Author: Brandon Graham Donnelly

• Higher development charges, less federal money

  

  Metro Vancouver, which includes the City of Vancouver and 20 other municipalities, is proposing to increase its development cost charges (DCC):

  Metro Vancouver is proposing to increase DCCs by roughly $23,000 per new single-family home; $21,000 per new townhome; and $14,000 per new apartment. For example, fees for a townhouse in Vancouver will rise from $10,027 today to $30,861 by 2027.

  In response to this, federal housing minister, Sean Fraser, has just pulled $138 million in funding that was intended to accelerate housing permits and new affordable housing projects in Surrey and Burnaby.

  This makes some sense. Because it is pretty weird to say, “Hey, we need more affordable housing. Give us some money for this and, while you do that, we’re also going increase the cost of building new housing.”

  Of course, this is the whole growth-should-pay-for-growth mantra. And supposedly, there’s growth-related infrastructure that needs to be built.

  To be fair, Metro Vancouver is also proposing to increase its property taxes: 12% in the first year, 11% for the next two years, and then 5% for the next three years. So this is not all going onto new supply.

  I don’t know enough about the finances of Metro Vancouver to comment on these numbers specifically, but I do think it’s important that policy makers understand what the current market environment means for new housing.

  It is difficult, and in many cases impossible, to underwrite new housing projects today. Which means that even if all fees and charges were to remain unchanged, we are going to see a decrease in new housing supply.

  Photo by Matt Wang on Unsplash

  2023.10.29

• Canada has an existential productivity problem

  

  Canada has a lot going for it:

  By land mass it is the second-largest country in the world, with the longest coastline. Bookended by the vast Pacific and Atlantic oceans it has enormous trading advantages, alongside access to the largely untapped Arctic to its north. It is a net energy exporter; it has the third-largest proven oil reserves and is the fifth-largest producer of natural gas — but it also boasts large deposits of critical minerals vital to the green energy transition. And, of course, it borders the world’s largest economy.

  And yet:

  By purchasing power parity, its economy is ranked 15th globally by size, behind the likes of Turkey, Italy and Mexico. The OECD has forecast Canadian per capita gross domestic product growth up to 2060 to be the lowest among advanced nations.

  The problem:

  Poor productivity is at the heart of the country’s growth challenges. In an hour a Canadian worker produces just over 70 per cent of what an American can — that’s below the euro area and even the UK based on 2022 data. Many would have expected the resource-rich economy to benefit as globalisation powered forward, but its relative labour productivity has actually slipped since 2000.

  The solution is probably a simple one: We need to innovate, invest more in R&D, and create stronger links between research and Canadian businesses. But executing on this has proven difficult:

  Enormous efforts have been made to understand why businesses in Canada invest so much less in R&D than their counterparts in the U.S., much of Western Europe, South Korea and Japan. Is it our reliance on the export of natural resources and agricultural products? Is it reduced incentives to innovate for our heavily regulated and profitable oligopolies in sectors such as banking and telecommunications? Is it our decades-old reliance on incentivizing industrial R&D through federal and provincial tax credits?

  It’s hard to imagine a more important topic affecting all Canadians. So I would encourage you to read this recent opinion piece by David Naylor (president emeritus of the University of Toronto) and Stephen J. Troops (president of the Canadian Institute for Advanced Research).

  It’s a balanced piece. Neither of them are arguing for “empty credentialism” or for research that remains in academia. What matters is what we do with the work that our smartest minds are doing. And the overarching point is that innovative research needs to find demand within Canadian businesses.

  Right now, we’re very bad at this. That needs to change.

  Chart: Globe and Mail

  2023.10.28

• Blockchain gas fees are dropping — that’s good

  I watched the BlackBerry movie the other week and right away I thought, “whoa, is Jim Balsillie really like that?” Supposedly, kind of. Either way, it was a good movie that naturally ended with the fall of BlackBerry, with Balsillie not getting an NHL team, and with Mike Lazaridis dismissing the first iPhone as a toy. “Who wants to use a phone without a keyboard?”

  We all know these stories. In fact, they feel trite in retrospect. There’s Blockbuster, Kodak, and countless others. But these moments are clearly a lot harder to identify in the moment. And today, at least for me, it feels like this moment for crypto and blockchains.

  It’s easy to dismiss this space. Among other things, a blockchain is an objectively worse database. They’re slower than today’s alternatives. They require more computing power. There’s no customer service when something goes wrong. And, it generally costs a lot more to save new information to a blockchain (this cost is called a gas fee).

  At the peak of the market in 2021, the average quarterly gas fee (cost per transaction) on the Ethereum network reached about US$37. Given this, nobody wanted to use this database to buy a $2 coffee. (However, many people were, at least at the time, willing to use it to buy expensive NFTs.)

  But as Tomasz Tunguz outlines in this great post called “Gas Gas Revolution”, the cost of saving data to a blockchain has dropped dramatically over the last few years. And all signs indicate that this trend is only going to continue. So what happens when it becomes cheap/basically free to save to these worse databases?

  Well, if you believe that “decentralized” and open databases are going to unlock powerful new innovations, the correct answer is probably: a lot. And then all of a sudden, they’ll be better databases.

  2023.10.27

• More food trucks, please

  

  

  

  There’s no real secret to having a vibrant food truck and street vendor ecosystem. You basically just need to allow it, and then get out of the way and let entrepreneurs do what they do best.

  When I went to grad school in Philly, I used to eat from food trucks all the time. I could get a breakfast sandwich and coffee in the morning. I could get a burrito for lunch. And I could get a vegetarian lasagna for dinner. There was no shortage of options.

  This same kind of ecosystem does not exist in Toronto, but it’s only because we’ve decided we don’t want it to.

  Images: New York City

  2023.10.26

• Another look at downtown recoveries

  

  Back in the spring, I wrote about a study that was done by the University of Toronto and the University of California, Berkeley that measured “downtown recoveries” using mobile phone data.

  In other words, it looked at where people’s phones were lingering to try and determine if they were back in the office and doing things downtown.

  The headline finding was that San Francisco had the lowest recovery quotient (RT) and that Salt Lake City had the highest, alongside cities like San Diego, Baltimore, and Bakersfield.

  But why was there such a spread in recoveries?

  One possible explanation was commute times. The cities with the lowest average commute times seemed to generally perform better in this study and have higher recovery quotients. But it’s maybe more nuanced than this.

  Here is a recent Brookings article by Tracy Hadden Loh that looks at this same study. And to give just one example, she notes that San Diego’s airport happens to fall within the same zip code as its downtown. Meaning, airport traffic would have been picked up as downtown traffic.

  The article also includes the above chart, showing the amount of downtown apartments built since 2019. I don’t think I knew that Chicago was so prolific.

  2023.10.25

• Family-sized apartments are a luxury good

  My friend Alex Feldman sent me an article from the Philadelphia Inquirer this week called: Why is it so hard to build family-sized apartments in Philadelphia? As is the case in many/most North American cities, the article talks about how the majority of new multifamily builds are filled with studios and one bedrooms.

  It then goes on to suggest that some of the reasons for this include: cultural biases in favor of suburban living, antiquated building codes (such as the requirement for two means of egress), exclusionary zoning ordinances, bad urban schools, financing availability, and so on.

  This is something that we have talked about many times before on the blog and, while I do agree that it’s complicated and that there are many variables to consider, I think the key factor remains price. As I said before: “Everybody wants a 3 bedroom condo until they see what they cost.”

  So I think this is probably the most important point in the article:

  Partly that’s because Philadelphia, unlike Boston, New York, and Washington, has a vast supply of rowhouses that are still affordable to people in a position to buy. For those who prefer new construction, the past couple decades have seen a burst of modern rowhouse building.

  If large multi-family apartments were more cost effective than Philadelphia’s vast supply of rowhouses, I am certain that demand would increase markedly. But that is not the case. So I think a more accurate way to view large apartments is as a luxury good. They’re a terrific way to live, if you can afford it.

  2023.10.24

• China is estimated to have nearly 25% of the entire US building stock under construction right now

  I’m not an economist, nor am I an expert on China, but according to this recent FT article, more than half of the country’s largest developers (based on 2020 sales) are now in default:

  

  On top of this, there’s a lot currently in the pipeline:

  

  The National Bureau of Statistics of China is saying that, as of last August, there was about 8 billion square meters of real estate under construction in the country. That’s very roughly about 80 billion square feet of space, which I’m assuming covers all asset classes.

  This is such a big number that I really have no idea if it’s excessive or not for a country that is rapidly urbanizing and has some 1.4 billion people. So let’s compare it to the US.

  Back in 2020, Brian Potter came up with estimates for the entire US building stock. Interestingly enough, he determined that about 90% of buildings in the US are single-family homes. This is what the US builds and continues to build, by a long shot.

  However, single-family homes do tend to be smaller than, say, office buildings. So if you instead look at square footage (and not the number of buildings), this percentage drops to about 60% of all buildings in the US.

  On a square footage basis, single-family homes are estimated to represent about 200 billion square feet. And in total, Brian estimated the entire US building stock to be around 340 billion square feet (again as of 2020).

  This means that, right now, China could have nearly 25% of the entire US building stock under construction. I think that seems like a lot.

  Images: FT

  2023.10.23

• The oldest company in the world was founded in Japan in 578

  

  My construction partner sent me an email last week that said: “Check out Kongo Gumi. Search them. Pretty cool history.” So I flagged the email and made a mental note to come back to it over the weekend when I had more time. I finally looked them up this morning and, he was right, it is a pretty cool history.

  It turns out that they are/were the oldest continuously operated company in the world. Founded in 578 to build Japan’s first Buddhist temple, the construction company was active for over 1,400 years. They eventually became insolvent in the mid-2000s and the company was then purchased by Takamatsu Construction Group; but before that they had successfully operated across 40 generations.

  That is something that doesn’t happen very often.

  Supposedly, there were two important ingredients contributing to this long run: (1) They forced sons-in-law to take the family name. This ensured that the line continued even when there were generations of only daughters. And (2), they were in the business of building Buddhist temples. So as long as there were millions of Buddhist followers in the world, they were ensured work.

  I’m not sure what happened to make the company insolvent in 2005-2006, but imagine the pressure facing each subsequent generation. I know I wouldn’t want to be the generation that ultimately took down the 1,400+ year old family business.

  For more on the history of the company, click here.

  Photo by Ken S on Unsplash

  2023.10.22

• The global cities attracting talent, visitors, and investment

  Earlier this month, Resonance Consultancy published its 2024 World’s Best Cities ranking. Or, in their words: its definitive power ranking of the 100 global cities that it believes are shaping tomorrow.

  These are always fun to flip through, which is I guess why people do them and why people look at them; but I do think it’s important to look at the underlying methodologies. Otherwise, what does “world’s best” even really mean?

  In this case, they’re looking at global cities through the lens of three key categories: livability, lovability, and prosperity. More specifically though, the report looks at factors that are demonstrated to have moderate to strong correlations with attracting talent, visitors, and/or businesses.

  This makes it distinct from rankings that are more focused on things like livability. Because according to Resonance, factors such as commute times, crime, and housing affordability don’t tend to correlate strongly (at least in the short-term) with a city’s ability to attract talent, tourism, and investment.

  While this may seem a bit counterintuitive, it does also make sense. People don’t move to London because they’re looking for affordable housing and a reasonable commute. They move to London because they want to be in the center of the world.

  And yes, London tops their power ranking:

  

  The top of this ranking isn’t all that surprising. It’s the usual suspects. But I continue to be impressed by how quickly Dubai has transformed itself into a top global city. Also impressive is how Dublin punches above its weight of just over 500,000 people.

  I am medium surprised to see Hong Kong nowhere on this first page (there are another 65 cities not shown here). It usually features as a top global city. But presumably this is the result of Beijing meddling. People are looking elsewhere — like Singapore.

  For the full list of cities and to download a copy of the report, click here.

  2023.10.21

• Paris on top of Toronto

  There are about 2.1 million people who live in Paris (2023 figure).

  The metro area is, of course, much larger with over 13 million people. But if you look at Paris proper — that being the 20 arrondissements within the Boulevard Périphérique — it’s the 2.1 million number.

  The footprint of this area is 105 km2, and so that means that Paris has an average population density within its administrative boundaries of just over 20,000 people per km2.

  This is about 4.5x more dense than the City of Toronto as a whole. Which is why if you overlay the outline of Paris on top of Toronto, as Gil Meslin has done over here, you get this:

  Ok, just for fun, three maps:
  
  1) The outline of Paris, within the Périphérique, overlaid on central Toronto.
  2) Toronto subway lines and stations within that area (including Crosstown).
  3) Paris Métro lines (1-14) and stations within that same area. pic.twitter.com/i2xxHWoZGv

  — Four-Storey Tower (@g_meslin) October 20, 2023

  To be fair, there are pockets of Toronto that are very dense, even by Paris standards. North St. James Town, for example, was estimated at over 44,000 people per km2 back in 2016. But generally speaking, Toronto is not that.

  And Gil’s maps do an excellent job of demonstrating it.

  2023.10.20