Nowhere in the US are apartment rents declining as fast as they have in Austin. Average rents are down 22% from their August 2023 peak. This is according to Bloomberg. What seems to have happened is this: Lots of people started moving to Austin during the pandemic, rents jumped up dramatically, and so the city enacted policies to encourage more housing supply. Developers responded as they do and, between 2023-2024, well over 50,000 apartment suites were completed in the city. Now landlords have very little leverage in the market, and so rents are naturally dropping. It all makes perfect sense, but I will say that I'm surprised by the chronology. Apartment rents jumped 25% in 2021, there was a pro-development policy response, and then increased supply started flooding the market in 2023. How? Then again, Yahoo Finance is reporting that "builders [in Austin] typically take two years to go from buying land to welcoming tenants." That's development magic and I'd like some of it.
Cover photo by Carlos Alfonso on Unsplash
Here's an interesting Twitter thread by Zoë Coombes describing the crossroads that Toronto finds itself at when it comes to housing. We know we need to build more urban housing geared towards families. But unfortunately, the economics underpinning new housing bias the opposite: smaller homes. And in our current market environment, it's a real challenge to even build any new housing. Period.
Zoe argues that we have two options: we can either open up the greenbelt (i.e. sprawl) or we can make it more feasible to build infill apartment buildings catering to families. In her words, "there's no third option." I am a strong proponent of the latter over the former, and so here are a few things we really ought to be doing to improve the feasibility of these housing types in Toronto:
Greater as-of-right permissions across the city. The new Major Street policies are a huge step in the right direction, but, in my opinion, more will need to be done to unlock a greater number of sites. Land use planning, by virtue of its political affiliation, is an especially iterative process.
Eliminate the Site Plan Control process for larger projects. Currently, projects with more than 10 units are subject to Site Plan Control. This is an unnecessary barrier that adds cost and extends project timelines. My understanding is that this change is already underway. Good.
Eliminate or greatly reduce Development Charges on new infill housing. I've already written a lot about this topic, so I won't repeat myself. But know that it's material to development feasibility. Here's some positive news from the end of last year.
Allow buildings with a single exit stair. This is crucial for smaller-scale projects where every bit of efficiency counts (net rentable area to gross construction area). It will also help to unlock better floor plans, including dual-aspect suites.
Streamline environmental approvals. In Ontario, if you are "converting" a site to a more sensitive land use (such as residential), you are required to obtain a Record of Site Condition from the Ministry of the Environment, Conservation and Parks. Depending on the conditions of the site, this process can take years. Human safety is obviously the number one priority, but lengthy review timelines do make small projects entirely infeasible.
Again, the good news is that some of these changes are already underway. So we're at least headed in the right direction. But is there anything else you would add to this list?
Cover photo by Kai Pilger on Unsplash
Happy new year, everyone! Yesterday we spoke about what actually happened in 2024 (and evaluated my predictions from exactly a year ago). Today, let's prognosticate about what might happen in 2025 (keeping in mind that I'm based in Toronto and so there will naturally be a bias toward this market):
Very broadly speaking, our current commercial real estate downturn started, in my opinion, around the middle of 2022. That's when sentiment started to feel different and the market was starting to respond to increasing interest rates. Over the past few years, I've been overly optimistic in terms of how soon the market would reset. But eventually I'll be right. So I'm going to call 2025 as an important turning point where we see more capitulation, more bankruptcies, and a shedding of legacy assets/deals. For the other side of the market, this will mean more new deals.
This, however, does not mean that we will see a development environment that anywhere resembles what we saw prior to 2022. On the new construction residential side (condominium and multi-family rental specifically), I think it's going to take 2-3 years for us to work through and absorb our current supply pipeline. This will be an obvious headwind for land prices. The successful projects in this environment will be located in core/prime locations, underwritten at more modest scales, and focused largely on end users.
In 2024, we saw the continued rise of more people going back to the office. Here in Toronto, the average weekday figure is approximately 73% of what it was pre-COVID (data from November 2024). This year, I think we'll see this figure get close to 90% and then likely start to level off, some five years after the first lockdowns. I think it makes sense that we'll stabilize at some number below pre-COVID levels, but I also think it'll be a number that is much higher than most people expected just a few years ago.
I am reversing my position on autonomous vehicles (relative to last year). I believe we're much further along -- specifically Waymo is -- than most people think right now. Autonomous vehicles are happening and, in 2025, I think we'll see a significant expansion of coverage across the US led by Waymo + Uber. I don't think we'll see anything earth shattering from Tesla in regards to FSD, but who knows, Elon is good at making things happen. The big test will be cities with snow. This will likely take longer.
At the time of writing this post, the price of EU carbon permits is approximately €71.98 per tonne of carbon dioxide. It's all-time high was €105.73 in February of 2023, but some/many believe that it will need to be closer to €150 by 2030 if the world hopes to reach net zero by 2050. So for this reason, I'm going to say that its price rebounds to between €90-100 this year. This is largely a guess, but I'm including it in my predictions (at least partially) because it's quantifiable and easy to score later.
Crypto and technology more broadly are going to have an awesome year in 2025. As Fred Wilson wrote on his blog yesterday, one of the things we saw in 2024 was "Silicon Valley's hostile takeover of the federal government, via an infiltration of Donald Trump's MAGA movement." The "establishment government" was seen as being antagonistic toward tech and innovation, and so the industry jumped teams. One would expect that to pay dividends this year.
More specifically, I think we're going to see a web3 consumer application that finally breaks into the mainstream. Already, I've been impressed by NFT marketplaces like Rodeo. Many people won't appreciate that it's powered by some blockchain, but that's exactly what we want. We want the underlying technology to recede into the background and for the experience/utility to come into the foreground.
And with that, I will end and leave you all with this recent tweet from Chris Dixon. It's worth clicking through and reading the entire thing.
And so this knowledge will be unfolded…
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A big thank you to everyone who continues to read this blog. We're now into year 12 of this daily writing practice (my first post was in August 2013), and I'm still feeling more inspired than ever. It truly feels like we're at the dawn of so many new and exciting things: a new real estate cycle, an unprecedented innovation environment, and the list goes on. Next up, I'm going to write specifically about what we at Globizen are focused on for this upcoming year.
Cover photo by Tyler Rooney on Unsplash