Using data from Turner & Townsend, Curbed recently reported that the most expensive city in the world in which to build is now San Francisco. On average, it costs USD 417 per square foot. San Francisco is followed by New York ($368 psf), London, Zurich, and Hong Kong. New York took the top spot last year, but San Francisco shot up this year because of, you know, tech.
This number was calculated using a blend of six different types of construction, everything from apartment high-rise and prestige office to general hospital and warehouse distribution centers.
Now, I'm not exactly sure what this number includes. But I'm assuming it is only direct construction costs and doesn't include (contractor) general conditions, land, or any soft costs, which are all significant. Once you add in these other cost inputs, I am sure that you can start to see how things -- including the cost of new housing -- can quickly escalate.
Using data from Turner & Townsend, Curbed recently reported that the most expensive city in the world in which to build is now San Francisco. On average, it costs USD 417 per square foot. San Francisco is followed by New York ($368 psf), London, Zurich, and Hong Kong. New York took the top spot last year, but San Francisco shot up this year because of, you know, tech.
This number was calculated using a blend of six different types of construction, everything from apartment high-rise and prestige office to general hospital and warehouse distribution centers.
Now, I'm not exactly sure what this number includes. But I'm assuming it is only direct construction costs and doesn't include (contractor) general conditions, land, or any soft costs, which are all significant. Once you add in these other cost inputs, I am sure that you can start to see how things -- including the cost of new housing -- can quickly escalate.
The average price of popular new condo floor plans in the City of Toronto in October 2019 was approximately $1,275 per-square-foot (psf) and with growth of 3% a year, prices would hit $1,475 psf in 2024. I wouldn't be surprised to see annual average growth of 4%, which would get you to $1,625 psf in five years in Toronto.
This data was taken from BuzzBuzzHome and -- by "popular new condo floor plans" -- I believe he means that these are the floor plans that buyers tend to click on and review when they visit the site. So it's a good indication of buyer demand.
Here's another quote that stuck out:
Part of the reason that price growth has spiked is a rise in construction costs, development charges, and land prices - this cost-push inflation is passed on to consumers.
That sounds right. And I have been writing about this phenomenon all year. Most of us can probably remember when $1,000+ psf was a high water mark for new construction condos. Now it's pretty much a floor.
The average price of popular new condo floor plans in the City of Toronto in October 2019 was approximately $1,275 per-square-foot (psf) and with growth of 3% a year, prices would hit $1,475 psf in 2024. I wouldn't be surprised to see annual average growth of 4%, which would get you to $1,625 psf in five years in Toronto.
This data was taken from BuzzBuzzHome and -- by "popular new condo floor plans" -- I believe he means that these are the floor plans that buyers tend to click on and review when they visit the site. So it's a good indication of buyer demand.
Here's another quote that stuck out:
Part of the reason that price growth has spiked is a rise in construction costs, development charges, and land prices - this cost-push inflation is passed on to consumers.
That sounds right. And I have been writing about this phenomenon all year. Most of us can probably remember when $1,000+ psf was a high water mark for new construction condos. Now it's pretty much a floor.
Many, or perhaps most, developers I know have a minimum project size that they will work on. That's why you'll hear people say, "No, that project is too small. I need at least X square feet or Y number of units." Given that smaller scale development such as laneway housing and "the missing middle" are so in vogue today, I thought I would discuss some of the reasons why scale matters.
But first, it's worth mentioning that "laneway suites," as we have structured them here in Toronto, are intended to be built by individual homeowners and not by developers. The lots can't be severed and most lots will yield less than 1,000 square feet. So this is a bit of a unique circumstance. As most of you know, I am a big supporter of this initiative.
When you get into larger developer-led projects, it's a different ball game. For one, it's hard to even find sites. And good luck if you need to deal with multiple owners as part of an assembly. Most landowners have pricing expectations that do not even remotely align with "missing middle" level densities.
But assuming you've been able to find land at a reasonable price, you still have to contend with the fact that projects have a lot of fixed costs, as well as diseconomies of scale. In other words, there are schedule, cost, and resourcing considerations that won't change no matter how big or small you go. It's still going to take this long and cost this much, and you're still going to need a set of humans to manage it through.
This can then create a situation where there's not enough margin for error. The project is simply too small to absorb any shocks, such as an unforeseen delay or an unforeseen groundwater concern that is now adding millions to your project budget. There's a lot of risk with development and it's prudent to have contingency room. That's harder to do with smaller projects.
The other problem developers run into with smaller projects is that the construction subtrades also tend to think of them as smaller projects. They have their own set of fixed costs and margins to worry about. So unless you happen to catch them with an opening in their schedule, you run the risk of them telling you they're too busy or them giving you a stinky price, which is just another way of them saying they don't want the job.
On top of all this, there's minimum project size inflation. If capital is not a constraint, there's a tendency to want to do bigger projects (see above). And because the cost of everything keeps going up, it's simultaneously getting harder and harder to make smaller projects pencil; unless you, maybe, go ultra luxury and ultra exclusive. But that's kind of the opposite goal of this whole "missing middle" movement, is it not?
Many, or perhaps most, developers I know have a minimum project size that they will work on. That's why you'll hear people say, "No, that project is too small. I need at least X square feet or Y number of units." Given that smaller scale development such as laneway housing and "the missing middle" are so in vogue today, I thought I would discuss some of the reasons why scale matters.
But first, it's worth mentioning that "laneway suites," as we have structured them here in Toronto, are intended to be built by individual homeowners and not by developers. The lots can't be severed and most lots will yield less than 1,000 square feet. So this is a bit of a unique circumstance. As most of you know, I am a big supporter of this initiative.
When you get into larger developer-led projects, it's a different ball game. For one, it's hard to even find sites. And good luck if you need to deal with multiple owners as part of an assembly. Most landowners have pricing expectations that do not even remotely align with "missing middle" level densities.
But assuming you've been able to find land at a reasonable price, you still have to contend with the fact that projects have a lot of fixed costs, as well as diseconomies of scale. In other words, there are schedule, cost, and resourcing considerations that won't change no matter how big or small you go. It's still going to take this long and cost this much, and you're still going to need a set of humans to manage it through.
This can then create a situation where there's not enough margin for error. The project is simply too small to absorb any shocks, such as an unforeseen delay or an unforeseen groundwater concern that is now adding millions to your project budget. There's a lot of risk with development and it's prudent to have contingency room. That's harder to do with smaller projects.
The other problem developers run into with smaller projects is that the construction subtrades also tend to think of them as smaller projects. They have their own set of fixed costs and margins to worry about. So unless you happen to catch them with an opening in their schedule, you run the risk of them telling you they're too busy or them giving you a stinky price, which is just another way of them saying they don't want the job.
On top of all this, there's minimum project size inflation. If capital is not a constraint, there's a tendency to want to do bigger projects (see above). And because the cost of everything keeps going up, it's simultaneously getting harder and harder to make smaller projects pencil; unless you, maybe, go ultra luxury and ultra exclusive. But that's kind of the opposite goal of this whole "missing middle" movement, is it not?
