It has been well documented that Tokyo tends to build a lot of housing. And the argument goes that this has helped to maintain a certain level of housing affordability. The city is constantly building and rebuilding. It also has different views about housing. Now, we could, of course, debate how much of its relative affordability is a direct result of supply but, regardless, there seems to be a lot of it. In 2014, the city of Tokyo saw 142,417 housing starts, according to this recent FT article. This is compared to ~5,000 units across the Bay Area (2015 data), 83,657 units for the state of California, and 137,010 units for all of England.
If you're wondering how Toronto is doing, here are the latest numbers:
It has been well documented that Tokyo tends to build a lot of housing. And the argument goes that this has helped to maintain a certain level of housing affordability. The city is constantly building and rebuilding. It also has different views about housing. Now, we could, of course, debate how much of its relative affordability is a direct result of supply but, regardless, there seems to be a lot of it. In 2014, the city of Tokyo saw 142,417 housing starts, according to this recent FT article. This is compared to ~5,000 units across the Bay Area (2015 data), 83,657 units for the state of California, and 137,010 units for all of England.
If you're wondering how Toronto is doing, here are the latest numbers:
“So much of what we do is collaborative,” Rosenthal said. “[Software is] like writing a book together where all the plots have to connect and make sense and there are thousands of authors. It’s really hard to do if you’re not co-located in the same space and it’s important to even be able to see each other in the same space.”
Building a building is done in much the same way. Except I would take it even further and say that it's like writing individual sentences together. One person starts the sentence (usually the architect), but then the rest of the team enters (engineers and so on) and informs the architect that the words actually need to be changed around.
After a bunch of back and forth, the sentence is finally complete (for the most part). This is just in time for the editors (construction team) to tell you that the sentences you've assembled in fact don't work at all and that they will cost far too much to print in their current form. So team goes back and, once again, readjusts.
As you might imagine, this is a lot easier to do when you're not fiddling with a mute button and fighting against screaming kids in the background.
“So much of what we do is collaborative,” Rosenthal said. “[Software is] like writing a book together where all the plots have to connect and make sense and there are thousands of authors. It’s really hard to do if you’re not co-located in the same space and it’s important to even be able to see each other in the same space.”
Building a building is done in much the same way. Except I would take it even further and say that it's like writing individual sentences together. One person starts the sentence (usually the architect), but then the rest of the team enters (engineers and so on) and informs the architect that the words actually need to be changed around.
After a bunch of back and forth, the sentence is finally complete (for the most part). This is just in time for the editors (construction team) to tell you that the sentences you've assembled in fact don't work at all and that they will cost far too much to print in their current form. So team goes back and, once again, readjusts.
As you might imagine, this is a lot easier to do when you're not fiddling with a mute button and fighting against screaming kids in the background.
At a high level there are two components to the value of a house. There's the value of the land and there's the value of all the improvements. That is, the bricks, wood, and other stuff that form the actual house. When a media outlet runs a sensational headline about some shack in Toronto selling for, oh I don't know, a million dollars, what it actually means is that the land in this particular area was just valued by somebody at this number. In fact, if the property is very clearly a "knock down" the improvements sitting on the land become a liability/cost rather than anything of value. Because whoever buys the land will almost certainly need to remove the improvements before they can build whatever it is they want to build.
This distinction between land and improvements is a valuable one for many reasons. Here's one example. In cases where the improvements aren't some shack, you may be faced with a scenario where a property can be valued in two different ways. You can value it based on the development potential of the underlying land or you can value it based on the income (either in-place or potential) that the improvements are generating, or could be generating with some hard work on your part. If the development value is greater than the value of the improvements, then there will be pressure to redevelop. Conversely, if the opposite is true, it is likely that not much will happen other than maybe capital expenditures applied to the existing building(s).
Of course, you could also run into a scenario where there's little development potential and there's zero ability to invest in the existing improvements, either because the market rents are too low in the area or because they're capped and/or controlled in some way. In this scenario, it's likely that not much will happen other than the normal and expected depreciation of the improvements. Maybe one day the development/investment math will work. But in the interim, you probably won't be seeing any of those sensational media headlines.
At a high level there are two components to the value of a house. There's the value of the land and there's the value of all the improvements. That is, the bricks, wood, and other stuff that form the actual house. When a media outlet runs a sensational headline about some shack in Toronto selling for, oh I don't know, a million dollars, what it actually means is that the land in this particular area was just valued by somebody at this number. In fact, if the property is very clearly a "knock down" the improvements sitting on the land become a liability/cost rather than anything of value. Because whoever buys the land will almost certainly need to remove the improvements before they can build whatever it is they want to build.
This distinction between land and improvements is a valuable one for many reasons. Here's one example. In cases where the improvements aren't some shack, you may be faced with a scenario where a property can be valued in two different ways. You can value it based on the development potential of the underlying land or you can value it based on the income (either in-place or potential) that the improvements are generating, or could be generating with some hard work on your part. If the development value is greater than the value of the improvements, then there will be pressure to redevelop. Conversely, if the opposite is true, it is likely that not much will happen other than maybe capital expenditures applied to the existing building(s).
Of course, you could also run into a scenario where there's little development potential and there's zero ability to invest in the existing improvements, either because the market rents are too low in the area or because they're capped and/or controlled in some way. In this scenario, it's likely that not much will happen other than the normal and expected depreciation of the improvements. Maybe one day the development/investment math will work. But in the interim, you probably won't be seeing any of those sensational media headlines.
