

  I opened Twitter today and one of the first tweets that I saw was about Austin passing a new resolution that allows 3 homes on every lot by-right; lowers the minimum lot size to 2,500 sf; and expedites planning approvals for triplexes and fourplexes. I then scrolled a bit further and found a tweet on how Vancouver is about to vote on a new motion that will allow 4-6 homes on every residential lot as-of-right. (The US typically uses the term “by-right”, whereas in Canada we use “as-of-right”.)

  None of this is surprising. As many of you know, Toronto just did something similar by allowing fourplexes + a laneway or garden suite on every residential lot. But all of this is still noteworthy because it reinforces one simple fact: cities across North America are all starting to rethink their low-rise single-family neighborhoods. I know that many of you will say that fourplexes are not enough. We should be doing more. But I think this is an important step.

  The single-family home hegemony is ending. We are now asking our cities to do more with the same amount of land.

  2023.07.20

• Feel-good stories about city building

  One of the things that I have learned over the years from sitting on panel discussions about city building is that, if I talk about the challenges and economic realities of development, I will be less popular than if I just tell feel-good stories about urbanism and architecture. The latter is often what people want to hear. It’s more exciting.

  But to ignore the economic realities of the world is to ignore real solutions. And this, as I have talked about before, is one of the main qualms that I had with architecture school. Money, economics, and real estate matters were tertiary, if not entirely taboo. Just focus on the purity of design and everything else will resolve itself.

  Now don’t get me wrong, I love design. It is fundamental. But so are a bunch of other things, which is why I think this article, by Benjamin Schneider, hits the nail on the head. It is specifically a review of a MoMA exhibit called New York, New Publics, but really the overarching message is this one here: “Enough with the feel-good architecture.”

  To tell a feel-good story within this framework, urban development projects must be edited and curated to cleanse them of these associations. Favored projects must somehow appear to transcend capitalism, NIMBYism, an anti-urban federal government, and the compromises inherent in the transformation of the built environment. Because this is impossible—except in the case of marginal beautification projects—the public is left with false expectations about how cities get built, making the hard stuff even harder to pull off.

  City building always involves compromises. But the more we’re upfront about what they are, the sooner we’ll get to more optimal solutions.

  2023.07.19

• Parking minimums are so last decade

  What is the case for having parking minimums? (i.e. Mandating a certain number of parking spaces in new developments.) I guess the argument is that if you don’t require developers to build it, they won’t build enough. And then people will not have parking and so they will be forced to park on the street somewhere. This might annoy the incumbent residents, who will in turn complain, and so it is best and safest to just to build a lot of parking.

  This is pretty much the only reason that I can think of for why a city might want to maintain parking minimums. Because, what’s the worst thing that could happen if you didn’t build enough parking? In the best case scenario, the developer builds fewer parking spaces and people are fine with it. This is ideal because it means people are getting around in other ways: walking, cycling, taking transit, and/or using car share. So it is the most sustainable outcome!

  A bad scenario would be that the developer builds too few parking spaces, nobody will rent the spaces, and then goes bankrupt. This would be very bad for the developer; however, it would be a lot less of a concern for the city. The developer is the one who screwed up. Too bad for them. So when I see new transit-adjacent developments — like this one here in Burnaby, BC with 14 levels of below-grade parking — one can’t help but think: WTF!

  To be clear, this is not a criticism of the developer. I don’t do that sort of thing on this blog. This is a criticism of parking minimums. They are so last decade. And I’m even being generous with this timeline.

  2023.07.18

• “Offices are over”

  This is an interesting article from Brookings that talks about the “myths of converting offices into housing.” What I especially like about the article is that it’s nuanced, and it directly addresses many of the myths that currently surround offices. The first one is that “offices are over.”

  Regular readers of this blog will know that I don’t agree with this. And the article provides some good data points to support this:

  • Office utilization may be below pre-pandemic levels in many cities, but the data suggests that we have not yet hit a plateau. Utilization rates continue to increase, albeit gradually. So if we are to be more precise here, it’s not that some people will never return to the office, it’s just that it’s taking longer than I think many people expected.
  • That said, this is not the case in all cities. Downtown Salt Lake City, as we have talked about before, is the busiest it has ever been. Similarly, ridership on the Utah Transit Authority network is up 26% from pre-pandemic levels.
  • Europe is generally ahead of North America with utilization rates in the 70-90% range, according to JLL. And Asia is even further ahead with rates in the 80-110% range. Meaning that, similar to downtown Salt Lake City, there are (many?) cities in Asia where more people are in the office today compared to in 2019.

  So I would not be so quick to claim that “offices are over.”

  For the full article, click here.

  2023.07.17

• Ground-floor retail?

  I recently asked this on Twitter:

  You live in an apartment/condominium. If you could pick one ideal use/tenant for the ground floor of your building, what would it be?

  And a number of people responded.

  But I suppose I should also answer my own question.

  I lean more towards utility. My ideal use — assuming an urban storefront — is not a fancy restaurant or a super cool coffee shop. It would be some sort of quality bodega that:

  • Sells essential grocery needs (milk, eggs, toilet paper, etc.)
  • Sells wine & beer
  • Has a deli/food counter where you can buy a breakfast bagel, a sandwich for lunch, or a quick dinner when you’re in a pinch
  • And, yes, has pretty good coffee

  It would also need to be open early and late: 7am to 12am, please.

  What would you want?

  2023.07.16

• The neutral rate and housing supply

  Below are two interesting excerpts from this recent Globe and Mail interview with Tiff Macklem (the current governor of the Bank of Canada of the former dean of the Rotman School).

  The first has to do with where he believes the “neutral rate” will be in the foreseeable future. He believes it will be higher than where it has been in the past:

  We have different models we use to estimate the neutral rate [the central bank’s estimate of where its policy rate would settle if the bank were neither trying to stimulate nor restraining the economy]. … Those models, based on the data we have, still suggest a neutral rate in the range of 2 to 3 per cent.

  When we look forward, and we look at a number of the forces, it seems more likely that the neutral rate is going to be higher than that … [rather] than lower than that. We don’t have that data yet. But there are a number of factors.

  More people are retiring. The labour market looks like it could be sort of structurally tighter going forward. Globalization has at least stalled, if not reversed. That could create more cost pressures. We’re going to need a lot of new investment in cleaner technologies if we’re going to meet our emissions-reduction targets. When I say ‘we,’ it’s the world – so that’s going to affect global real interest rates.

  So when you look forward, it seems more likely that the neutral rate is higher, not lower. And the message is that households, businesses, governments, the financial system, they need to be prepared for that possibility.

  The second is about his view on Canadian housing:

  The fundamental issue in the housing market, and this has been an issue in Canada for 10 years, at least, is structurally the demand for housing is growing faster than the supply. And so yes, interest rates go up, the housing market will slow. But it’s only going to slow so much because there is a sort of structural shortage of supply relative to demand.

  I think what you’re seeing is that with supply growing less than demand, the housing market has started to tick back up, housing prices have started to tick back up. That’s something we need to take into account in monetary policy. But we’re not targeting the housing market. We have one target: CPI inflation.

  These two forces are opposing ones. Higher rates create downward pressure on home prices. But, as we all know, a structural housing supply problem does the opposite. Where these two forces balance out is anybody’s guess. But as Tiff mentions above, his concern is not home prices; it is inflation.

  I am not an economist, but my view is that the broader real estate market is still going through its reset. There will be more pain and less housing supply overall in the short-term. Risk and leverage are still being unwound and that takes time. It also sucks.

  Because of this, I think if you ask most people today, they will likely tell you to wait: “We haven’t yet hit the bottom of the market.” This is likely true. But I have zero ability to time the bottom of a market. And at the same time, the future does feel a lot more knowable compared to a year ago.

  My philosophy is more akin to what I blogged about earlier in the week: If it’s cheap, if the thesis is sound, and if you have the ability to think long-term, then these downturns are when you want to buy. And that is how I’m starting to feel about things right now. This includes everything from real estate to NFTs.

  Disclaimer: This is not investment advice.

  2023.07.15

• Toward the childless city

  There is a common narrative that, when it comes time to start a family and have kids, you should probably consider moving to the suburbs. Sure, you’ll have a painful commute, but you’ll get more space for your money, and maybe you’ll end up with better kids.

  I don’t know, obviously not everyone agrees with this. I certainly don’t.

  But it is something that commonly happens and, in many cities, it is now happening more often. Here is a map from the Centre for London showing the change in the proportion of households with at least one dependent child from 2001 to 2021:

  

  A darker borough means that it lost households with at least one child. And a lighter borough means that it gained more kids. Why this is concerning is that it means the trendline is toward more, and not less, childless cities. Here’s an excerpt from a recent FT article:

  A future with dwindling numbers of children is one many cities, including San Francisco, Seattle and Washington DC, are grappling with. In Hong Kong, for every adult over 65 there are, to put it crudely, 0.7 children, and in Tokyo it is even fewer (0.5).

  Of course, this is not a new phenomenon. And we know the main drivers:

  Randal Cremer is one of several planned primary school closures and mergers in inner London triggered by low birth rates, families moving away because of expensive childcare, Brexit, and parents re-evaluating their lives during the pandemic. The biggest factor, says Riley, is that “housing is just becoming unaffordable”. Philip Glanville, mayor of Hackney, calls it “the acute affordability crisis”.

  So how do we start to solve this? Here are a few ideas that we recently talked about on the blog, but it is by no means an exhaustive list. In my opinion, this is a problematic trend that deserves a lot more attention. Because cities are at their best when they work for everyone — from the young to the old.

  2023.07.14

• Spring break tourists are bad; cultural tourists are good

  This is the message that the mayor of Miami Beach, Dan Gelber, delivered this week as it moved to sell $97.6 million of new municipal debt. The proceeds are intended to help the city fund more cultural projects and move away from its “old economic model” of selling Bellinis on Ocean Drive. But it is also a case of Miami Beach flexing its rising property values.

  According to Bloomberg:

  • Residential property values across Miami Beach grew by about 125% over the past decade
  • Between 2019 and 2022, the number of “million-dollar zip codes” more than doubled (presumably these are just zip codes with median home prices above $1 million)
  • And from 2012 to 2022, the number of high-net-worth individuals in the city increased by about 75% (I wonder how many moved to the city versus just got richer while already living there)

  All of this has been good for property tax revenues:

  

  And now the city is leveraging them to invest in culture.

  Chart: Bloomberg

  2023.07.13

• Utah just chose an urban gondola for Little Cottonwood Canyon

  Every now and then somebody comes forward and proposes an urban gondola. The most recent one that I have heard about here in Toronto was this one from 2016 called the “Don Valley Cable Car.” But like many gondola proposals, it sort of just disappeared. Probably because it wasn’t entirely necessary. (I just checked their website and it is now down.)

  However, there are rare instances where a gondola makes a lot of sense. Medellin, for example, has a very successful urban gondola system that my friend Alex Feldman wrote about, here on the blog, after a visit to the city back in 2014. In this case, the gondola was instrumental in connecting hill-side communities that were previously disconnected from the rest of the city.

  Another less urbanized example is the one that Utah (Salt Lake County) is planning to build in Little Cottonwood Canyon. I wrote about this project back in March when I was there and, today, the Utah Department of Transportation announced their preferred mobility option. It is called Gondola Alternative B and, as far as I can tell, it is still the longest and most expensive urban gondola ever proposed.

  Here are the details in graphic form:

  

  To summarize, though:

  • The system is being designed to carry 1,050 passengers per hour, with cabins departing every 2 minutes.
  • The gondola itself is expected to cost $370 million, but when you add in a new parking garage for 2,500 cars, tolling infrastructure on the existing State Route, and other improvements, the total all-in capital cost is projected to be $729 million. The route itself is somewhere around 10 miles, so let’s call it $73 million per mile.
  • At the same time, the projected operating costs are relatively low at $8 million per year, so this option actually has the lowest 30-year lifecycle cost out of all the ones that were studied. The other alternatives included widening the existing roadway, enhancing the bus service, and adding rail. There was also one other gondola option, which was presumably called Gondola Alternative A.

  If you’re wondering why this is likely a good idea, check out my post from this past winter.

  2023.07.12