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I recently started reading Marginal Revolution. This recent post, called "Illegal Immigrants Didn't Break the Housing Market; Bad Policy Did," covers many of the things that we talk about on this blog:
If “fixing” housing scarcity means blaming whichever group is politically convenient, you end up cycling through targets: illegal immigrants first, then legal immigrants (as Canada has done), then the children of immigrants, then wealthy buyers, then racial or religious minorities. Indeed, one wonders if the blame is the goal.
If you actually want to solve the problem of housing scarcity, stop the scapegoating and start supporting the disliked people who are actually working to reduce scarcity: the developers. Loosen zoning and cut the rules that choke what can be built. Redirect political energy away from trying to demolish imagined enemies and instead build, baby, build.
As a developer, I naturally chose the most self-serving excerpt to quote, but that doesn't mean that what Alex Tabarrok wrote is incorrect. Blame is, of course, the goal. Such is the reality of politics. Here's another excerpt, this one from one of Howard Mark's investing memos:
I've always gotten a kick out of oxymorons — phrases that are internally contradictory — such as "jumbo shrimp" and "common sense." I'll add "political reality" to the list. The world of politics has its own, altered reality, in which economic reality often seems not to impinge. No choices need to be made: candidates can promise it all. And there are no consequences. If something might have negative consequences in the real world, politicians seem to feel free to ignore them.
This is why immigrants are blamed, foreign buyers are banned, rent freezes are proposed (counterproductive), and we continue to do very little to actually fix traffic congestion in our cities, among an endless list of other things. The real solutions are simply too politically inconvenient; it's more advantageous to blame scapegoats.
Meanwhile, our problems persist.
I woke up this morning to an email from one of our partners with a link to this article talking about a three-storey, 10-unit housing project (plus garden suite) that was just refused by the Committee of Adjustment here in Toronto. It's five minutes from a major subway station. Why?
Because it's always easier to blame someone else.
Cover photo by Frames For Your Heart on Unsplash
Real estate may be local, but a lot of markets appear to be correlated. I felt that way this past summer when I was meeting with developers in Paris and I continue to feel this way when I read articles about other markets. Here's a recent one from Building Salt Lake talking about the state of Utah's multi-family market.
Based on the article, cap rates appear to be in the mid-4s for newish product, which is too low right now:
Investors aren’t jumping at the 4.6 cap deals they can typically find in Utah today, she added, when they could get over 5.5 in other major markets.
“Salt Lake, a 4.6 cap, I personally think it’s a little mispriced relative to where else we can put our money,” Schultz said.
This means that there aren't the asset trades to support new development. To justify ground-up development, developers need to see a positive spread between their development yield and the exit cap — one that compensates them for the additional risk of construction. If that spread isn't there, or if it's unclear what it might actually be, development shuts off.
Rents and values coming down also doesn't help:
Back in 2022, which was the peak of the market, you could underwrite double-digit rent growth on a typical 250-apartment deal Downtown. Now, he said, “we’re seeing that effective rents down about 8.25%.”
Overall multifamily values are down 26%, King said, though he added that’s not indicative of every single project or every deal. He also said that decline came after four years of record supply and double-digit rent growth.
What should be clear from these excerpts is that Salt Lake City is not at the point in the cycle where developers are jumping to deliver new ground-up multi-family product. They're at the point in the cycle where firms are looking and hoping to buy distressed assets below replacement cost.
We all know what value engineering is when it comes to buildings. Generally speaking, it is the process of trying to identify high-cost items with relatively low perceived value. Once you identify these items, you then remove them (if you can), replace them with alternatives, or find other creative solutions. All projects have to do this at one point or another because, well, money doesn't grow on trees.
One way to think about this is in terms of the following four-quadrant chart:
Low-value and low-cost items aren't expensive, so you will probably just leave them alone. But if you can move them up to the next quadrant, that's even better.
High-value and low-cost items are the ideal place to be. One example might be a low-cost material that gets applied in a creative way so as to create high perceived value. This is where design really becomes alpha.
Low-value and high-cost items are the fertile ground for value engineering exercises. If the perceived value is low, why spend the money on it? Surely there must be other options.
High-value and high-cost items, on the other hand, require the most thought and debate. How high value is it? Do we really need or want to spend the money on it? One example of this would be the architectural facade lighting at
I recently started reading Marginal Revolution. This recent post, called "Illegal Immigrants Didn't Break the Housing Market; Bad Policy Did," covers many of the things that we talk about on this blog:
If “fixing” housing scarcity means blaming whichever group is politically convenient, you end up cycling through targets: illegal immigrants first, then legal immigrants (as Canada has done), then the children of immigrants, then wealthy buyers, then racial or religious minorities. Indeed, one wonders if the blame is the goal.
If you actually want to solve the problem of housing scarcity, stop the scapegoating and start supporting the disliked people who are actually working to reduce scarcity: the developers. Loosen zoning and cut the rules that choke what can be built. Redirect political energy away from trying to demolish imagined enemies and instead build, baby, build.
As a developer, I naturally chose the most self-serving excerpt to quote, but that doesn't mean that what Alex Tabarrok wrote is incorrect. Blame is, of course, the goal. Such is the reality of politics. Here's another excerpt, this one from one of Howard Mark's investing memos:
I've always gotten a kick out of oxymorons — phrases that are internally contradictory — such as "jumbo shrimp" and "common sense." I'll add "political reality" to the list. The world of politics has its own, altered reality, in which economic reality often seems not to impinge. No choices need to be made: candidates can promise it all. And there are no consequences. If something might have negative consequences in the real world, politicians seem to feel free to ignore them.
This is why immigrants are blamed, foreign buyers are banned, rent freezes are proposed (counterproductive), and we continue to do very little to actually fix traffic congestion in our cities, among an endless list of other things. The real solutions are simply too politically inconvenient; it's more advantageous to blame scapegoats.
Meanwhile, our problems persist.
I woke up this morning to an email from one of our partners with a link to this article talking about a three-storey, 10-unit housing project (plus garden suite) that was just refused by the Committee of Adjustment here in Toronto. It's five minutes from a major subway station. Why?
Because it's always easier to blame someone else.
Cover photo by Frames For Your Heart on Unsplash
Real estate may be local, but a lot of markets appear to be correlated. I felt that way this past summer when I was meeting with developers in Paris and I continue to feel this way when I read articles about other markets. Here's a recent one from Building Salt Lake talking about the state of Utah's multi-family market.
Based on the article, cap rates appear to be in the mid-4s for newish product, which is too low right now:
Investors aren’t jumping at the 4.6 cap deals they can typically find in Utah today, she added, when they could get over 5.5 in other major markets.
“Salt Lake, a 4.6 cap, I personally think it’s a little mispriced relative to where else we can put our money,” Schultz said.
This means that there aren't the asset trades to support new development. To justify ground-up development, developers need to see a positive spread between their development yield and the exit cap — one that compensates them for the additional risk of construction. If that spread isn't there, or if it's unclear what it might actually be, development shuts off.
Rents and values coming down also doesn't help:
Back in 2022, which was the peak of the market, you could underwrite double-digit rent growth on a typical 250-apartment deal Downtown. Now, he said, “we’re seeing that effective rents down about 8.25%.”
Overall multifamily values are down 26%, King said, though he added that’s not indicative of every single project or every deal. He also said that decline came after four years of record supply and double-digit rent growth.
What should be clear from these excerpts is that Salt Lake City is not at the point in the cycle where developers are jumping to deliver new ground-up multi-family product. They're at the point in the cycle where firms are looking and hoping to buy distressed assets below replacement cost.
We all know what value engineering is when it comes to buildings. Generally speaking, it is the process of trying to identify high-cost items with relatively low perceived value. Once you identify these items, you then remove them (if you can), replace them with alternatives, or find other creative solutions. All projects have to do this at one point or another because, well, money doesn't grow on trees.
One way to think about this is in terms of the following four-quadrant chart:
Low-value and low-cost items aren't expensive, so you will probably just leave them alone. But if you can move them up to the next quadrant, that's even better.
High-value and low-cost items are the ideal place to be. One example might be a low-cost material that gets applied in a creative way so as to create high perceived value. This is where design really becomes alpha.
Low-value and high-cost items are the fertile ground for value engineering exercises. If the perceived value is low, why spend the money on it? Surely there must be other options.
High-value and high-cost items, on the other hand, require the most thought and debate. How high value is it? Do we really need or want to spend the money on it? One example of this would be the architectural facade lighting at
Cover photo by Saul Flores on Unsplash
Years ago, the team presented it as a possible value-engineering option. But ultimately, we viewed it as being fundamental to the overall design. Its perceived value was off the charts. I mean, why invest so much in the architecture only to cut the very thing that helps prominently display it? So a decision was made to keep it and, boy, am I glad we did.
There's nothing else going up in Toronto like it.
Cover photo by Saul Flores on Unsplash
Years ago, the team presented it as a possible value-engineering option. But ultimately, we viewed it as being fundamental to the overall design. Its perceived value was off the charts. I mean, why invest so much in the architecture only to cut the very thing that helps prominently display it? So a decision was made to keep it and, boy, am I glad we did.
There's nothing else going up in Toronto like it.
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