A few people sent me this excellent article by Noah Smith today. In it, he talks about the institutionalization of the real estate industry and some of the challenges with developing smaller-scaled projects. I mean, just look at how the industry has concentrated itself:

These imperatives privilege a concentration of the most well-capitalized firms who have done the most projects before. In 2022, nearly 25% of all multifamily units started in the country (more than 132,000) were commenced by just 25 developers. That’s a strikingly high percentage in a country of more than 60,000 developers. Similar trends exist for new single-family homes. According to the National Association of Home Builders, in 1989 the ten largest builders “captured 8.7% of closings.  By the year 2000, the share was 18.7%; and by 2018, 31.5%, reaching above 30% for the first time.”  In 2022, that number reached 43.2%.

These figures are fascinating but they are not surprising. Most developers have a minimum project size and, over time, it tends to grow. Market factors dictate this. The irony is that smaller projects are often great for cities. Think about how often urbanists like to criticize large-format retail vs. fine-grained retail.

If it doesn't already exist, someone should create a YouTube channel covering the smallest development projects from around the world. I would watch that.

We often talk about the challenges associated with smaller scale developments on this blog. They are difficult to underwrite, there are diseconomies of scale and, after a certain point, developers typically start to require a certain minimum size. In other words, if you have a big development machine with a lot of fixed costs, you probably don't want to build even 100-150 homes at a time. You want something like 250-300 homes as a starting point.

But there is something so great about small infill projects, which is another topic that we like to talk about on this blog. Take, for example, the above 10,940 square foot project at 6001-6009 Rue St-Hubert in Montréal. Designed by L. McComber, the project includes 2 commercial spaces and 8 homes (specifically, 2 studios and 4 multi-level "townhouses").

Using rough measurement approximations from Google Maps, the lot looks to be about 15m wide x 26m deep. So the lot itself is somewhere around 4,200 sf, which is effectively a double lot based on the prevailing frontages in the area. According to this rough math, I'm guessing the FSI (floor space index) of this development is somewhere around 2.5x.

It is certainly a beautiful project, but in my mind the two most noteworthy aspects of this development -- at least for this audience -- are the following:

1. The architect essentially acted as the developer. They wanted to build and then own their own office space, and so they now occupy the ground floor of this project. As a partial end-user of the development, this likely means that they underwrote it slightly differently compared to if they were a pure developer.

2. The project's circulation space is outside and is largely housed in a central open-air courtyard.

Here's what #2 looks like:

This second point about circulation is an important one because it's an effective way to reduce hard costs, improve overall efficiency (rentable/saleable divided by gross construction area), and lower long-term operating costs. Of course, exterior stairs/circulation are quite common across Montréal's walkups. So maybe this isn't all that novel for them.

But I still think it's a perfect reminder that we shouldn't use climate as an excuse. Montréal is both colder and snowier than Toronto. And just look how they're building. I would happily live here. Would you?

Photos: Raphaël Thibodeau via L. McComber

One criticism that you will sometimes hear about development is that the construction of new housing can spur gentrification. The thinking, I think, is that when you create new market-rate housing, richer people will then move in and the area will begin (or continue) its ascent upwards.

If on the other hand, one were to just stop developing new housing, then the neighborhood would remain stable and static and the fear of gentrification would simply go away. But the flaw in this line of thinking is that it assumes no infill development equals some sort of urban homeostasis.

Cities are constantly changing. The reality is that what we are talking about, particularly in the case of low-rise single-family areas, is that we want the physical character of neighborhoods to remain more or less the same. But what happens on the inside is whatever.

Here's an example:

What you are seeing here are 4 electricity meters, meaning that at some point this structure housed 4 separate homes. But 3 of the 4 meters have now been removed, which presumably means that this structure has been converted (probably back) to a single-family home. So this is 4 homes being reduced to 1.

I don't know what this place looks like on the outside, but I'm going to guess that not much has changed in terms of its physical character. It probably looks about the same. But this is still gentrification; it is still an example of a neighborhood moving upmarket.

The irony is that we tend to be generally okay with this change. We are okay with reducing the number of homes in a neighborhood so long as it happens in a largely inconspicuous and convenient way. But what we are (sometimes) not okay with is increasing the number of homes in a neighborhood. Apparently that creates too much pressure on the existing housing stock.