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.
Roman Mars and Kurt Kohlstedt of the 99% Invisible podcast have a recent book out that is all about cities. True to their radio show, it is about the often-overlooked design choices that have shaped and continue to shape our cities. Everything from why jersey barriers are curved the way that they are to how roadway centerlines came to be. The book is called The 99% Invisible City: A Field Guide to the Hidden World of Everyday Design. And in some ways, it is what I try and do on this blog every day; look a little deeper and look at things — often cities — from a slightly different perspective (though I am no Roman Mars). So I think that many of you will appreciate this book. If you’d like to learn a bit more about it, here’s a recent interview that Roman did with StreetsBlog.
This pandemic seems to have been good for real estate located in places that people like to spend time in, but maybe had to limit their time there in the past because of things they had to do like, you know, work in an office. This includes everywhere from “cottage country” outside of Toronto to sunny destinations like Miami.
Here are some figures that I came across for South Florida via Analytics Miami. Comparing November 2020 to a year prior, condo transaction volumes in Miami-Dade country are, interestingly, up 4.3% for condos less than $1 million and up 61.4% for condos worth more than $1 million.
Somewhat similarly, single family home transaction volumes in Miami-Dade county (for the same time period) are down 5.2% for houses worth less than $1 million and up 100% for houses worth more than $1 million.
Sometimes you see a decline like this (the -5.2%) because there simply aren’t enough houses on the market for less than $1 million. But it could also be that more rich people are looking for expensive properties in Miami compared to last year.
As you may have gathered from here and here and here, I’m not all that bullish on the permanency of this whole working from home thing. But there’s no denying that there’s a very clear trend around people moving to places that are warmer. This was happening well before COVID-19.
There is also some evidence that rich people are starting (continuing?) to eschew high tax states like California for lower tax states like Florida and Texas. I don’t have the data to be able to comment on how meaningful this trend is, but, for whatever it’s worth, apparently Elon Musk just moved to Austin.
Here is a good example of why “missing middle” housing is so challenging to build in Toronto, despite everyone talking about how great it would be if only we could build more of it.
It’s the story of a minor variance application that was asking to sever a 50-foot lot at 2165 Gerrard Street East so that two semi-detached buildings and two laneway suites could be built. It would have added 10 family-sized rental units to a site that is on a streetcar line and that is within walking distance of both the subway and regional rail. And yet the consent to sever was denied.
How come you ask?
“I don’t believe dividing the property is in the best interest of the community,” said committee member Carl Knipfel, himself an architect and planner who complimented the beauty of the existing house and critiqued the design of the new buildings. “What is proposed is too dense … I really have serious concerns as to where this consent may lead us.”
The last sentence is the best part.
The article then goes on to argue that this is really all about the supremacy of single family homes and the desire to keep renters out of these neighborhoods. (Hey Airbnb, it’s not just short-term rentals that people have a problem with; it’s also long-term rentals.)
The kicker, for Mr. Galbraith [the project’s planner], is he knows if he wanted to sever the lot for two single-family homes he could get that permission without delay and likely also get permission to build more than local zoning allows.
“I can get variances for a one-unit McMansion every day of the week,” he said. “Lot coverage variances are very common; you want to take a bungalow down and make some big ugly house with a weird roof and a high first floor? You see those all over East York and Etobicoke.”
If missing middle-type housing is “too dense” for sites that are endowed with every form of fixed rail transit that we have available in this city, then your guess is as good as mind as to where the hell it’s supposed to go. It’s time to grow up Toronto.
Four years ago I wrote about a great essay that Paul Graham had published way back in 2009 about two different kinds of schedules: the manager’s schedule and the maker’s schedule. Put differently, the manager’s schedule is one of command. It is for bosses to drop in for 15, 30, or 60 minutes at a time, say a bunch of things, and then jump to the next meeting.
The maker’s schedule, on the other hand, is one of doing, whether that be programming or working on an excel model. And the reality is that you can’t make or do much with only 15, 30, or 60 minutes. To make anything of real substance you need longer uninterrupted blocks of time. You need time to get into the zone.
I’m reminded of this dichotomy now, more than ever, because of video conferencing. It has never been easier to overload a calendar with meetings. Consequently, it has never been easier to screw up a maker’s schedule.
The Globe and Mail published this headline today: “Developers building more small condos, despite people clamoring for more space.” It’s behind a paywall and so some of you may not have read it. But the data looks something like this. Of all the new condo project launches that happened this year in Toronto, studios and one-bedroom suites accounted for 61% of all new inventory, according to Urbanation. This is a higher percentage than what the market saw in 2019 and 2018, and this is despite the fact that many/most people are still working from home and would probably appreciate a bit more space.
The short answer as to why this is happening is affordability. For years I have been clamoring for a dual aspect oceanfront penthouse on Miami Beach, but that time hasn’t come for me yet. Things cost money. And the downward pressure on unit sizes is a direct result of developers trying to ensure that their inventory is within the reach reach of buyers (there’s a sweet spot somewhere in the range of $500-700k right now). Developers are heavily incentivized to build what sells and rents, both quickly and at the highest price. That tends to be smaller units, especially early on.
Where this goes in the future is anybody’s guess. But with the dramatic price increases that we have seen on the low-rise side of the market, I suspect that we’ll see a subsequent surge in demand for condos — maybe even larger condos.
Every year my friends at Urban Capital publish an annual magazine called Site. And every year it contains some great articles about the real estate development industry across Canada. (Some of you may also remember that I’ve written a few articles for it in previous years.)
Well this year’s issue is out and there are a few featured articles that I’d like to draw your attention to:
What happens when 175 (mostly) women get together to design a condominium?Link
Why have Toronto condos become so %@$#$! expensive?Link
This last one is a topic that we have talked about many times before on the blog. But here, UC has provided a quantitative comparison between a project they did in 2005 and a project that they’re doing today in 2020. Here’s what they found:
Average condo prices in the City of Toronto are up about 150%. But…
Land costs are up 160%.
Soft costs are up 118%.
Construction and related costs are up 91%.
Financing costs are up 93%.
Government fees, charges, and taxes are up 413%.
And development charges (a subset of the above) are up 3,244%!
At the same time, the profit margin over costs is down about 45%.
(As a point of comparison, CPI only increased by about 26.5% during this same time period.)
The point here is that condos are so %@$#$! expensive largely because of cost-plus pricing. Government fee increases are also outpacing every other cost bucket.
If you’re developing new housing in Toronto, you have no choice but to accept these rising costs. You have to pay development charges and you have to pay them when you’re told, even if that means swallowing some new massive increase.
So by necessity, end prices get continually pushed as a way to try and absorb these costs. You figure out what your costs are going to be and then you price accordingly. But of course, you also have to ask yourself: Can people actually afford this kind of pricing and can this neighborhood support it?
Sometimes the answer is yes, which is why development continues. But sometimes the answer is no. In this case, the next step is simple: you don’t build.
We’ve all heard stories or know people who have made the decision to leave the city during this pandemic, either temporarily or permanently. Some young people have moved home until things settle down and some people have sold their real estate and bought something outside of the city.
I don’t know know what the exact numbers are, but you can see this trend being reflected today in downtown rental rates and other indicators. This is happening in many cities around the world.
But here’s what I think about when I hear these stories:
1) Are these people assuming that we will never go back to offices and that WFH is our new reality? In this case, the thinking is simple. The world has changed. I need a proper Zoom room and a home gym.
2) Did these people never really like urban living or have they simply outgrown the city? Pre-pandemic, family formation was still a major pull away from downtowns for many. In this case, a move was going to happen regardless.
3) Or are these people taking a short-term view of the world and forgetting/ignoring that our global cities are going to rebound and that 2 hour commutes really suck? (Sitting in front of Zoom all day is also no way to live in my opinion.)
There are both positives and negatives to urban living. There are forces that make people want to centralize and there are forces that make people want to decentralize. And the reality is that many of the benefits and perks of living in a city are temporarily turned off right now.
Things are not fun right now, but this isn’t going to last. I’m looking forward to the roaring twenties.
I really like photography and I really like cool light things. And so this Kickstarter project — called the Looking Glass Portrait — caught my eye today. I haven’t backed it (yet), but it strikes me that three-dimensional image capture and creation is going to be something pretty important going forward. I can’t wait for that to happen.
“…the pandemic and its aftermath have also created a rare openness to doing things differently. Seizing this opportunity won’t be easy, or a short-term affair. But if we can be certain of anything, it’s that cities will adapt and evolve, and that they have the potential to come back stronger.”
– Kearney 2020 Global Cities Report
The Kearney 2020 Global Cities Report is out and it incorporates two main rankings: their Global Cities Index (GCI) and their Global Cities Outlook (GCO).
The former is intended to be a snapshot of where things stand today and the latter is intended to be a forecast of where things might be heading.
Here’s their GCI:
And here’s their GCO:
Note: The big mover in their GCO is Toronto, jumping nine spots to take second place behind London.
I get that real estate developers don’t always have the best of reputations. We build buildings that cast shadows. We invest in (or gentrify) neighborhoods. And yes, like every other for-profit business, the goal is to make a bit of money along the way.
But believe it or not, there are developers out there who care deeply about the work that they do. They care about their craft. And they want to do the right thing.
Perhaps the best way for me to start to explain what I’m getting at here is to quote the late Steve Jobs. An obsessive perfectionist, Jobs was known for focusing on every little detail in the projects that he worked on. Here’s an excerpt from an interview he did for Playboy back in 1985:
“We just wanted to build the best thing we could build. When you’re a carpenter making a beautiful chest of drawers, you’re not going to use a piece of plywood on the back, even though it faces the wall and nobody will ever see it. You’ll know it’s there, so you’re going to use a beautiful piece of wood on the back. For you to sleep well at night, the aesthetic, the quality, has to be carried all the way through.“
As a developer and a fake architect, this paragraph really resonates with me. But here’s the thing. One of the differences between making a beautiful chest of drawers (or a computer) and making a beautiful building, is that buildings have an inordinate amount of rules that tell you what you can build where and then how you need to build.
Some of these rules, of course, make a lot of sense. Life safety is no joke. But some of these rules also make no sense. And sometimes these rules — that don’t make sense — prevent you from putting what I would metaphorically consider to be that beautiful piece of wood on the back.
The beautiful piece of wood isn’t about money. In fact, it’s going to cost you more compared to just using a piece of plywood. It’s about giving a shit and caring about your craft, even if nobody else does. It’s so you can sleep well at night.
