Author: Brandon Graham Donnelly

• New rental apartments in Toronto by year of construction

  

  “Your local self-inflicted housing criss ouroboros” tweeted this chart out over the weekend, showing the number of new rental suites completed in Toronto since 1900. The data is from Open Data Toronto and it does not include any condominiums. It also only includes apartment buildings with 10 or more suites (which would be most of the supply anyway).

  This chart is a good example of what we spoke about yesterday: “If you want to negatively impact new supply, cap rental growth.” And that’s exactly what was done in the 1970s. But in reality, the changes were more broad than this. The 1970s saw a philosophical shift in the way Canada thought about new housing.

  Housing became rightly viewed as a basic human right. But because of this, the policy landscape shifted away from facilitating the private sector, to intervening and regulating the private sector. This included tax changes which negatively impacted new housing development and, yes, rent controls.

  Ironically, but not unexpectedly, this dramatically lowered the overall supply of new rental housing. To the point where we had effectively shut off the taps by the late 1990s. Thankfully, the condominium sector stepped in and started meaningfully delivering new housing — both for sale and for rent (via individual private investors).

  The supply of new condominiums in Toronto is not shown above, but there is no question that this (shadow rentals) has formed the vast majority of our new rental stock over the last two decades. But in my view, this shift was largely the result of policy decisions. We decided that we didn’t want the private sector building so many new purpose-built rentals, and so we told them to stop.

  It then listened remarkably well.

  2023.04.02

• Two ideas for increasing the supply of new rental housing

  

  There are lots of ideas out there for how to improve the supply of new rental housing. But it is important to remember, at least here in our market, that the playing field is not level between new condominiums and new rental homes. We have spoken about this before, over here, where I compared the (per square foot) revenue generated from your average new condo against that generated by your average new rental home. Of course, since I wrote that post in 2020, we have seen upward pressure on cap rates (meaning downward pressure on values). So feasibility has gotten even more challenging.

  Land is not the factor preventing rental these days
  1. Upfront equity requirements
  2. Cost escalation: construction, interest rates, DCs, HST
  3. Revenue uncertainty (build first lease later) & lease-up risk
  4. Take-out financing availability
  5. Better investment alternatives

  — Benjamin 🐂✒️ (@benmyers29) April 1, 2023

  The important thing to remember is that developers do not have some philosophical aversion to building more rental housing; it is that the math is challenging. You generally need economies of scale (really big projects), patient long-term capital, and a belief that rents will continue to exhibit meaningful positive growth. If you want to negatively impact new supply, cap rental growth. But if you want to encourage new supply, somebody needs to pull out a development pro forma and make the call to improve the cost structure for new rental housing.

  In my opinion, two obvious line items to focus on are development charges (as well as the other government levies) and HST (our harmonized sales tax). The point of development charges, as we always talk about, is for growth to pay for growth. They are intended to pay for municipal services like roads, transit, water and sewer, and so on. In the other words, they’re supposed to capture of the cost impacts of new housing. But what about the impact of not building enough new rental housing? Are we thinking about this the right way? Especially if you consider the possibility of more new rental housing in our existing transit nodes.

  The HST charged on new rental housing is also significant. There is a new residential rental property rebate available to builders (not tax advice!), but the thresholds have not been indexed and so it’s grossly out of date compared to where values sit today. In any event, if the goal is more homes, why not make new rental homes exempt? Developers are simple. If the math works, they will build. If the math doesn’t work, they will not build. And these two line items, alone, would go a long way to helping the former.

  Photo by Pierre Châtel-Innocenti on Unsplash

  2023.04.01

• US public transit ridership since March 2020

  

  Consider the following stat: 65% of all transit trips across the US in 2019 came from just 6 metro areas: New York, Boston, Chicago, San Francisco, Washington, DC, and Philadelphia. Not surprisingly, these are all places with dense and walkable urban centers. In other words, they have built environments that are conducive to the use of public transportation.

  While we know that more people working from home has been bad for transit and that agencies across the world are facing deep holes in their budget, I continue to come back to two things. One, we have not yet reached a post-pandemic equilibrium. We are still making our way back to the office. And two, the single most important thing when it comes to transit ridership is land use.

  If we want more people to take transit, then we need to build our cities accordingly. That means streets people actually want to walk on, and a lot more density.

  2023.03.31

• Should Paris ban electric scooters?

  This Sunday, Paris will be hosting an important referendum that has nothing to do with France’s retirement age. The question is whether shared electric scooters should be banned citywide. And while there are concerns about whether this single-question referendum will draw many people out to vote, the city has said that, whatever the outcome, the results will be binding.

  To be clear, this would only apply to the three micromobility rental companies that operate in the capital: Lime, Dott, and Tier. It would not apply to privately-owned scooters, of which there are many. In fact, France might just be one of the scooter capitals of the world. Over 900,000 scooters were purchased across France in 2021, and last year the number was about 759,000.

  Mayor Anne Hidalgo has publicly said that she thinks these scooters should be banned. But does that really solve things given the number of private scooters in circulation? And are the current problems truly ones we can’t solve? As I have said many times before, I like scooters. I like them a lot. They’re convenient and fun to ride, and I see their value in helping to solve the last-mile problem.

  I also can’t help but think back to the early 1900s when cars were just starting to infiltrate our cities and there were absolutely no traffic regulations to think of. It was chaos, it was dangerous, and I’m sure it was similarly divisive at the time. So should we have banned them and stuck with horses? Hmm. Maybe.

  2023.03.30

• /imagine prompt: A silver Land Rover Defender driving through a snowstorm in the mountains of Utah

  

  

  Like everyone else, I have started playing around with Midjourney to create AI-generated images. Here are two that I created last night using the prompt: “A silver Land Rover Defender driving through a snowstorm in the mountains of Utah.”

  Now, you can tell that these are AI-produced images, but it’s still wildly impressive that something like this can be easily generated in a matter of a few seconds. And that’s the thing about AI: it’s easier to get, especially compared to crypto. It’s immediately useful and it’s immediately clear what this can and will disrupt.

  Levis, for example, just announced that it will start using AI-generated photography in lieu of actual fashion photoshoots. This is obviously suboptimal for photographers, models, makeup artists, and so on, but a hell of a lot easier for Levis. I would also imagine that the same thing will happen to real estate renderings and many other things beyond just imagery.

  Ben Myers and Steven Cameron recently speculated on their podcast — Toronto Under Construction — that AI could be used for reviewing development applications. Imagine how much this would speed up reviews and the delivery of new housing! So there are very good reasons for why the hype cycle has moved over to AI from crypto and NFTs.

  it is very important that crypto exists in a world of AI

  — 6529 (@punk6529) March 24, 2023

  However, I’d like to go on the record saying that my gut tells me that this will only make what crypto offers even more important. Permissionless public databases (as opposed to databases controlled by individuals/companies) and the ability to demonstrate authenticity/ownership, feel like two important things to me in a world where computers are constantly generating a flood of new content and nobody knows what is “real” anymore.

  It’s certainly a lot less tangible than, “hey, check out this badass Defender driving through the snow.” But I feel strongly that these two innovations will end up working together.

  2023.03.29

• How to spend city money

  This is an intriguing idea:

  Many cities around the world practice some form of participatory budgeting, but even among those that do, Cascais [Portugal] is an outlier. It spends prodigiously through the system: in Paris, five per cent of the city’s annual investment budget has been allocated to participatory projects in recent years, but in Cascais, more than fifteen per cent of the budget flows through the program, and the percentage can float higher if voter turnout rises. Cascais is surprising in another way: its mayor, Carlos Carreiras, is both a champion of participatory budgeting and a member of a center-right political party. Participatory budgeting is often considered a tool of the left, but its role in Cascais suggests that it could have a broader appeal; part of the theory behind it is that citizens can be better than officials at knowing how money should be spent.

  Of course, it won’t solve all of our problems:

  Even in the best of circumstances, participatory budgeting faces some structural limitations. Citizens can’t use it to raise the minimum wage, for instance, or to reconfigure affordable-housing policy, or to ban single-use plastics. As it stands, the approach “will never change the destiny of a poor neighborhood,” Giovanni Allegretti, a senior researcher at the Centre for Social Studies at the University of Coimbra, told me. Allegretti noted that participatory budgeting is mainly a competitive process involving limited resources with no long-term strategy; it doesn’t eliminate the need for other policy interventions. But when it functions effectively, participatory budgeting can give direct political power to those who might otherwise have very little of it.

  There is something very compelling about empowering people to come up with new ideas, compete with others for the best ones, and then participate in public decisions. It also strikes me as a possibly efficient way to force: “We only have this much money to spend. What should we spend it on? Spending on this means not spending on that. Time to make a decision.”

  And now it has me wondering: If we asked Toronto whether it wanted to spend over $1 billion to rebuild the Gardiner Expressway east or spend it on other things, what do you think it would say?

  For the rest of the above article, click here.

  2023.03.28

• New York’s iconic Flatiron Building just sold

  Well sort of.

  Previously leased to Macmillan Publishers for the last 60 years, the building has been sitting vacant since 2019 and supposedly needs something like $100 million in CapEx to make it leasable again. Four of the five current owners have wanted to renovate it, but the fifth kept blocking it, and so the other partners sued for a “partition auction.”

  That auction happened last week, and even though the four owners were really trying to lock down the 25% share that they didn’t own, the auction was won by an outsider at $190 million. That said, a 10% deposit was to be due the following day and, apparently, that never happened. So maybe it hasn’t sold yet. But whatever, it’s still interesting to think about its purchase price.

  According to Wikipedia, the Flatiron Building is 255,000 square feet. So at $190 million, the building was “purchased” for $745 per foot. Assuming that it needs another $100 million, that’s another $392 psf, for a total of $1,137 psf.

  What I am curious about now is how this compares to other office buildings in midtown Manhattan. Is there any sort of premium for being the Flatiron Building? And what would space in this building lease for following a renovation? i.e. What cap rate is the market demanding right now for an empty office building needing $100 million in renovations? Or, is the play to convert to residential?

  I don’t know enough about the real estate market in midtown Manhattan to answer these questions with any sort of precision, but I’m hoping some of you do and that you’ll leave a comment below.

  2023.03.27

• Peaks and plains

  

  On the exact same day last week, the Toronto Star published two articles about housing. The first one, this one here, is about how “Toronto has protected huge parts of the city from anything denser than detached or semi-detached houses” and how this has resulted in an “uneven city.” The second article, this opinion piece, is about the “many repercussions to replacing little bungalows.” And one of the implied repercussions is that 3-storey sun blockers that invade privacy might actually kill people. Hmm.

  In effect, these are the two sides of this debate. If you zoom out and look at Toronto, you will largely see a contrasting and uneven city of tall buildings and low-rise housing. Instead of building like Paris, which is consistently mid-rise — but also far denser on average than Toronto — we have chosen peaks and large plains to constrain new housing. And if you zoom in across those plains, you’ll find many areas without sidewalks, along with people, such as the author of the second article above, who believe that nothing more than a single storey is appropriate for human health.

  All of this has persisted because it has been politically popular. But time continues to show us that it actually runs counter to our goals of building an inclusive and globally competitive city region. Thankfully, it feels like we are finally reaching a tipping point.

  Photo by Jackson Case on Unsplash

  2023.03.26

• Leadership is a great burden

  I went to bed last night watching President Biden’s address to the Canadian Parliament (full transcript, here.). And I woke up this morning to this Globe and Mail article about Canadian competitiveness. In it, Tony Keller talks about some of the things that are broken in this country (shockingly housing comes up), and compares Canada to Argentina (an example of too many bad decisions) and to South Korea (an example of many good decisions).

  All of this got me thinking about leadership.

  Leadership is a great burden. As a leader, people are looking to you for decisions, for direction, and for you to instil confidence. They are also scrutinizing your every word and action. And in today’s world, they are waiting to criticize you on social media and/or make a funny meme out of your most recent misspeak. As a developer, I get to interface with municipal politicians probably more than your average person, and I can tell you with confidence that it is a thankless job I would never want.

  I can only imagine having to constantly worry about your employment and what people are thinking. Given this incentive structure, I’m sure we’d all act accordingly. It is truly public, service. At the same time, I know that it is not only unproductive — but dangerous — to pander to just what is thought to be politically popular. And we have spoken many times before on this blog about housing and land use policies that may be popular, but aren’t at all effective — or worse, are counterproductive.

  What we should be demanding from our leaders are difficult decisions. These are the decisions that probably feel uncomfortable and that may require some personal sacrifice, but that are ultimately the right decisions for our collective long-term prosperity. It is about ambitiously deciding where we want to go and who we want to become, and then taking meaningful actions, however unpopular they may be, to get there.

  Don’t just tell me what I want to hear. Lead me. Push me. Be bold. In the end, we will respect you for your personal sacrifices and the difficult decisions you are making on our behalf. This is the great burden — but also the great opportunity — of leadership, and it behooves us to empower it. To borrow from Tony Keller, “there’s no reason we [Canada] can’t be the most prosperous and successful society on earth.”

  2023.03.25

• Skyscraper construction speed by city

  Brian Potter, of Construction Physics, recently tried to determine which cities build skyscrapers the fastest.

  Here’s how he went about that:

  • He started by looking up the 50 largest cities in the world on Wikipedia
  • He then pulled data from the Council on Tall Buildings and Urban Habitat to get a list of every skyscraper completed between 2000-2020 that was over 100 meters, had a start and completion date, and had a gross floor area
  • The result was a list of 986 skyscrapers completed in 39 cities, most of which (~740) were completed in the US, China, Japan, and Canada
  • Finally, he calculated completed square feet per year and made some charts

  Here are the results:

  

  

  And here’s one thing he had to say about them:

  Interestingly enough, the huge outlier in slow construction isn’t the US, but Canada, with an average skyscraper construction speed of half that of the US’s.

  For a lot more information on this topic, click here.

  2023.03.24