Daily insights for city builders, delivered every morning at 6 AM ET. I’m Brandon Donnelly — a Toronto-based real estate developer and founder of Globizen. I’ve been writing here since 2013.
Connor Dougherty published this thoughtful piece about NIMBYs over the weekend in the New York Times. And it has been making the rounds online ever since.
It is thoughtful in that Connor tries to understand what makes NIMBYs tick. And he does this by interviewing people like Susan Kirsch, a resident of Marin County, California who generally opposes all of the things that California is doing to try and address its housing shortage and who has been fighting a townhouse project in her neighborhood for the last 18 years.
The developer, who is now 86, started the project in his 60s. In the article he is quoted saying that he’s either going to succeed or he’s going to die. It’s one or the other.
What is clear is that we all see things differently. While some people might see new housing as serving an important need. Others see new development as running counter to environmentalism and good stewardship. Indeed, for some, there is no shortage of housing (even in cities that are growing in population). It’s simply a problem of too many investors buying and creating rental homes or too many Airbnbs or some other red herring.
Whatever the case may be, it’s hard not to pay attention to quotes like this one:
“From my backyard I see the hillside,” Ms. Kirsch wrote from her Hotmail account. “Explain how my property value is not deflated if open space is replace(d) with view-blocking, dense, unsightly buildings.”
Look, we all get this. Nobody wants their views obstructed. Nobody wants more cars parked in their neighborhood. And nobody wants more dog shit in their local park, among many other things. But implicit in this statement is a view that certain people’s needs and desires are more important than those of others. I was here first. Too bad for you.
In yesterday’s post I wrote about happiness vs. satisfaction (among a bunch of other things). And I mentioned that I derive deep satisfaction from the work that I do, which is real estate development. On the back of this post, I received a question from a reader this morning that more or less asked me if I think about the impact of my work on other people’s happiness / satisfaction. Part of the point that was being made was that while it may be a positive endeavor for me, I may be completely destroying the satisfaction, happiness, and lives of others. Do I give this any thought? Lastly, a point was made that very few developers seem to live in their own housing projects, which should tell you something.
I thought these were all very good points/questions and so I’d like to respond to them publicly:
I do think carefully about the happiness and satisfaction of others. In fact, part of the reason this work is satisfying is that, in my opinion, it is both challenging and important work. Growing cities require new housing and the reality is that almost all of this housing comes from private developers.
This may sound cheesy, but I also care deeply about beauty. This is something that is of course in the eye of the beholder. But I do want things to be beautiful. I want our cities to be more beautiful. And I don’t think we talk about this enough. I mean, just look at the garbage bins we have in Toronto.
Some people may not like or appreciate the form that development usually takes in cities such as Toronto, but the housing needs to go somewhere. As a result of restricting development in most areas of the city, we are now forced to highly concentrate development in relatively few areas. Many are reacting to this.
There will almost certainly be tensions between incumbents and new entrants when it comes to city building. That’s part of what makes this work so challenging and rewarding. Everyone involved in the building of our cities has to constantly problem solve and manage competing interests. It’s not easy.
I am in fact moving into one of our projects (Junction House). I am doing this because (1) I think our team is creating an awesome and beautiful project and (2) I believe that living in multi-family buildings in walkable neighborhoods is a more sustainable (and enjoyable) way to live. I want to practice what I preach.
I have heard from some of you that you don’t like it when I write about crypto and NFTs. This personal blog is supposed to be largely about city building after all. So today I thought I would write about crypto and NFTs. More specifically, this podcast episode, which I watched last night.
It’s with Marc Andreessen and Chris Dixon of the venture firm a16z, and it’s actually less about specific things like NFTs and more about the reinvention of the internet in general. Why I found it particularly interesting is that Marc co-invented the first widely-used web browser. Anyone remember Netscape?
So he was around for what we are now calling web 1 and he is around for what we are today calling web 3. And there are lots of parallels between then and now. Similar to today with crypto, the early internet had lots of critics and lots of people who thought it was dumb and that it would never amount to much.
Oops.
Here are a few other thoughts and ideas from the podcast that I found interesting (some of them even relate to city building):
No matter how many times we have seen the same movie, humanity seems doomed to repeat the same mistakes when it comes to, among other things, embracing new ideas and innovations. I agree with Marc in that part of this is generational. Younger people are often more open to new ideas because they view it as a way for them to establish themselves and make their mark on the world. Whereas older people (established people) often view new ideas and change as a threat to their current position in the world.
Marc drops a number of books throughout the talk and one of them is The Mystery of Capital — Why Capitalism Succeeds in the West and Fails Everywhere Else. This is a well known book by Hernando De Soto and the big idea is that property ownership and property rights are really the fundamental ingredients in our modern world. People need to know that if they hold title and invest money into something, it’s not just going to get taken away by someone. And it is this underlying legal structure that has allowed people to leverage property into wealth.
This is a fascinating observation in its own right, but it also relates to crypto. Hear me out. Chris Dixon makes the argument in the episode that web1 democratized information (anyone can search for stuff), and that web2 democratized publishing (anyone can share stuff through platforms like Twitter or the blogging platform I’m writing on right now). He then goes on to argue that the promise of web3 and crypto is really to democratize ownership of the internet. Anyone can buy crypto tokens.
Why might this be a big deal? Well if property rights in our offline world are a fundamental ingredient to modern society, it seems logical to me that property rights in our digital world(s) might also be equally transformative. And this is precisely one of the things that blockchain technologies enable for the very first time.
Finally, on a mostly unrelated note, I liked Marc’s comparison of happiness vs. satisfaction in life. Happiness, he explains, is like getting an ice cream cone on a hot summer day. The first and second feel great, but after that you move on. Satisfaction on the other hand is enduring. It’s the feeling you get from working on something really challenging and then finally succeeding. And that’s exactly how I feel about real estate development. There are lots of shitty days and lots of grinding. But in the end, I do feel very satisfied.
On the one hand, if you live in Hollywoodland, I can see how having 10 million or so people traipse through your neighborhood each year to take photos of the sign might be a little annoying.
On the other hand, living in a big city like Los Angeles means dealing with certain annoyances. And doesn’t everyone deserve a selfie with the sign? It also doesn’t seem to be impacting values (see above).
What is more interesting to me is that all of this is a reminder that many/most of the neighborhoods and communities that people love today were, at one point, built be developers.
The Hollywood sign was first erected in 1923, and originally read Hollywoodland. It was developer advertising at its finest and intended to sell new homes. The sign cost $21,000 at the time.
Today the sign is a LA Historic-Cultural Monument and one of the city’s most recognizable icons. Isn’t it funny how this stuff works?
The MRE program is designed to train future practitioners to address new and urgent realities facing the built environment and cities today. Whether undertaken by for-profit businesses, not-for-profit organizations, or public entities, real estate occupies a pivotal role in determining how the places where we live, work, and play are equitable, environmentally sustainable, and appealing, in addition to being productive for the economy.
The key takeaways are that this is a graduate program being designed for aspiring real estate entrepreneurs and that it will live within Harvard’s Graduate School of Design. So there is an implicit recognition that the world of real estate doesn’t need to run counter to the pedagogical goals of a design school.
Anyone who went to architecture school will tell you that real estate is often viewed as the “dark side.” Either you commit yourself to the pure world of architecture and design, or you sell out and seek profits in the world of real estate. But I have always considered this to be a false dichotomy.
Real estate is a fundamental component of how we shape our built environment. And so if one’s ambitions are to improve the built environment — which is something that architecture schools do teach you — why should the delivery vehicle matter? Shouldn’t we be encouraging people to optimize for maximum benefit?
I completed my undergraduate degree in architecture. But very early on I had the feeling that I was only getting one piece of a larger picture. And so I went to the University of Pennsylvania for graduate school and completed a degree that combined both architecture and real estate. My goal was to figure out a way to combine both passions. Maybe I’d become the next Jonathan Segal.
Penn was very open to cross-disciplinary studies at the time (this was the mid-2000s), but there was still a gaping divide between the school of design and the business school. Walking across campus meant taking off one hat and putting on another. There wasn’t a lot of overlap.
After school, I returned to Toronto and started working in development. I then decided to pursue my MBA part-time, which really wasn’t necessary for my career, but was probably driven by some sort of insecurity I felt at Penn. I was the outsider design student (with funny glasses I might add) trying to keep up with Wharton MBAs.
I went back to the University of Toronto for my MBA and thoroughly enjoyed it. But I still couldn’t understand why there was such little overlap between the design school and the business school when it came to matters of the built environment. The real estate courses at Rotman were also extremely limited at the time.
So I started talking to faculty members: What would it took to create a joint real estate program that lived somewhere between the design school and the business school? I offered to help and I tried to press upon everyone that this was a gaping void and a huge opportunity. Canada was falling behind in terms of real estate education. It was time to step up.
The answer I got was generally always twofold: (1) Rotman’s real estate courses were already good enough and (2) it’s pretty hard to start a new program at the University. You have to do a bunch of things, one of which includes finding money. So, sorry.
Harvard’s new Master in Real Estate degree is the kind of program I had in mind. So I’m happy to see others taking action. And I ultimately think it will be a good thing for our cities.
If you’re building a purpose-built rental building, you spend nearly all of your money up front and then you start earning revenue (i.e. collecting rent). On the other hand, if you’re building a condominium building in a market that generally relies on pre-sales for construction financing, which is the case here in Toronto, you spend a bit of your money up front, lock in (but not collect) most, if not all, of your project revenue, and then you spend the majority of your money.
(This is obviously a simplification and when I say “spend all of your money” I’m speaking on an unlevered gross basis and not based on equity in. But this nuance doesn’t change the point of this post.)
I have written about the above difference before on the blog, but I think it’s particularly relevant in today’s cost environment. Looking at the construction cost chart that I posted a few days ago, it is clear that a lot of us, myself included, have never had to work and build in an environment like this.
In the past 30 some years, we have never had to deal with construction costs rising as quickly as they are right now. Though I recognize that things did also suck in the early 80s when we had high inflation and double-digit interest rates, and in the early 90s when the real estate sector was particularly hard hit.
In any event, what does this current environment mean for development projects? Well for one, and this is a big one, it means that spending a bit of your money up front and then locking in most of your revenue (i.e. pre-selling condominiums), can present a lot of risks if you don’t have a good handle on how much it’s going to cost you to finish the project. And the reality is that nobody has a crystal ball, especially in this kind of environment.
So in my humble opinion, I think you need to spend a bit more of your money up front. I think it makes sense to spend the time and money on solid working drawings and on running a tight construction procurement process — all before you begin selling.
It used to be the case that many developers would start selling before they even had their zoning in place. That is far less common today (from what I can tell) for reasons like what I’m describing here. Of course, this means it’s going to take you longer to get to market. And time equals more money. But it feels like a necessary move in this environment.
Today, Slate Asset Management announced its latest condominium project: Corktown. Named after its neighborhood, Corktown is located in downtown Hamilton just south of the GO Centre station.
Since then, the design has evolved to include a tower on the southeast corner of the block (pictured above) and a mid-rise building along John Street South. This site is also now fully zoned.
So it’s go time. Phase one, called Corktown East, will launch this summer and condo pre-registration is live as of today. To register, head over here.
Slate Asset Management, RAD Marketing, and the top producing brokers for One Delisle were fortunate enough to be able to tour a Studio Gang-designed project in Amsterdam today called the Q Residences. A huge thanks to the developers — Kroonenberg Groep and Neoo — for their time and hospitality this afternoon.
Here are two photos of the exterior:
The building, which is a mixed-income rental apartment, is still under construction, and occupancy is expected sometime this fall. The structure is poured-in-place concrete, but the balconies were all pre-fabricated and installed on site. You can tell this by looking near the top of the above photo.
Here are a few other interesting takeaways from the tour:
– 40% of the complex is social housing (which is housed in an entirely separate but similarly impressive building); this is a mandatory requirement
– The land is owned by the city and is being leased to the developers; the lease rate was discounted to account for the social housing requirement
– The entire building uses in-floor heating and cooling, so there are no ducts or bulkheads in any of the suites (slabs are all about 300mm to accommodate this)
– The balconies all have a rainwater collection system, which is mounted and concealed on the exterior of the building (it rarely goes below freezing here I am told)
– The parking ratio for cars is very roughly about 0.5 per unit and the bicycle parking ratio is very roughly 3 per unit (remember this is the bicycle capital of the world)
– Structural system is mostly shear walls; they also have some post-tensioning in the slabs
– Less reliance on metal wall studs; instead they use a more expensive block-like system that offers more rigidity and better sound attenuation (I will look for the exact specification)
– There is also this odd/interesting requirement that all of the suites have an operable window that can provide both natural ventilation and sound attenuation; in other words, it needs to let air in and block sound at the same time
Here’s what that looks like at Q Residences:
We don’t have a requirement like this in Toronto and so that’s why I used the word odd. We have ventilation and sound requirements, but they don’t need to be solved simultaneously in this same way.
Why I also think this is interesting is because I think it speaks to a greater reliance on natural ventilation over active mechanical systems. In Toronto, the underlying thinking is that if it’s too hot and noisy, it’s just a matter of shutting your windows and turning on the AC.
Of course, we obviously we have to manage around a very different climate, so I don’t mean this as a criticism of Toronto codes. It’s just an observation.
If you aren’t familiar with the Q Residences, or the work of Neoo and Kroonenberg, I would encourage you to search around online. The project is gorgeous and so is the rest of their work.
One of the things that is common in Europe is that building floors often start with zero for the ground floor and then go both up and down from there.
This is different than most of North America where the ground floor is usually floor number 1 (regardless of what it might be called) and then the floors go up from there.
Using the pictured example (above), the key difference is that, with the ground floor as zero, you end up with the above-grade floors being off by 1 and the top floor being 6 instead of 7.
There is a certain rationality to the European approach that I like, but I am curious how suites on ground floors get typically numbered. I will seek this out and report back.
At Junction House, our ground floor residences follow 101, 102, 103, etc. Following the exact same logic, the European equivalent would be 001, 002, 003, etc. This, admittedly, feels a bit odd.
Which floor convention do you find more intuitive?
Either way, I’m thinking about adopting the European approach for no other reason than that height is a sensitive topic in the world of development, so one less “headline” floor could be helpful. (Half-joking)
Deeply affordable housing is mostly infeasible to build.
This is why you don’t see the market naturally building this kind of housing on its own. It, for the most part, doesn’t make any economic sense to do so. So this is also why the US has fabricated things like low-income housing tax credits. They are a way to make up the economic shortfall that exists with low-income rental housing and get the private sector building this kind of housing.
We sometimes try to convince ourselves — or maybe it is a way of shirking responsibility — that there can be such a thing as no-cost affordable housing through things like inclusionary zoning. But I think we all know that there’s no such thing as a free lunch. Somebody is ultimately going to need to pay. The big question, of course, is who should that be?
By definition, we acknowledge that the people who will ultimately live in these affordable homes cannot afford to pay market rates. So by default, the subsidies will need come from somewhere else. But again, from where and from who? Should it be specific people who pay or should it be mostly everyone who pays?
If we return to the Toronto building industry’s favorite topic right now — development charges — you’ll see that under the current rates, every new 2 bedroom or larger apartment that is constructed must pay $3,727 toward affordable housing. Under the proposed rates, this will increase to $12,545 for every new large apartment. It’s by far the largest proposed percentage increase (237%) and also one of the largest service items.
This raises two interesting philosophical questions.
One, should the buyers of new housing be responsible for contributing to affordable housing in this way? Because what we are in effect saying to these people is, “Hey, you can afford to buy a new market rate home, so we’re going to collect some additional money from you — $12,545 to be exact — so that we can try and help those that aren’t in the same position as you. We’re also going to mandate additional affordable homes within your building and we’d like you to subsidize those too.” This is one way to redistribute wealth.
But if the goal is to try and create more broad-based affordability, an alternative approach might be, “Hey, you already own a home and it has gone up a lot in value, so we’re going to collect some additional money from you over time so that we can try and help those that aren’t in the same position as you.” This would be the property tax approach. It’s probably not perfect, but might it be a more fair and equitable way to redistribute wealth?
The second interesting philosophical question has to do with whether this is consistent with the dogma that growth should pay for growth. The idea behind development charges (also known as impact fees in some parts of the world) is that they should pay for the cost of new development. This makes complete sense. When you build new housing you certainly need some additional stuff — everything from additional school capacity to emergency services.
But the question here is whether the construction of new housing in and of itself creates a direct need for more affordable housing, and therefore should be charged for it. Asked in the opposite way, if you weren’t building this new housing, would you then no longer need this affordable housing, just like you no longer need that additional school capacity?
This is definitely not the case. In fact, I would argue that the opposite is true. If you don’t build any new housing in a growing city, you actually exacerbate the problem of affordability. So here’s a provocative thought. Rather than a charge, should this affordable housing line item actually be a credit towards each new project given that it benefits affordability?
While it may not make any economic sense to build affordable housing, I think that many of us would agree that it makes a lot of social sense to build affordable housing. We know that our cities are at their best when they are both diverse and inclusive. The problem is that we can’t agree on who should pay for it.
