London street of early 20th century Edwardian terraced houses by Bombaert Patrick on 500px

Over the weekend The Economist published an interesting article called, Space and the city: Poor land use in the world’s greatest cities carries a huge cost. The argument is that land isn’t scarce. It’s the land use policies we have created that are artificially limiting supply and driving up real estate values.

In fact, land is not really scarce: the entire population of America could fit into Texas with more than an acre for each household to enjoy. What drives prices skyward is a collision between rampant demand and limited supply in the great metropolises like London, Mumbai and New York. In the past ten years real prices in Hong Kong have risen by 150%. Residential property in Mayfair, in central London, can go for as much as £55,000 ($82,000) per square metre. A square mile of Manhattan residential property costs $16.5 billion.

And part of the reason this has become so prevalent is because of the shifts we’ve seen in our economy and the great return back to cities.

In the 20th century, tumbling transport costs weakened the gravitational pull of the city; in the 21st, the digital revolution has restored it. Knowledge-intensive industries such as technology and finance thrive on the clustering of workers who share ideas and expertise. The economies and populations of metropolises like London, New York and San Francisco have rebounded as a result.

So how do we get better at meeting real estate demand in our cities? The Economist has two suggestions.

One:

First, they should ensure that city-planning decisions are made from the top down. When decisions are taken at local level, land-use rules tend to be stricter. Individual districts receive fewer of the benefits of a larger metropolitan population (jobs and taxes) than their costs (blocked views and congested streets). Moving housing-supply decisions to city level should mean that due weight is put on the benefits of growth. Any restrictions on building won by one district should be offset by increases elsewhere, so the city as a whole keeps to its development budget.

Two:

Second, governments should impose higher taxes on the value of land. In most rich countries, land-value taxes account for a small share of total revenues. Land taxes are efficient. They are difficult to dodge; you cannot stuff land into a bank-vault in Luxembourg. Whereas a high tax on property can discourage investment, a high tax on land creates an incentive to develop unused sites. Land-value taxes can also help cater for newcomers. New infrastructure raises the value of nearby land, automatically feeding through into revenues—which helps to pay for the improvements.

These recommendations will probably be unsettling for a number of people. 

I would imagine that many communities would prefer to have planning and growth decisions happen bottom up, as opposed to top down. But I think there’s some truth to this recommendation and I don’t think it has to mean completely excluding bottom up feedback. Communities and individuals are naturally going to look out for their own self-interests. And so I think many would agree that there’s value in having a holistic urban strategy in place.

Recommendation number two pertaining to land value taxes is a loaded one. So I’m going to save my specific comments for a dedicated post on LVTs. 

But I will say that I don’t think trying to squeeze landowners into development via taxes is the most efficient and immediate way to address supply shortages. In advance of this, we should be examining the current barriers to development. Because we’re talking about hyper competitive global cities with perpetual supply deficits. And I don’t believe the problem is incentive-based. The problem is finding sites. The problem is finding ways to build.

What do you all think? This is an interesting topic of discussion.

I’ve written quite a bit about the advantages of a “rail + property” model when it comes to building public transit. It’s a model that works quite successfully in other parts of the world, such as in Hong Kong.

However, in North America the notion of land value recapture or of transit authorities acting as real estate developers is still very much in its infancy. We’re myopically focused on rail. 

Which is why I said about 3 months ago that if the stations along the new Eglinton Crosstown LRT line in midtown Toronto became single storey and single purpose buildings, that we will have missed an enormous city building opportunity.

Since that post I had a number of conversations with the folks over at Metrolinx and I was delighted to learn that there were in fact plans to build additional density on top of the stations. And as of today they’ve gone completely public with that intention.

Metrolinx, with the help of Avison Young, has just issued a request for proposal (RFP) for 4 sites along Eglinton Avenue in the city. Two of them are at Keele Street, one of them is at Weston Road, and the last one is at Bathurst Street. The 4 sites could generate between $14M - $22M.

The objective is to find suitable developer partners to help them build on top of their planned LRT stations. And it’s a step in exactly the right direction for Metrolinx and this city.

Image Source: Google Streetview

morning fog by Familie Pinksterbos on 500px

Today’s Architect This City post is being brought to you live from the mid-base lodge at Revelstoke Mountain Resort on Mount Mackenzie in British Columbia. 

It’s currently foggy, rainy, and about 2 degrees celsius — which I’m told is fairly anomalous for this area. It’s unfortunate for my friends on the slopes, but it makes me feel somewhat better about hanging out all day to rest my back and shoulder.

The town of Revelstoke was founded in the 1880s when the Canadian Pacific Railway connected the area. And traditionally its economy has been closely connected to that rail. However, with amenities like the resort I’m currently sitting in, its economy now increasingly includes tourism.

One of the most interesting reminders for me on this trip through the Canadian Rockies is how instrumental rail was in unifying and then building this country. But in actuality, it wasn’t just rail. It was rail plus property.

Within the Canadian Pacific Railway was a division called Canadian Pacific Hotels, which built and operated both urban and rural hotels such as the Banff Springs Hotel and the Chateau Lake Louise (both of which I visited for the first time on this trip). And today, these railway hotels are absolutely some of Canada’s most inspiring landmarks.

The model at the time was simple. 

Sir William Cornelius Van Horne — who was president of CPR in 1888 — believed: “If we can’t export the scenery, we’ll import the tourists.” He knew that it was all about moving as many people as possible. And to do that he needed to create accommodations and destinations all along the rail. In other words, rail alone wasn’t going to cut it. It had to be rail plus property.

This of course is a model that still persists today. Many public transit authorities, such as the MTR in Hong Kong, have been hugely successful by adopting a rail plus property model.

However as the case study of the Canadian Pacific Railway demonstrates this is not a novel approach. It’s actually a tried a true model. Rail, and infrastructure in general, goes really nicely with property development. 

So why don’t all transit authorities adopt a rail plus property approach?