A friend of mine just sent me this blog post from the venture capital firm, Shadow Ventures. They specialize in the built environment (i.e. real estate and construction) and the post is called, "What McKinsey gets wrong about the built environment." Here's one of the points that they make:
We are project based. While we are much larger, the most similar business is the movie industry. Project based, different source of funding/budget every time, the team changes (but we have our faves).
This is very true. Oftentimes what happens in real estate is that you start with an opportunity. Something like, "buy this building, fix it up, and then sell it for more." If the opportunity sounds compelling, a common approach is to then "get control of the asset and figure out how to capitalize it."
What this means is a conditional deal so that you can (1) do your due diligence and (2) figure out how to pay for it. This gets back to the three-legged stool that we've spoken about before. To do real estate stuff you basically need 3 things: a piece of real estate, relevant experience, and, of course, some money.
A friend of mine just sent me this blog post from the venture capital firm, Shadow Ventures. They specialize in the built environment (i.e. real estate and construction) and the post is called, "What McKinsey gets wrong about the built environment." Here's one of the points that they make:
We are project based. While we are much larger, the most similar business is the movie industry. Project based, different source of funding/budget every time, the team changes (but we have our faves).
This is very true. Oftentimes what happens in real estate is that you start with an opportunity. Something like, "buy this building, fix it up, and then sell it for more." If the opportunity sounds compelling, a common approach is to then "get control of the asset and figure out how to capitalize it."
What this means is a conditional deal so that you can (1) do your due diligence and (2) figure out how to pay for it. This gets back to the three-legged stool that we've spoken about before. To do real estate stuff you basically need 3 things: a piece of real estate, relevant experience, and, of course, some money.
This speaks to the entrepreneurial nature of real estate. But it also speaks to why it is maybe unfair to evaluate the architecture, engineering, and construction (AEC) industry as you might the automotive industry. The auto industry doesn't capitalize and make each car slightly differently.
This is one of the many things that makes real estate unique. And it's why we have seen an enduring effort to figure out the "productization" of housing. It's about being less project based.
On Monday the province of Ontario posted a draft regulation intended to establish a framework for inclusionary zoning. It builds on a bill that passed last year allowing municipalities – should they choose – to require affordable housing in new developments and redevelopments.
Councillor Kristyn Wong-Tam recently put forward a request for a report on the implementation of a 1-year moratorium (let’s ”hit the pause button”) on new tall building rezoning applications in the downtown core of Toronto. You can read the full letter here.
“The city has, for years, used the development charges that should have been used to upgrade infrastructure to artificially lower property taxes by putting the development charges into general revenue,” he says.
The intent of development charges is that they fund the infrastructure required as a result of new development – everything from transit to water. In the US, they are (I think) more commonly called impact fees. In this case the name makes the intent quite clear.
I am curious to what extent we are relying on development growth to fund the status quo. Because growth may not always be there. History has shown us that.
This speaks to the entrepreneurial nature of real estate. But it also speaks to why it is maybe unfair to evaluate the architecture, engineering, and construction (AEC) industry as you might the automotive industry. The auto industry doesn't capitalize and make each car slightly differently.
This is one of the many things that makes real estate unique. And it's why we have seen an enduring effort to figure out the "productization" of housing. It's about being less project based.
On Monday the province of Ontario posted a draft regulation intended to establish a framework for inclusionary zoning. It builds on a bill that passed last year allowing municipalities – should they choose – to require affordable housing in new developments and redevelopments.
Councillor Kristyn Wong-Tam recently put forward a request for a report on the implementation of a 1-year moratorium (let’s ”hit the pause button”) on new tall building rezoning applications in the downtown core of Toronto. You can read the full letter here.
“The city has, for years, used the development charges that should have been used to upgrade infrastructure to artificially lower property taxes by putting the development charges into general revenue,” he says.
The intent of development charges is that they fund the infrastructure required as a result of new development – everything from transit to water. In the US, they are (I think) more commonly called impact fees. In this case the name makes the intent quite clear.
I am curious to what extent we are relying on development growth to fund the status quo. Because growth may not always be there. History has shown us that.
Below are some, but not all, of the things that are being considered in the draft regulation. Some of these items were recommendations made by the development industry through the Ontario Home Builders’ Association (OHBA) and the Building Industry and Land Development Association (BILD).
- The total number of affordable units or gross floor area dedicated to affordable housing units would not exceed 5% of the total units or 5% of the total gross floor area (excluding common areas). This number increase to 10% in high density transit station areas.
- The affordable period would be a minimum of 20 years but no greater than 30 years.
- There may be opportunities to provide the inclusionary zoning units off-site.
- The policies would only apply to developments / redevelopments with 20 or more units.
- The affordable component could not be used to determine community benefits under Section 37. Section 37 would also not apply if the proposed development (with IZ) is in a location where a development / community planning permit is used.
- Municipalities would be required to offer incentives to help offset the IZ cost burden, but only if the development is not subject to a development / community planning permit. The incentives could include a waiver or reduction in application fees, parkland dedication fees, development charges, and so on. These offsets are very important to the industry and the affordability of the market rate units. But interestingly enough, increases in height and/or density are not being contemplated as a possible incentive or financial contribution.
- The financial contribution would be based on the following formula: (A - B) x 0.4. A is the total sum of the average market price for all of the affordable housing units and B is the total sum of the affordable price for all of the IZ housing units. In other words, the intent is that municipalities would be required to offset 40% of the costs associated with providing the affordable units.
Click here for the rest of the draft regulation. The OHBA also published this media release following the draft. They like the “partnership model” but were advocating for a 50/50 public/private cost share on all government-mandated units.
If you’re looking for more reading on inclusionary zoning, check here, here, and here.
Below are some, but not all, of the things that are being considered in the draft regulation. Some of these items were recommendations made by the development industry through the Ontario Home Builders’ Association (OHBA) and the Building Industry and Land Development Association (BILD).
- The total number of affordable units or gross floor area dedicated to affordable housing units would not exceed 5% of the total units or 5% of the total gross floor area (excluding common areas). This number increase to 10% in high density transit station areas.
- The affordable period would be a minimum of 20 years but no greater than 30 years.
- There may be opportunities to provide the inclusionary zoning units off-site.
- The policies would only apply to developments / redevelopments with 20 or more units.
- The affordable component could not be used to determine community benefits under Section 37. Section 37 would also not apply if the proposed development (with IZ) is in a location where a development / community planning permit is used.
- Municipalities would be required to offer incentives to help offset the IZ cost burden, but only if the development is not subject to a development / community planning permit. The incentives could include a waiver or reduction in application fees, parkland dedication fees, development charges, and so on. These offsets are very important to the industry and the affordability of the market rate units. But interestingly enough, increases in height and/or density are not being contemplated as a possible incentive or financial contribution.
- The financial contribution would be based on the following formula: (A - B) x 0.4. A is the total sum of the average market price for all of the affordable housing units and B is the total sum of the affordable price for all of the IZ housing units. In other words, the intent is that municipalities would be required to offset 40% of the costs associated with providing the affordable units.
Click here for the rest of the draft regulation. The OHBA also published this media release following the draft. They like the “partnership model” but were advocating for a 50/50 public/private cost share on all government-mandated units.
If you’re looking for more reading on inclusionary zoning, check here, here, and here.
