Brandon Donnelly

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.

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Category: Economics

  • Hong Kong vs. Singapore

    There’s now evidence to suggest that the political crisis in Hong Kong may be having an impact on capital flows. Bloomberg, as well as others, reported today that wealth managers in Asia have been receiving a heightened number of requests to transfer assets out of the country — to places like Singapore — and to setup new overseas bank accounts so that they can be ready to transfer, should the situation gets worse.

    In fact, the Monetary Authority of Singapore (MAS) even asked the country’s financial institutions not to prey on the wealthy in Hong Kong during this period of uncertainty. They want to avoid the perception that Singapore is trying to capitalize on the situation. Of course, it remains to be seen how much all of this is here-say and how much of it will actually translate into a meaningful transfer of wealth.

    Hong Kong has a significantly larger private wealth base, with about 853 individuals worth more than $100 million. This is more than double the number in Singapore (figure from Credit Suisse). But the current demonstrations have people questioning what will happen to Hong Kong in 2047 when the constitutional article committing Hong Kong to a capitalist way of life is set to expire.

    The flows of capital can be fickle.

    Photo by Florian Wehde on Unsplash

  • New York state law restricts condo conversions

    The State of New York just enacted a new law (on June 14, 2019) requiring that 51% of existing tenants agree to buy their apartments before a building can be converted into a condominium or a cooperative. There was previously no requirement for anyone to buy in order for a conversion to take place. Tenants who chose not to buy, could simply remain in the building as a renter.

    Supposedly, the real estate industry believes this new requirement will be a largely impossible threshold to meet, meaning that condo/co-op conversions could now be dead in NYC. There’s also an argument that conversions have historically helped many middle class New Yorkers buy a home since they sometimes (usually?) had the chance to buy their apartment below market at the time of a conversion.

    I’m not familiar enough with this space to be able to opine on the merits of these arguments, so I won’t. Perhaps some of you will in the comment section below. Instead, I will leave you all with a chart showing the median condo sale price in Manhattan over the last ~30 years (taken from the same WSJ article). I like seeing long(er) term charts. Maybe you do too.

  • The Japanese are renting cars but not driving them

    Lately it has been in the news that a growing number of people in Tokyo are using car-sharing services for reasons other than to drive places. It started when companies began noticing that “several percent of their rented vehicles” were not being driven at all. What they ended up discovering, largely through customer surveys, is that car-sharing services have become an affordable option for people looking to nap, work, eat, store things, charge their phone, practice rapping, and probably a bunch of other things.

    This immediately struck me as being quintessentially Japanese, partially because one of my experiences of Tokyo is that Tokyoites are often cool to sleep all throughout the city, including at the bar and on my shoulder on the metro. But I also think this finding tells you something about Tokyo’s urban fabric and, in particular, how much of a precious commodity that space is within the capital. This guy once rented a car because he couldn’t find a place to sit down and eat his boxed lunch.

    This may also be a case of mispriced private space. Cities should, of course, have well-designed public spaces that accommodate people wanting to eat their boxed lunches. But for those looking for a little quiet time, a few hundred yen for 30 minutes has proven to be a competitive, and in some cases a more affordable, offering compared to, say, internet cafes. From the sounds of it, none of the car share companies ever anticipated this use case. Pricing is interesting.

    Photo by Louie Martinez on Unsplash

  • The world’s top oil producers

    Using data from MarineTraffic (which is definitely worth a click through), the New York Times has created this terrific animation showing the flow of oil tankers from the Persian Gulf to the rest of the world from May 15 to June 15, 2019.

    Here’s a screenshot:

    About 20% of the world’s supply of oil flows through the Strait of Hormuz, a tiny passage located between Iran (north) and the UAE (south). See above.

    The article also has a number of other charts that speak to changing supply and demand patterns. Note the US, China, and Iran.

    Here are the top oil producers (total petroleum liquids) and the top crude oil exporters in 2018 (both are measured in millions of barrels a day):

    And here are the top oil consumers ranked by 2016 data (total consumption of petroleum and other liquids):

    Images/Charts: New York Times

  • Amtrak lines with the biggest operating losses

    I was reading this morning about Richard Anderson’s efforts to stem Amtrak’s operating losses, and the controversies surrounding those moves. Richard Anderson became President and CEO of Amtrak in 2017. Before that he was the CEO of Delta Air Lines.

    One of the things that Anderson is trying to do to improve profitability is shrink or eliminate some of the company’s long-distance train routes and instead focus on the more frequent (and profitable) short haul routes. Here is a map from the WSJ that I thought was really interesting:

    The only profitable corridor in the network (black line above) is the one running from Boston down to Washington D.C. The long-distance routes running west from Chicago (1, 2 and 3 above) are the lines with the biggest operating losses (thick red lines above).

    All of this makes sense. The northeast corridor works because it has the population density and because the trips are short enough that rail is an appropriate substitute for air travel. The northeast is one giant megalopolis.

    The controversy is that, despite being unprofitable, there’s a segment of the market that still uses and likes many of these long-distance passenger routes. So politically, it’s a challenge to eliminate them. But there are also pressures from Congress to have Amtrak cover its operating costs.

    We should also not forget that Amtrak was formed in 1971 precisely because all of the private companies that had been previously operating these lines were bleeding money. Highways and airlines had taken the passengers. And so this was a way of preserving passenger rail in the US.

    I am curious what all of you think about this. To what extent should these unprofitable lines be propped up by the government? Let me know in the comment section below.

  • How Cubans transformed Miami into a global city

    I have a large, and growing, stack of books sitting beside my bed. It is a symptom of my interest in reading exceeding my actual capacity to read, given all the other things I’m doing. However, summer is a good time to get caught up and over the long weekend I did finish reading, The Global Edge: Miami in the Twenty-First Century. It was great, and so now I can confidently recommend it to all of you.

    The most interesting storyline for me was the leading role that “pre-Mariel” Cubans (more on this below) played in transforming Miami from a winter destination to an emerging global city. According to 2015 figures, the City of Miami’s population is 70% Hispanic, of which 34% are Cuban. About 70% of the city’s population speaks Spanish at home. And only about 11.9% of the population is white (non-Hispanic).

    But the bit that really intrigued me was the distinction that Alejandro Portes and Aerial C. Armony make between the “pre-Mariel” Cubans who arrived in the 1960s and 1970s — many of whom became successful entrepreneurs — and the “Marielitos” who arrived in the 1980s onward. This latter group has, on average, not seen the same kind of financial successes as its predecessors.

    The other thing that I think many of you will appreciate is that the authors recognize that all urban phenomena are inherently spatial. And so almost everything they discuss is described in terms of its physical manifestation within the city. Perhaps the most stark is the region’s growing inequality. Wealth along the water; poverty inland.

    Here’s some more information on the book if you’re interested.

    Photo by Alejandro Luengo on Unsplash

  • Bill Gates on tech and climate change

    Bill Gates recently spoke with David Rubenstein at the Economic Club of Washington, D.C. Full video, here.

    The bit that got a lot of attention is his admission that Microsoft should have dominated in mobile (in lieu of Android). The core competencies were all there and the company was in investing in mobile at the time.

    The technology discussions in general are interesting, but I also really enjoyed hearing about his efforts to address climate change. He spends a good chunk of time talking about that. Strongly recommend. (Related link: Breakthrough Energy.)

    On a somewhat unrelated note, this is also the first time I’ve seen every question and answer neatly transcribed below a video. This makes it very easy to find the parts that may be of interest. All video discussions should have this.

  • More than 1 in 4 Americans now live alone

    The percentage of single-person households in the US has been steadily increasing since the 1960’s (though the rate of increase has moderated in recent decades). As of last year (2018), 28% of Americans lived alone, according to the US Census Bureau. So about 1 in 4 households. This is in comparison to 13.1% of households in 1960.

    Here is a chart from a recent WSJ article on the topic:

    Not surprisingly, this is changing how marketers target households. Affluent, single-person households in urban areas have proven to be a boon to product makers because they tend to spend more per person and they tend to value time > money. Of course, this phenomenon also has implications for those of us who work as city builders.

    For more historical household tables from the US Census Bureau, click here.

  • Some tweets about construction costs

    Today was the 2019 Land & Development Conference here in Toronto. I was on a panel in the morning about Proptech. I then sat in on a discussion about construction costs. But after that I had to get back to the office to prepare for a couple of meetings.

    Here are my tweet takeaways (from the back of the room) during the construction cost session. You may need to click through to see the full thread.

    The construction cost escalations that we have seen over the last 2-3 years have had a significant impact on new construction in this region. Niall Finnegan’s view is that we are 85% of the way through this “storm.”

    From his experience, it takes 18 months or so for hard costs to respond to changes in demand. And so the storm we are currently in is a result of elevated condo sales from 2017-2018.

    The general consensus from the panel was that costs should start to moderate sometime soon, though maybe not this year. Nobody really knows when that will happen. But if/when hard costs do adjust, it typically happens quickly.

    One comment that didn’t make it into my tweets, but that I found interesting, was about how uncertainty and volatility in the market — like what we are seeing today with construction costs — could actually stifle innovation.

    Because it creates additional project risks, it limits people’s appetite for other kinds of risks — like trying new things. I can see that.

  • The taxi medallion bubble

    In 1937, New York created taxi medallions as a way of dealing with the sheer volume of unlicensed cabs in the city. About 12,000 were initially sold. They cost $10. And you needed one, fastened to your car, in order to operate a taxi service.

    In 2002, the price of a medallion had risen to about $200,000, though its value had been fairly stable since about 1995. Below is a graph from a recent NY Times investigation on taxi medallions. At their peak, in and around 2014, they were worth over $1 million.

    The common narrative is that ride sharing services simply killed the value of medallions. They disrupted the taxi business. While it is certainly true that mobile apps have forever changed the way we navigate our cities, the above investigation by the NY Times has revealed something potentially more impactful:

    The medallion bubble burst in late 2014. Uber and Lyft may have hastened the crisis, but virtually all of the hundreds of industry veterans interviewed for this article, including many lenders, said inflated prices and risky lending practices would have caused a collapse even if ride-hailing had never been invented.

    At the market’s height, medallion buyers were typically earning about $5,000 a month and paying about $4,500 to their loans, according to an analysis by The Times of city data and loan documents. Many owners could make their payments only by refinancing when medallion values increased, which was unsustainable, some loan officers said.

    So at the same time that Uber was being vilified in the media for destroying the taxi business, the industry itself was working to manipulate medallion prices and shill unaffordable debt onto new immigrants. An interesting read from the NY Times.