The "drive until you qualify" approach to finding housing that you can afford is a well established practice. Anecdotally, I can tell you that I have friends who are right now looking for a grade-related home under the C$1 million mark. This constraint, as most of you know, is pushing them to the outer reaches of Toronto's suburbs. But if it were up to them, it would be their preference to stay in the city. According to the "two millennials" behind
The "drive until you qualify" approach to finding housing that you can afford is a well established practice. Anecdotally, I can tell you that I have friends who are right now looking for a grade-related home under the C$1 million mark. This constraint, as most of you know, is pushing them to the outer reaches of Toronto's suburbs. But if it were up to them, it would be their preference to stay in the city. According to the "two millennials" behind
There's a lot to be said about this. For one, home prices across many/most markets are way up. Earlier this week on the blog it was mentioned that the average price of a US home is up about 19% year-over-year. This is likely unsustainable. We are coming off of a period of easy money policies and at some point things will normalize along with the broader economy. Looking at the equity and crypto markets, it may be happening right now, but I don't really know. (Fred Wilson wrote a post last year calling this "one of the great asset bubbles of modern times.")
We know that the centralizing forces inherent to most cities have been weakened during this pandemic. For periods of time, they were completely off. So it is no surprise that we have seen greater decentralization (sprawl) than what might have ordinarily happened. I was in a (zoom) meeting this past week with somebody who has spent the last two years traveling around South America while working remotely. It sounded like a lot of fun and I was admittedly a little bit envious of her adventures. But as I argued at the beginning of this year, I think most people are going back to offices and this centralizing force will have an impact on real estate.
Because "driving until you qualify" is a function of an affordability constraint, it tells you certain things about consumer preference, but not all things. What I mean by this is that it tells you that somebody is willing to trade the cost of a commute for more space and/or the housing type of their choice. This has been an easier trade during COVID because the cost of commuting has been relatively -- albeit temporarily -- low for many people. So less of a discount for distance. But what I think this doesn't tell you is what true consumer preference would be if all things were more equal and we increased housing supply and options in other areas of our cities.
At the same time, there's a very real question of whether the measuring stick in the above chart should be a grade-related detached house? Is this a reasonable expectation in the same way it was for prior generations? I am not a fan of dictating what people should and shouldn't do. But maybe 100km away from the core becomes untenable. And again, maybe if we increased both supply and options, we would find new housing preferences revealing themselves. I am specifically thinking of those who would prefer to stay in the city, but can't find something they think is suitable.
At the end of the day, we can't ignore the fact that we are profoundly hypocritical when it comes to the delivery of new housing. We acknowledge that we're in a housing crisis and we acknowledge that we need more affordable housing (both for sale and for rent), and yet we continue to make it systematically more difficult and more expensive to deliver it. The development charges, parkland fees, and many other costs that continue to increase and get applied to new housing are a real worry to those in the industry.
It is a worry because we're all wondering how much price elasticity is left in the market. That is, how much more can consumers afford before they stop buying and renting? It is a worry because it means that new rental housing, which has always been a challenge to pencil in our market, is now completely infeasible in many more submarkets. Our solution to all of this is to mandate a certain number of affordable units in new developments. But this is yet another tax on new housing.
To be fair, the delivery of new housing is subject to countless competing interests. This is arguably why it is such a tricky problem to solve and why there are no easy answers. But that's what we do around here. We explore new ideas. And maybe, just maybe, there are other options besides just driving until you qualify. Next up (or soon up): A look at the competing interests behind new housing.
This recent article by Brookings is a good reminder of the all too important link between land use policies/patterns and GHG emissions. Because electric vehicles are cool and all, but they're still not as efficient as just walking around and/or taking transit.
As has been argued before on this blog, we need to not only electrify our transport network, but we also need to change how we get around. And probably the best way to encourage a modal shift, is to plan and build our cities differently. Something that is simple, but not easy.
It also turns out that people who live in multi-family buildings tend to consume less energy (on a per capita basis) than those in single-family houses. So there are numerous benefits to encouraging denser housing on top of transit and within mixed-used communities.
With all of this in mind, here are some interesting charts from the above Brookings article.
Nice places to live — however you want to define that — tend to be expensive places to live. There are all sorts of reasons why this might be the case. Perhaps it’s on a body of water, next to a park, or it has some other redeeming qualities.
Daniel Herriges of Strong Towns makes a cogent argument, here, that when it comes to nice and desirable places it usually comes down to one thing: scarcity. Demand > supply. But on top of this, he argues that in most cases, the supply constraint is artificial.
Here’s an excerpt:
In fact, our shortage of nice places is almost totally self-imposed. And it's precisely because 98% of the North American built environment is so blah that the 2% of places that are really well-designed environments quickly get bid up by the rich and become inaccessible to the rest of us. The solution to this isn't to stop creating such places, but to create vastly more of them.
He goes on:
The same story applies to the countless row house neighborhoods of the Northeast, Chicago, and San Francisco. In city after city, the mass-market, working-class housing of its time has acquired a distinctly bourgeois reputation today. In all cases, the reason lies in economics, not design. What's abundant becomes culturally coded as middlebrow; what's scarce becomes culturally coded as elite.
We have talked before on the blog about how tastes change over time and how housing that was previously undesirable can sometimes/oftentimes become desirable given enough time.
My sense is that there are a number of factors at play here and it’s perhaps a bit difficult to decode where new “cultural coding” truly starts. But I very much appreciate Daniel’s scarcity argument. Scarcity drives so much in markets (just look at the NFT art market right now and the fixation on rarity tables).
But let me be the devil’s advocate. If we were to be successful at building no blah and all nice stuff, wouldn’t the rich just seek out a new 2% rarity? And if so, would the 98% still seem just as nice?
Either way, more nice places to live should always be the ambition.
There's a lot to be said about this. For one, home prices across many/most markets are way up. Earlier this week on the blog it was mentioned that the average price of a US home is up about 19% year-over-year. This is likely unsustainable. We are coming off of a period of easy money policies and at some point things will normalize along with the broader economy. Looking at the equity and crypto markets, it may be happening right now, but I don't really know. (Fred Wilson wrote a post last year calling this "one of the great asset bubbles of modern times.")
We know that the centralizing forces inherent to most cities have been weakened during this pandemic. For periods of time, they were completely off. So it is no surprise that we have seen greater decentralization (sprawl) than what might have ordinarily happened. I was in a (zoom) meeting this past week with somebody who has spent the last two years traveling around South America while working remotely. It sounded like a lot of fun and I was admittedly a little bit envious of her adventures. But as I argued at the beginning of this year, I think most people are going back to offices and this centralizing force will have an impact on real estate.
Because "driving until you qualify" is a function of an affordability constraint, it tells you certain things about consumer preference, but not all things. What I mean by this is that it tells you that somebody is willing to trade the cost of a commute for more space and/or the housing type of their choice. This has been an easier trade during COVID because the cost of commuting has been relatively -- albeit temporarily -- low for many people. So less of a discount for distance. But what I think this doesn't tell you is what true consumer preference would be if all things were more equal and we increased housing supply and options in other areas of our cities.
At the same time, there's a very real question of whether the measuring stick in the above chart should be a grade-related detached house? Is this a reasonable expectation in the same way it was for prior generations? I am not a fan of dictating what people should and shouldn't do. But maybe 100km away from the core becomes untenable. And again, maybe if we increased both supply and options, we would find new housing preferences revealing themselves. I am specifically thinking of those who would prefer to stay in the city, but can't find something they think is suitable.
At the end of the day, we can't ignore the fact that we are profoundly hypocritical when it comes to the delivery of new housing. We acknowledge that we're in a housing crisis and we acknowledge that we need more affordable housing (both for sale and for rent), and yet we continue to make it systematically more difficult and more expensive to deliver it. The development charges, parkland fees, and many other costs that continue to increase and get applied to new housing are a real worry to those in the industry.
It is a worry because we're all wondering how much price elasticity is left in the market. That is, how much more can consumers afford before they stop buying and renting? It is a worry because it means that new rental housing, which has always been a challenge to pencil in our market, is now completely infeasible in many more submarkets. Our solution to all of this is to mandate a certain number of affordable units in new developments. But this is yet another tax on new housing.
To be fair, the delivery of new housing is subject to countless competing interests. This is arguably why it is such a tricky problem to solve and why there are no easy answers. But that's what we do around here. We explore new ideas. And maybe, just maybe, there are other options besides just driving until you qualify. Next up (or soon up): A look at the competing interests behind new housing.
This recent article by Brookings is a good reminder of the all too important link between land use policies/patterns and GHG emissions. Because electric vehicles are cool and all, but they're still not as efficient as just walking around and/or taking transit.
As has been argued before on this blog, we need to not only electrify our transport network, but we also need to change how we get around. And probably the best way to encourage a modal shift, is to plan and build our cities differently. Something that is simple, but not easy.
It also turns out that people who live in multi-family buildings tend to consume less energy (on a per capita basis) than those in single-family houses. So there are numerous benefits to encouraging denser housing on top of transit and within mixed-used communities.
With all of this in mind, here are some interesting charts from the above Brookings article.
Nice places to live — however you want to define that — tend to be expensive places to live. There are all sorts of reasons why this might be the case. Perhaps it’s on a body of water, next to a park, or it has some other redeeming qualities.
Daniel Herriges of Strong Towns makes a cogent argument, here, that when it comes to nice and desirable places it usually comes down to one thing: scarcity. Demand > supply. But on top of this, he argues that in most cases, the supply constraint is artificial.
Here’s an excerpt:
In fact, our shortage of nice places is almost totally self-imposed. And it's precisely because 98% of the North American built environment is so blah that the 2% of places that are really well-designed environments quickly get bid up by the rich and become inaccessible to the rest of us. The solution to this isn't to stop creating such places, but to create vastly more of them.
He goes on:
The same story applies to the countless row house neighborhoods of the Northeast, Chicago, and San Francisco. In city after city, the mass-market, working-class housing of its time has acquired a distinctly bourgeois reputation today. In all cases, the reason lies in economics, not design. What's abundant becomes culturally coded as middlebrow; what's scarce becomes culturally coded as elite.
We have talked before on the blog about how tastes change over time and how housing that was previously undesirable can sometimes/oftentimes become desirable given enough time.
My sense is that there are a number of factors at play here and it’s perhaps a bit difficult to decode where new “cultural coding” truly starts. But I very much appreciate Daniel’s scarcity argument. Scarcity drives so much in markets (just look at the NFT art market right now and the fixation on rarity tables).
But let me be the devil’s advocate. If we were to be successful at building no blah and all nice stuff, wouldn’t the rich just seek out a new 2% rarity? And if so, would the 98% still seem just as nice?
Either way, more nice places to live should always be the ambition.
This first one shows new housing permits in the metro areas of Atlanta, Chicago, and Washington DC, according to their urban, suburban, or exurban status. Here, Chicago is an outlier, with the "urban core" (defined as Cook County) now making up about half of all new housing.
If you look at the entire study period, the number is less. The urban core accounted for about one-third of new housing permits in Chicago, and only 15% of permits in Atlanta and DC. But in all cases, housing permits in the urban core have been increasing since the 2008 financial crisis.
But here's the other thing. Looking at these next two charts, there appears to be a clear trendline toward more urban housing typologies. The first of these next two is showing single-family housing permits as a percentage of all new housing. And the second is structure type over time.
Atlanta is still building mostly single-family housing, but less of it. And based on these charts, Chicago has already passed its inflection point. DC is not far off. Every city region is of course going to be different, but it does look like there is some kind of broader housing shift underway.
This first one shows new housing permits in the metro areas of Atlanta, Chicago, and Washington DC, according to their urban, suburban, or exurban status. Here, Chicago is an outlier, with the "urban core" (defined as Cook County) now making up about half of all new housing.
If you look at the entire study period, the number is less. The urban core accounted for about one-third of new housing permits in Chicago, and only 15% of permits in Atlanta and DC. But in all cases, housing permits in the urban core have been increasing since the 2008 financial crisis.
But here's the other thing. Looking at these next two charts, there appears to be a clear trendline toward more urban housing typologies. The first of these next two is showing single-family housing permits as a percentage of all new housing. And the second is structure type over time.
Atlanta is still building mostly single-family housing, but less of it. And based on these charts, Chicago has already passed its inflection point. DC is not far off. Every city region is of course going to be different, but it does look like there is some kind of broader housing shift underway.
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