Month: October 2024

• Toronto announces nothing plan to create more rental homes

  Yesterday, the City of Toronto announced that it would be “unlocking” 7,000 new rental homes — including 1,400 deeply affordable homes — by doing two key things:

  • Waiving development charges on rentals
  • Providing a 15% reduction on property taxes

  And by their estimates, the value of these benefits would be roughly $58k per new rental home:

  

  Great news, right?

  But wait, there’s a catch. If you read the details, you’ll see that in order for a project to be approved under this program, there is also a requirement to deliver at least 20% of the homes as affordable rentals.

  So let’s look at what this could mean.

  Here is a chart comparing a market rental suite at $3,000 per month to a more affordable one at $1,500 per month:

  	Market	Affordable	Variance
  Face Rent	$3,000	$1,500	($1,500)
  Suite Size	$600	600	0
  PSF Rent	$5.00	$2.50	($3)
  Annual PSF Rent	$60	$30	($30)
  NOI Margin	70%	70%	$0
  Annual Net Rent	$42	$21	($21)
  Cap Rate	4.50%	4.50%	$0
  PSF Value	$933	$467	($467)
  Per Unit Impact	($280,000)
  20% of Units	($56,000)

  Both are assumed to be 600 square feet. In the case of the market suite, the per square foot (PSF) value is estimated at $933 psf, and the affordable suite is estimated at $467 psf. This represents a halving of the value (which makes sense because I halved the rents).

  On a per unit basis (again, we’re assuming 600 sf), this is a loss in value of about $280k. But since only 20% of the units would need to be “affordable”, I multiplied this number by 0.2. The result is a per unit loss of approximately $56k.

  What this means is that we’re basically doing a whole bunch of stuff to get right back to the same place. Like, hey, we’re not building enough rental housing and we’re certainly not building enough affordable housing — because the development margins are so dangerously thin — so here’s a credit of $58k per unit. But at the same time, here’s a bill for $56k per unit.

  What’s the point, besides making it sound like we’re doing something to create more housing? This program will do absolutely nothing to spur the creation of new rental housing.

  2024.10.31

• Land prices and transaction volumes are, as you’d expect, down

  Bullpen Consulting just released its Q3-2024 high-rise land report for the Greater Toronto Area. Here’s a figure showing average high-density land prices (on a per buildable square foot) by quarter since 2018:

  

  Here’s their summary data broken out by Toronto versus the Greater Toronto Area:

  

  And here’s a list of all the land transactions last quarter:

  

  At the highest level, the average high-density land trade last quarter across the GTA was at around $98 per buildable square foot. This is down 13% from $112 pbsf in Q3-2023. And going back to the first chart in this post, there also seems to be a longer-term decline in high-density land prices.

  But as Bullpen rightly points out in their report, there are limits to what can be gleaned from data like this. And that’s because land transactions can be structured in countless ways. Did the vendor provide cheap financing? Was there a delayed close? Are there any unique site conditions that could be impacting value? The list goes on.

  So even though prices and transaction volumes are down (which is what one would totally expect right now), it still doesn’t feel like this data accurately reflects what’s going on in the market today. I think the reality is worse.

  If you’d like to join Bullpen’s mailing list, here’s their website.

  Figures: Bullpen Research & Consulting

  2024.10.30

• Canada announces high-speed rail between Quebec City and Toronto — finally!

  The train from Paris to Marseille takes just over 3 hours:

  

  To drive this same distance, it would take just over 8 hours:

  

  So unless you had a very specific reason, I don’t know why you’d ever want to drive this route. I certainly hate long drives and would avoid this at all costs.

  On a related note, the Canadian government announced this week that it will actually be moving forward with a high-speed train linking Québec City to Toronto, stopping in Peterborough, Ottawa, Montréal, Trois-Rivières, and Laval. And unlike previous announcements, it will actually go pretty fast — upwards of 300 km/h, which is comparable to what the TGV does on the above route.

  There are three consortia currently competing for this contract, but apparently the federal government has already chosen a winning bidder. An announcement is expected next month. At the same time, the project office owns all of the bids, and so there’s a chance that elements from each of them could be used in the final project.

  According to official messaging, the design alone is expected to take some 4 to 5 years, which is an eternity and way too long. But at least we seem to be moving forward. This rail link is a no brainer. It will compress the geography of an importantly bilingual corridor with nearly 20 million people — about half the population of Canada! It’s our megalopolis.

  Now we just need to move forward with urgency and with an unwavering commitment to creating the best high-speed rail service in the world. Let’s not accept mediocrity. And let’s not cancel it once we’ve already sunk millions into it. That would be a terrible outcome for such an obviously important nation-building project.

  LFG.

  2024.10.29

• Low-carbon cement

  By some measurements, cement production alone is responsible for about 8% of human-caused carbon dioxide emissions every year. And so there is an imperative to find suitable low-carbon alternatives. Here is what is currently happening in the US (via Grist):

  On Tuesday, Terra CO2 Technology was picked to receive a $52.6 million federal grant to build a new manufacturing plant just west of Salt Lake City. The company has devised a method that turns common minerals into additives that can help replace Portland cement — a key component in concrete, and one of the most carbon-intensive materials in the world.

  In addition to this new facility, the company is set to start construction on its first plant in the Dallas-Fort Worth area:

  The project is expected to break ground in January 2025 and begin shipping out materials by late summer 2026, Yearsley said. The facility will be capable of producing up to 240,000 metric tons of SCM [supplementary cementitious materials] per year when completed, or enough to serve roughly half of the local metropolitan market.

  And all of this is part of a broader initiative by the US Department of Energy:

  The Utah facility is one of 14 projects provisionally selected this week to receive $428 million in total awards from the U.S. Department of Energy’s Office of Manufacturing and Energy Supply Chains. The initiative, which is funded by the Bipartisan Infrastructure Law, aims to accelerate clean energy manufacturing in U.S. communities with decommissioned coal facilities. Officials said the projects are expected to create over 1,900 high-quality jobs across a dozen states.

  For the rest of the article, click here.

  2024.10.28

• Mass transit with on-demand service

  

  Here’s what we know:

  In the mid-20th century, the US made a pivotal choice that shaped its cities, economy and lifestyle. It chose highways and cars over public transit. At the time, this seemed like the future: the freedom of the open road, the allure of suburban living, and the booming post-second world war economy all converged to push America towards a car-centric culture.

  The Federal-Aid Highway Act of 1956 cemented this vision, unleashing a highway system that encouraged suburban sprawl, fuelled the automotive industry and sidelined public transit. Rail systems were seen as relics of a slow, industrial-era technology ill-suited to America’s postwar aspirations. The car was king. 

  But this congested system is breaking. In 1950 about 30 per cent of the world’s population lived in cities. By 2030 this is expected to reach 60 per cent. Infrastructure cannot keep up with this growth. An increase in cars further reduces street capacity.

  What we don’t have a clear consensus on, though, is the path forward. Is it more highways? More public transit? More bike lanes? Or will autonomous vehicles finally arrive and bail us out? The answer will depend on who you ask.

  In this recent opinion piece, venture capitalist Vinod Khosla makes the case for something else: personal rapid transit systems (or PRT). Conveniently, he also happens to be an investor in one — a company called Glydways.

  The promise is an on-demand mass transit system that offers the convenience of a personal car, but with the capacities and price points of public transit. And it is based on small autonomous vehicles riding in their own dedicated lanes.

  Each lane only needs to be 1.5 meters wide, which is less than the 2.3 meters that the Dutch see as the ideal width of a one-way bike lane. And with this, the company claims that it can reach capacities of up to 10,800 people per hour.

  To further put this into perspective, the standard width of a two-way parking drive aisle here in Toronto is 6 meters. So this would mean that each drive aisle could, in theory, have 4 lanes dedicated to these “Glydcars.” That’s how narrow they are.

  Here’s a video of them in operation:

  This, of course, isn’t an entirely new idea. You might remember that Masdar City in Abu Dhabi claims to have opened the world’s first PRT system in 2010 — a 1.4 km line with only two stations. That said, Glydways has already been awarded three projects in the US. So for fun, I think I’ll keep an eye on them.

  2024.10.27

• We need far better urban data

  The divisive debate over bikes lanes in Toronto continues to remind me that we need far better urban data. People and politicians keep touting “evidence-based decisions,” but what exactly is that evidence? The high-level figure being thrown around by the anti-cycling side is that only something like 1% of residents use bike lanes. So obviously it only makes sense to focus on the 99% and not give up any space to this small minority group.

  But this is highly aggregated data. It also doesn’t speak to any of the externalities associated with introducing new bike infrastructure. Looking at 2021 Census data, the number of cyclists was actually around 5% for the old City of Toronto and in some areas it was between 15-20%. However, it’s absolutely critical to note that this is only the people who selected cycling as their “primary mode of commuting” when submitting their responses to the last census.

  

  Meaning, it excludes people who maybe only cycle 1-2 days a week, or who ride for leisure and/or for exercise, or who ride to their French class in the evenings (like me). I would also assume that these numbers have generally grown since 2021 given the overall investments that have been made in biking infrastructure. So overall, this is weak data. It’s a few years old. And it excludes many types of users. We need to get more granular.

  Like, it’s great to see local business owners speaking out about the benefits that they have seen as a result of the Bloor bike lanes, but in the end, this is also anecdotal. We need real-time data, precise modal splits, the throughput of every major street, and much more. Then maybe we’ll be able to better optimize around the fact that we are a city divided by built form and by politics. That’s the thing about evidence-based decisions, they tend to get stronger with accurate evidence.

  2024.10.26

• Two different multifamily markets

  I had lunch today with a friend (from school) who runs a multifamily development company in South Florida. His business is very similar to the apartment strategy that we are now working on in Toronto, in that he builds a repeatable apartment product (garden style apartments). In fact, he was telling me that he now has a dedicated design & QA/QC team within the company. Their job is to focus on continuous optimization and on reducing construction inefficiencies.

  This is the way!

  But each market is obviously unique. His rents are in the US$3 – 3.25 psf range (call it ~C$4.15 – 4.50 psf), whereas in Toronto you need something closer to C$5 psf to have a feasible project. Our yields are also lower on average. It’s hard work to get to an untrended yield-to-cost of 5% here. But for him, he can’t raise capital with anything less than 6.5%, which represents a development spread of at least 150 bps over where multifamily cap rates are today in his market (~5%).

  Juicy by comparison.

  2024.10.25

• This is what happens when you price roads

  As a general rule, road pricing isn’t popular. But that’s not because it doesn’t work. The problem is that it works too well, and people don’t like the idea of driving less and paying for roads (that currently have a zero marginal cost).

  Here’s a recent study by Robert Bain and Deny Sullivan that looked at just how well it can work. In it, they examine 76 data points from 16 countries, including roads, bridges, tunnels, and cordons (areas).

  The question: What happens to demand once the marginal cost of using a road goes from $0 to some cost greater than zero? (As part of this, they also looked at whether the road or bridge in question has viable alternatives.)

  The results:

  

  The median traffic reduction was 25%. But the interquartile range was -17% to -44%. This is all very significant. Said differently, the traffic impact in nearly a quarter of the examples was -45% or more. So almost a halving of traffic congestion.

  These reductions are obviously a function of the cost of using each road, but regardless, the overarching takeaway remains the same: You may not like or want road pricing, but it totally works.

  2024.10.24

• Social friction

  Vishaan Chakrabarti is an architect based in New York City. He is the founder of Practice for Architecture and Urbanism (PAU) and the author of two books.

  His first book, published in 2013, was A Country of Cities: A Manifesto for an Urban America. And as the title suggests, it was about the virtues of dense urban agglomerations. You know, the kind of cities that I like and have good bike lanes.

  His second book, which just came out, is called The Architecture of Urbanity: Designing for Nature, Culture, and Joy. In this one, he talks about the role of architecture and urbanism in fighting both climate change and social division.

  Below is an excerpt from a recent interview in Bloomberg where he discusses the book’s theme of “social friction.” This snippet is also a timely follow-up to yesterday’s post about autonomous vehicles:

  Cars are problematic when it comes to connective design. It doesn’t matter if they’re electric because the problem with a car is it’s a divider. It’s a metal bubble and it keeps you from interacting with your neighbors. So the virtues of mass transit, public parks and well-designed buildings in cities are not just that they are good for the climate. They are also good for this sense of social coherence. If we’re going to live up to our promise as a country — a multicultural democracy — we need to have spaces that both reflect and perpetuate that.

  I haven’t read the book yet, but it sounds like it’s in the wheelhouse of this blog. If you’d like to, here’s a link.

  2024.10.23

• Tesla vs. Waymo

  One of the reasons why I’m interested in the autonomous vehicle space is that I know our built environment is sticky. And because we’ve designed so much of it around the car, it’s hard to imagine this dependance going away anytime soon.

  In fact, there’s a very real possibility that autonomy leads to further decentralization. That is typically what happens when we make it easier and cheaper for people to travel longer distances. They sprawl. So we ought to start preparing ourselves for the positive and negative externalities.

  I’m not a deep expert on autonomous vehicles, but as an interested observer, Waymo appears ahead of Tesla in delivering this future. Waymo has been offering fully driverless rides since 2020 and Tesla is still at L2 autonomy, which means a driver needs to be present in the vehicle.

  I hear from lots of people that their Full Self Driving (FSD) software is pretty good, but according to some studies, it can require human intervention as often as every 13 miles. This doesn’t necessarily mean that Tesla won’t be first to “solve autonomy,” but their Cybercab isn’t here yet.

  If you’re interested in this topic, here is an article by Timothy Lee summarizing a discussion that he recently had with the co-CEO of Waymo, Dmitri Dolgov. Some of it is a little technical, but it does offer a comparison between Tesla and Waymo.

  That is, how their approaches differ and what the future might look like.

  2024.10.22