Category: Economics

• A catalyst for Westside development — but not yet

  A new 280 acre park is currently under construction in an old quarry on the westside of Atlanta. It’s called Westside Park. When it opens this spring (that’s at least the target), it will be by far the largest park in the city. But already there are concerns that this investment in new public space could be triggering “rapid gentrification” in the surrounding area.

  So earlier this month, the mayor’s office issued an executive order that put in place a 6-month moratorium on all new construction permits in the communities surrounding the park. The order read like this: “…refuse to accept new applications for rezonings, building permits for new construction, land disturbance permits, special use permits, special administrative permits, subdivisions, replattings, and lot consolidations for non-public projects.”

  The objective is to avoid displacement. And since new development means change, this is a way to stop change. (Don’t you just hate when things go and change?) The problem, of course, is that a moratorium on new housing doesn’t stop change and it does nothing to address the desire to live next to this new amenity. It only stymies the supply of new housing to meet this demand. (It’s also incongruent with the park investment being marketed as a “catalyst for new development.”)

  In fact, Joe Cortright (of City Observatory) and Jenny Schuetz (of the Brookings Institution) have both argued — either directly or indirectly — that the above move could actually increase displacement in the surrounding area; because the moratorium on new housing could simply redirect demand toward the existing housing stock. The order does seem to suggest that you can still renovate an existing property.

  I wonder if any studies have been done on the externalities associated with temporary housing supply moratoriums. If so, I would be interested in reading them.

  2020.02.28

• Thoughts on the coronavirus

  This is an excellent article by James Hamblin about the coronavirus. He believes, along with many epidemiologists, that the disease (COVID-19) is unlikely to be contained, and may become endemic:

  The Harvard epidemiology professor Marc Lipsitch is exacting in his diction, even for an epidemiologist. Twice in our conversation he started to say something, then paused and said, “Actually, let me start again.” So it’s striking when one of the points he wanted to get exactly right was this: “I think the likely outcome is that it will ultimately not be containable.”

  But here’s the irony. It is unlikely to be containable because, comparatively speaking, the disease isn’t as fatal as other coronaviruses. In James’ words: The virus is deadly, but not too deadly.

  As of right now, the fatality rate is believed to be less than 2%. SARS and MERS, on the other hand, were highly fatal to humans. H5N1 (avian flu), which emerged in the 90s, had/has a fatality rate of about 60%.

  One of the problems with COVID-19 is that, for many people, the symptoms are mild or even non-existent. And that is precisely why it has been so difficult to pin down. If it affected everyone equally and as severely, then it would be far more containable.

  But I am the furthest thing from an epidemiologist, so you should probably just go and read James’ article over in The Atlantic.

  John Hopkins University also has this live map showing total confirmed, total deaths, and total recovered. At the time of this post, the fatality rate looks to be about 3.4%. But if you believe that many people are asymptomatic, the denominator is probably understated.

  Naturally, we are all taking precautions, doing what we can to make our communities safe, and trying to quash this virus. And that is what we should be doing. At the same time, I found James’ article helpful at putting things into perspective.

  2020.02.27

• The future of central London

  The Centre for London has just published an interesting report called, Core Values: The Future of Central London. Like most city centers, Central London (or the Central Activities Zone as the report calls it) punches well above its geographic weight.

  Central London occupies about 0.01% of the UK’s total landmass, but is responsible for about 10% of its economic output. It represents about 2% of London’s total footprint, but is responsible for about 40% of total employment and about 45% of economic output.

  Here’s another interesting stat:

  

  From 1961 to 1983, the residential population of CAZ boroughs in London fell from about 2.5 to 1.7 million. And things really didn’t begin to turnaround until the late 1980s. It took until 2018 for the population to return to 2.5 million. Makes me wonder: How concerned do you think people were in the late 1970s about housing affordability in Central London?

  To read the full report, click here.

  Chart: Centre for London

  2020.02.26

• Economies of agglomeration in London

  The media tends to describe agglomeration economies — one of the benefits of big urban areas — as being entirely serendipitous. Minimize travel. Maximize chance encounters at the local coffee shop. And then all of a sudden patents will go up and new startups will emerge. That does that happen, I’m sure, but there’s a bit more structure to a lot of these encounters. Economies of agglomeration is not just about serendipity. It is about the benefits of and the decision to concentrate economic activity.

  

  Last week, a think tank in the North of England (IPPR North) published a report outlining, among other things, job creation and productivity across England. Based on these metrics, London and the South East dominate, with “productivity” in London being by far the highest. Almost half of England’s new jobs over the last decade were in these two regions. Above is a chart from the Financial Times. The trade-off is wealth and income inequality. And the report does look to how the government could address this centralization of power and wealth.

  Like Singapore’s low fertility rate, this is an instance of leaning into the wind.

  2020.02.23

• Have three, or more if you can afford it

  At the beginning of this year, Singapore expanded its preschool subsidies and improved its support for assisted reproduction and fertility treatments. The goal: more Singaporean children. According to the World Bank (via the Wall Street Journal), Singapore has one of the lowest fertility rates in the world at about 1.14 children per woman as of 2018. This is down from about 3 in 1970, when the government was actually worried about the opposite problem — too many children.

  

  Of course, this trend is not unique to Singapore. This is generally the way the winds are blowing in the developed world. Young people are spending more time on education, career, and travel. And they’re delaying marriage (or not getting married). On top of this, family-sized housing has become fairly expensive in most big cities. The fastest solution is to ramp up immigration, but many countries, including Singapore, have concerns about what this does to the “national identity.”

  So there seems to be a preference for throwing money at the problem and promotional material with slogans like this one: “Have three, or more if you can afford it.”

  Chart: WSJ

  2020.02.22

• This is not an art show

  Later this month a new exhibition will open at the Guggenheim Museum called Countryside, The Future. Produced by architect Rem Koolhaas and Samir Bantal (Director of AMO), the focus of the exhibition is on non-urban areas — or, the 98% of the earth’s surface not occupied by cities. The 21st century is being called an urban century. But the argument here is that “the countryside is now the site where the most radical, modern components of our civilisation are taking place.” If you’re going to be in New York, this one should be worth checking out. It’s on my list. Here is a teaser video that was just released by the Guggenheim:

  2020.02.11

• How old do you have to be to live downtown?

  The North American rule of thumb is that young people — specifically people in their 20s — are the most likely to to live in an urban neighborhood. After that it’s all down hill and, broadly speaking, the percentages decline. But at some point, much later in life, the data suggests that there is a reversal and people start to return to urban neighborhoods, albeit not to the same extent. Part of the explanation for this is that as people age they start to look to more walkable neighborhoods where they don’t need to get a car to get around.

  

  But in this recent NY Times article, Jed Kolko points out two interesting trends. One, the “urban boomer” appears to be on the decline in the US. In 1990, about 21.6% of Americans aged 54 to 72 lived in an urban neighborhood (categorized by density). As of 2018, this number had dropped to around 17.8%. And two, the age at which there is a reversal (and people start returning to denser neighborhoods) is also increasing. Perhaps because people are living longer.

  Jed’s conclusion: American boomers, today, are actually less urban than previous generations.

  Graph: New York Times

  2020.01.27

• The State of Mobile 2020

  Analytics firm, App Annie, has just published its annual The State of Mobile report. As you might expect, our phones continue to consume more of our time, attention, and money. Last year, there were over 204 billion app downloads across the world. Global mobile advertising hit $190 billion and, by the end of this year, it is forecasted to reach $240 billion. By 2023, the mobile industry is expected to contribute some $4.8 trillion to global GDP.

  

  Compared to 2 years ago, the world is spending, on average, 35% more time on their phones. See above chart. Mobile-first countries such as Indonesia and Brazil spend even more time on mobile as they skipped over the PC era that was seen in more mature markets. But globally, all of us are doing more on our phones — everything from managing our investments to consuming media (TikTok had an explosive 2019).

  

  Financial app usage increased significantly last year. Above are the top “breakout finance apps” of the year. PC Financial (the financial services brand of Loblaw) saw the greatest year-over-year growth in downloads but, since it only launched last year, it was starting from a base of 0. Fintech apps, which grew even faster than traditional banking apps, demonstrate that the big banks probably need to step up their mobile game.

  Young people do, of course, spend more time on mobile. Generation Z (those born between 1997 to 2012) had 60% more sessions per user in top apps than older demographics. But as of the end of last year, Generation Z is believed to have surpassed Millennials as the largest generational cohort in the world at about 32% of the population. So this wave is going to continue to come.

  If you’d like to download a fully copy of App Annie’s mobile report, click here. You’ll need to enter your email address. But there’s a lot of interesting data in the report. You can almost ignore that it’s specifically about mobile and think of it as an overview of where the world is heading.

  Charts: App Annie

  2020.01.20

• A fundamental reshaping of finance

  

  BlackRock CEO, Larry Fink, published his annual letter to CEOs this week and the title — which I am reusing here — should give you an indication of the tone. The focus is squarely on climate change. Larry argues that, sooner than perhaps most people think, climate change is going to cause a “significant reallocation of capital.”

  Below are a few excerpts from his letter. If you remember the first post that I published this year, you may remember that Larry is not alone in this prediction. Already 2020 is shaping up to be a year where more of us seem to be turning our attention to climate change. I would encourage you to read the full letter over here.

  Will cities, for example, be able to afford their infrastructure needs as climate risk reshapes the market for municipal bonds? What will happen to the 30-year mortgage – a key building block of finance – if lenders can’t estimate the impact of climate risk over such a long timeline, and if there is no viable market for flood or fire insurance in impacted areas? What happens to inflation, and in turn interest rates, if the cost of food climbs from drought and flooding? How can we model economic growth if emerging markets see their productivity decline due to extreme heat and other climate impacts?

  These questions are driving a profound reassessment of risk and asset values. And because capital markets pull future risk forward, we will see changes in capital allocation more quickly than we see changes to the climate itself. In the near future – and sooner than most anticipate – there will be a significant reallocation of capital.

  Over the 40 years of my career in finance, I have witnessed a number of financial crises and challenges – the inflation spikes of the 1970s and early 1980s, the Asian currency crisis in 1997, the dot-com bubble, and the global financial crisis. Even when these episodes lasted for many years, they were all, in the broad scheme of things, short-term in nature. Climate change is different. Even if only a fraction of the projected impacts is realized, this is a much more structural, long-term crisis. Companies, investors, and governments must prepare for a significant reallocation of capital.

  Photo by Chris Barbalis on Unsplash

  2020.01.17

• Toronto’s tech cluster(s)

  A recent study by the City of Toronto has looked at why tech firms cluster (agglomeration economies) and where they cluster in the city. Here are maps of what they found:

  

  

  Downtown captured almost half (49.2%) of all tech employment in the city with some 29,701 jobs. The South Employment Monitoring Area, which is the area outlined above in blue, captured 63.4% of the city’s tech base.

  I usually shy away from headlines touting some total number of tech jobs because I feel that it can become a bit of a vanity metric. What about the quality of those jobs? How much venture capital have the companies raised?

  But this report is different and it is interesting to see the extent in which tech has concentrated itself in the core of the city. As of 2019, jobs in tech establishments represented about 4% of all jobs in Toronto.

  To download a copy of the report, click here.

  2020.01.10