The price of an existing home in the Netherlands increased 14.6% in the first 6 months of this year alone, according to this recent FT article. This is in comparison to 6.1% for existing homes across the EU on a year-over-year basis. Some economists estimate that the Netherlands is short about 330,000 homes right now and that it needs to build at least 1 million more over the next decade to better align supply and demand. I know that there is a lot of debate about the extent to which supply alone can solve problems of affordability. And indeed there are other factors at play here, such as low interest rates. But 330,000 is a lot of missing housing and numbers like this are not unique to the Netherlands. Most big cities have a supply of housing that is highly inelastic because of how difficult we make it to build. Most of us recognize this. But it remains a problem.

Our cost consultant, Finnegan Marshall, gave our team a presentation today on what's happening with construction costs in Toronto and across Canada. I've said this before, but hard costs are no joke right now.

One of the areas that they focused on was the impact that inclusionary zoning is likely to have on development economics here in Toronto. To illustrate the point, a sample high-rise condominium pro forma was used. Think something in the 30-35 storey range.

Assuming a requirement of 10% affordable (the policy details are still TBD), there is going to be a real cost to development pro formas that will need to be somehow paid for.

One school of thought is that land prices will simply adjust downward. In this case, the landowner would be the one paying. I don't think this will be the case (land prices tend to be sticky), but if they were to adjust downward, it would need to drop by $44 per square foot buildable to maintain the project's margins in this example. (That's $13.2 million on a 300,000 sf project.)

If, on the other hand, the price of the remaining market rate condominium suites were to increase to offset the cost of the affordable component, they would need to increase by $91 per square foot. This translates, in the above example, into a sticker price increase of approximately $60,000 per suite.

These numbers are, of course, not exact. That is not the point of this post. Every project is different. But hopefully it gives you an idea of some of the levers that will invariably need to be pulled when inclusionary zoning comes into force.

My sense is that this latter scenario is more likely to happen. I have yet to see land prices adjust downward in the face of rising costs. So all of this is likely to be bad for broad-based affordability, but good if you want to be bullish on market rate home prices.

Back in 2008, Dasha Zhukova and Roman Abramovich hired starchitect Rem Koolhaas and founded a new contemporary art museum in Moscow called the Garage Museum. Supposedly this was the first philanthropic institution in Russia dedicated solely to contemporary art. (Here's a short video in case you're curious what it looks like.) After it opened, the founders apparently had a realization about the way people like to consume art. Yes, people like to look at art and ponder deep things. But it turns out that people also like just being around art and other art-like things. People started coming to the Garage Museum not only to view the various exhibitions, but also to just hang out.

This insight is now being used to inform a new real estate development company, also by Dasha, called Ray. The mission of the company is to create "architecturally-inspired homes at the intersection of art, culture, and community." Their first two projects are in Harlem and Fishtown, Philadelphia, but apparently they have something cooking in Miami as well. What Ray hopes to do is integrate art and culture in a more meaningful way through cultural programming, exhibitions in their buildings, artist studio spaces, and other creative ideas.

There's also an affordable housing angle. According to the WSJ, Ray's Harlem project is a joint venture with L+M Development Partners. I don't know any of the specifics of this deal, but I know L+M, because one of their founding partners, Ron Moelis, was a professor of mine in graduate school. L+M is focused on affordable and mixed-income housing and uses tools like the Low-Income Housing Tax Credit (LIHTC) to make these sorts of projects financially feasible. They aren't, otherwise. I learned all about them in school and I always found it to be a great way to get the private sector building affordable housing.

"Art and culture, community, and accessible pricing."