One of the big housing stories of this year was that Austin has built a lot of new apartments and it is now causing rents to fall precipitously — by as much as 22%. The market is working.
But as we also talk about on this blog, the benefits of new "luxury" housing don't just apply to those who can afford it. Since real estate development happens on the margin — in other words, it's based on the feasibility of the next unit of housing supply, not an average for the market — new market-rate housing typically needs to cater to the top end of the market. Otherwise, it wouldn't be economically feasible to build it.
However, study after study also shows that the delivery of any new housing in a city broadly tempers rents, including in a city's oldest housing stock. This is true in virtually all cities:
The above chart is from this recent Bloomberg article, talking about how "luxury apartments are bringing rents down." But if you look closely, there is one city on this chart that appears to be an outlier: Miami.
Despite adding a respectable number of homes, rents have not fallen as much as you might expect given the figures for the other cities on this list. The intuitive explanation is likely that Miami is in the midst of experiencing an extraordinary wealth transfer.
For the five-year period through to 2022, it was estimated that some 30,000 New Yorkers with combined annual incomes of $9.2 billion moved to Miami-Dade and Palm Beach counties. It's also an important capital safe haven for Latin America.
I vividly remember looking at condo listings in Miami in 2008 and thinking, "Damn, this is cheap!" I even tried to find a job there after grad school, but at that time, it was no place for a new real estate developer. My best bet would have been something in loan workouts.
Who could have predicted such an incredible transformation? It isn't the third most important global city in the US according to the numbers, but it certainly has a lot of momentum right now. In this instance, new supply does not appear to be more than offsetting demand.
Cover photo by Valeriia Neganova on Unsplash
2025 was a tough year to be a real estate developer in Toronto. And it was a tough year for a whole host of reasons, not all of which you might immediately expect. In addition to it being challenging (and in some cases impossible) to underwrite new projects, raise capital, sell pre-construction homes and many other things, it was also a challenging market from a psychological standpoint.
Real estate development is a business that arguably attracts "Type-A" personalities. These are people who stereotypically tend to be ambitious, driven, competitive, and impatient. Said differently, they tend to have a strong bias toward action and a strong internal locus of control. I'm certainly programmed this way. I have a real problem with free time, and I'm at my happiest when I'm achieving things. I'm sure that many of you are the same way.
However, when the market is soft or shut off, the primary modus operandi of action gets neutralized. And since people with a strong internal locus of control believe that it is their individual actions that directly lead to successes and failures, this can create a psychological crisis. Am I the one failing? Is there anything else that I could be doing to create action, right now? (Simply waiting could be the correct answer.)
The older I get, the more I realize that an important skill in life and business is managing your own psychology. In fact, it may be the most important skill of all. So, what I have been doing as of late is continually reframing the current market. Rather than focusing on what's not happening, I like to remind myself that this market is surely presenting the greatest set of opportunities that I have seen in my real estate career.
It may not feel like the typical kind of action right now, but everything is strategic preparation.
Cover photo by Jānis Beitiņš on Unsplash
When I was in grad school studying real estate, I remember one of my professors once making a joke about the lifecycle of developers. He said that developers usually start by first doing a small project. Then they take the profits from that project and roll them into a bigger project. Once that is done, they take those profits and roll them into an even bigger project. And then they go bankrupt.
The point he was trying to make was that development is a risky business. One of the reasons for this — and there are countless reasons — is that projects take a long time. This means that during the regular course of a project, it is not unusual to be faced with a handful of very different markets. And during these varied market conditions, you are likely going to make different decisions (and wish you had made different decisions).
Take, for example, land.
One of the customary ways to buy development land in Toronto during the last cycle was to pay for it with the help of a land loan. Land loans are not based on any sort of debt service coverage ratio because, typically, there isn't enough (or any) income to actually service the loan. It's all based on the land's future potential.
Instead what happens is that you forecast how long you'll need to hold the land, you budget for the interest costs during this period, and then you convince yourself that you'll be able to "take out" this loan in the future — typically by way of a construction loan or by selling the land to someone else. Unless you have the resources to land bank, you are implicitly making the assumption that there will be a market in the future.
This assumption works great in a rising market because the land often continues to appreciate (sometimes regardless of your actions) and usually you or someone else can create a productive use for it. But if the music stops during this period, it can be problematic, because now you may only have one way out:
Cover photo by amirgraphy on Unsplash