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: Tech

  • Housing doom loop

    This discussion between Patrick O’Shaughnessy and Marc Andreessen is a great follow-up to my recent post about the productization of housing. Broadly speaking it’s about tech, software eating everything, and the future of the world. But if you skip to around the 15 minute mark, Marc talks about the growing divide in our economy between sectors that are changing rapidly and sectors that are changing slowly.

    Examples of the former include things like computers, media, retail, cars, and a lot of the other stuff that we regular consume. Examples of the latter include things like healthcare, education, and housing (you know, the pillars of the American Dream).

    The noteworthy problem with this divide is that the fast changing sectors are producing things that have been getting more affordable over time. The specific example that he gives is televisions. Think about how much more TV you can get today compared to when they were first introduced.

    In contrast to this, things in the slow changing sectors keep getting more expensive. The same university education is exponentially more expensive today than it was a few decades ago, even though it’s far more important for people to have an education than to own TVs.

    A similar thing can be said about housing. How much has really changed in terms of the way we build new homes?

    One of the common threads across these slow change sectors, Marc argues, is strong government intervention. We restrict supply such that we can’t meet demand. We then respond to higher prices by trying to subsidize demand, but this only drives prices up even further. Because, at the end of the day, we haven’t addressed the underlying issue.

    The result is a doom loop.

    If you can’t see the embedded podcast above, click here.

  • Buying condos with crypto

    If you happen to have made boatloads of money in crypto (which sadly isn’t me), one sensible thing you could do is put some of that money into luxury residential real estate. You know, to diversify your portfolio.

    According to this recent WSJ article, it is already happening, with some developers and some homeowners now accepting cryptocurrencies in lieu of US dollars and other fiat currencies. This is helpful if you’ve managed to accumulate a bunch of crypto and don’t want to convert it. It can also be easier when it comes to moving the funds around:

    Avi Dabir, vice president of business development at FTX US, said he sees real estate as a growing sector for the company because crypto transactions are faster and more efficient than traditional deals, which rely on an often-cumbersome banking system.“If I want to send a wire transfer today using my traditional bank account, it’s got to be banking hours, I need to make sure I hit that wire cutoff time and I can’t do it on the weekends,” he said. “That’s not a problem with cryptocurrency. It’s open 24/7.”

    But of course it is still early days for crypto. The article suggests that most developers and owners are arranging for any crypto received to be immediately converted into US dollars at closing. This is presumably because of how volatile cryptocurrencies tend to be — at least right now.

    To accept crypto, PMG had to partner with a regulated exchange that could quickly convert crypto to U.S. dollars, then convince an escrow agent to accept down payments from the exchange, rather than directly from the developer. Mr. Shear said most escrow agents looked at him like he was crazy, but “20 lawyers, one year later, and a lot of brain damage, everybody got comfortable.”

    There are also tax considerations (that I am really not an expert on). If you bought $100 worth of Ethereum and it is now worth $10 million, you are responsible for paying tax on this gain if/when you sell, trade, or otherwise dispose of the crypto. And it is my understanding that if you were to use this $10 million in Ethereum to buy something like a condo in Miami, it would also be considered a taxable event.

    Maybe all of this becomes commonplace or maybe it doesn’t. But it sure is interesting to see crypto already starting to flow into hard assets like real estate.

  • Ownership and participation — what cities share with Web3

    Here’s a cogent argument by Dror Poleg about how urban economics can be used to explain the evolution of Web3, and also why it’s all a bit of a ponzi scheme, but that when it works, it works.

    His argument revolves around ownership and participation. If you own real estate in a city, you could say that you are both a part owner of said city and a participant. You participate by virtue of living and/or doing other things there, but beyond that you also have a vested interest in the city doing well. Because if the city continues to do well and grow, there should be more demand for real estate, including yours, and that likely means your wealth will increase over time.

    This same force could be said to apply when existing property owners oppose new development. It restricts supply and increases the value of people’s existing “ownership” in a city. It’s kind of like being a company and not issuing new shares so as to not dilute your existing shareholders.

    This connection between ownership and participation is similarly a hallmark of Web3. In the world of crypto, users buy tokens (some fungible and some non-fungible) and those tokens provide access and rights to various things.

    For example, owning tokens might allow you to vote on key decisions affecting the overall organization. And if the organization does well and continues to grow, all token holders should, in theory at least, see their wealth increase. More people will want those same tokens. Ownership and participation.

    Web2 companies, on the other hand, do not typically offer this automatic connection between ownership and participation. That is, of course, unless you’re a shareholder. If you’re just a regular user of a platform like Instagram (which I am), but you don’t own any shares in Meta (I do not), then you’re only a participant.

    If you happen to be a widely followed influencer then you can certainly benefit indirectly from the platform, but you do not benefit from any sort of direct ownership in the organization. Pretty much everything accrues to the house.

    In fact, you also don’t own your followers, from which you derive your indirect benefit. Not to pick on Meta, but if Meta decided that your content was suddenly inappropriate for the platform, perhaps too salacious, then it could choose to close you down and your indirect benefits.

    This, of course, is one of the great promises of crypto and Web3. If you’re a part owner and you have some say in the way things are being run, you can maybe avoid this kind of outcome. And if things really aren’t working out, one should have the flexibility to take their followers and be extra salacious somewhere else.

    We shall see if this is ultimately how Web3 plays out, but the connection between ownership and participation is an interesting one and, if things do end up working out as planned, maybe it can be harnessed to improve our cities. Because we know the problems: inequality, housing supply and affordability, and many others. The system is clearly far from perfect.

    Photo by Adrian Schwarz on Unsplash

  • Twitter just launched NFT profile pictures

    I was reading this morning about how Meta is working on features that will allow users to display their NFTs on their social media profiles, and to possibly even buy and sell them from within Facebook and/or Instagram. I thought this was kind of newsworthy and so, after the reading the article, I opened up Twitter to share the story. This is then what popped up:

    It is an invitation to use an NFT as my profile picture. Now, I am already doing this (it’s a CryptoBabyPunk), except that it would take someone a bit of work to determine if I truly owned the NFT or if I was just posing as a proud CryptoBabyPunk owner for the purposes of trying to increase my internet stature.

    So what this new feature is intended to be is a way to easily demonstrate proof of ownership. Once you connect your crypto wallet and select your NFT, your profile picture changes to a “special hexagonal shape.” This is the marker. Though you have to be a paying Twitter customer to do it (currently a few dollars a month).

    Some or many of you may be wondering why this is even worth talking about. Maybe you like your circular Twitter profile picture just the way it is. But these moves and announcements by large companies are both a vote of confidence for the crypto space and greater “utility” for NFTs.

    The value that somebody might derive from an NFT is wide ranging. In some cases it might just be something to look at (which is generally how art works). And in some cases the NFT might grant access to exclusive events or provide other perks, some real and some alleged. It’s all very much evolving as we speak. But in every case, you really need to be able to differentiate real from fake. What Twitter just did is a step in that direction.

    Broadly speaking, the more infrastructure that gets built out around NFTs, the more value they will have. I think bringing NFT collections to our social media profiles is, for example, a perfectly obvious extension. Here are my photos. Here are my videos. Here’s the stuff I’m tagged in. And here’s my beautiful and wonderful NFT art collection.

    You can bet that the NFTs will become just as curated and carefully managed as the rest of the profile.

  • My predictions for 2022

    As promised, below is a list of some of my predictions for this coming year. I have tried to be both punchier and more precise in my prognostications; because, well, obvious predictions are boring and precision will allow me to better evaluate my thinking at the end of the year. So here goes.

    1. 2022 will be the year that COVID-19 becomes endemic and finally fizzles out to a point where it no longer factors into our decision making in the same way that it has for most people over the last two years or so. I think this will happen by as early as the summer.
    2. As a result, I think the majority of people will be back in their offices by this September at the very latest, with many coming back much earlier. The whole hybrid/flexible work thing won’t completely disappear, but the majority of people who used to work in offices will be back.
    3. Recreational/fringe residential real estate will soften in 2022 as a result of 1) its tremendous run-up during this pandemic and 2) the renewed pull of urban/office life. Conversely, urban apartment rents will continue to rise and eventually surpass their pre-COVID levels. The SF Bay Area could be one exception.
    4. The explosion of travel that I thought was going to happen in 2021, will truly happen this year. The summer will mark its official return, with European travel volumes (to give just one example) returning to their pre-COVID levels.
    5. We will see meaningful efforts to further breakdown the hegemony of single-family zoning throughout many North American cities. This has been building for a number of years and I think we will see some tipping point-like moments in 2022. Specifically, expanded permissions for multi-unit housing and greater densities.
    6. I wish I could say that autonomous vehicles are destined to do something truly remarkable this year, but I think we are still a few years out (2024-2025?) before a large chunk of us are ride-hailing AVs. But on a related note, I do think that Uber will come into its own this year and finally become profitable (and not just with adjusted profits).
    7. Public transit ridership will, unfortunately, remain depressed and below its pre-COVID levels for this entire year. The beneficiaries of this will continue to be cars (not good), bikes, and micro-mobility solutions like e-scooters.
    8. 2021 was a huge year for NFTs and other fun stuff like digital fashion. Given these trends, I believe there will be growing demand from people to better integrate their digital and physical lives through technologies like augmented reality. Snap has been at the forefront of this space for many years and 2022 will be an important year for its Spectacles (AR glasses). But Apple and others will also make major announcements.
    9. Miami’s ascent as an important tech hub will get interrupted by questions surrounding the climate crisis and its own resilience. At the time of writing this post, the price of carbon on the EU’s Emissions Trading System (EU ETS) is about €80 per tonne. I think we will see it break €125 per tonne this year, and possibly go even higher.
    10. Ethereum, Bitcoin, and Solana (in this order) will be the top three cryptocurrencies according to market cap by the end of the year. At the time of writing this post, their market caps are $446 billion, $895 billion, and $55 billion, respectively. I am also expecting some breakout web3 consumer applications that will push, maybe, 40% of Canadians and Americans into the crypto space.

    Photo by Dave Xu on Unsplash

  • Electrification and a modal shift — both are needed

    The Institute for Transportation & Development Policy (ITDP) is a non-profit group that works all around the world — everywhere from Jakarta to Rio de Janeiro — to design and implement both transport solutions and policies that help to make our cities more livable, equitable, and sustainable. If you’re interested in learning more about the kind of work that they do, you can download a copy of their latest annual report, here.

    Most recently, the group published a report called, “The Compact City Scenario – Electrified.” In it they argue that two things need to happen together if we are to move humanity toward net-zero carbon emissions and reduce global warming to less than 1.5 degrees Celsius by the end of the century. One, we need to fully electrify our transport (which I think is fairly obvious at this point). And two, we need a modal shift.

    To be even clearer, ITDP argues that both of these things need to happen at the same time in order to successfully hit our targets. Full electrification of our transport without any sort of modal shift isn’t going to cut it, and the same is true for a modal shift without electrification.

    Why all of this is important is because electrification is in many ways just a technical problem. We need electric vehicles, we need batteries, and we need the infrastructure in place to charge these vehicles. Among other things, this has meant building new charging stations, retrofitting existing buildings, and encouraging/requiring new buildings to make provisions for a future with predominantly electric vehicles.

    But for the most part, EVs allow us to continue living the way that we have already been living. Just instead of pumping gas, we now plug in our cars at the end of the day. On the other hand, encouraging a modal shift is a fairly significant behavioral change. Though we know that one of the most effective ways to encourage less driving is to build more compact cities.

    This means changing the way we live. Changing the way we get around. And accepting more intense forms of development in our own backyards. It is fundamentally linked to land use planning and so it is going to be much harder to achieve. But if you agree with the above report, we won’t be able to meet our sustainability goals without it.

  • Self-expression and community move online

    The New Consumer, in collaboration with Coefficient Capital, just published its latest Consumer Trends report, which you can download for free over here (registration required). There’s a lot in the report to flip through, but I thought I would share these two slides:

    Generation Z and Millennials now make up ~40% of the US population and they are soon entering their prime consumer spending years. What’s noteworthy about these charts, but perhaps not surprising, is the extent in which self-expression and a sense of community have shifted from offline to online.

    Very few Boomers, at least according to this report, feel like themselves online. But nearly half of Gen Z feel most like themselves online. What it means to be part of a “community” has also shifted dramatically, with more if it happening online or at least partially online.

    All of this ties into what happened earlier in the week with Nike announcing the acquisition of RTFKT Studios. As I mentioned in this post, the so-called metaverse doesn’t necessarily have to mean VR goggles and living in video games. It can simply mean placing value on the parts of our lives that are now digital. The above two charts suggest that many are already doing this.

    Of course, what all of this means for our physical lives is an important question. Josh Stephens recently argued, over at Planetizen, that the metaverse is going to be really bad for cities. The more we focus on seductive virtual worlds, the less we will focus on our physical spaces. I get this logic.

    But again, I think it depends on how you define the metaverse. And I think VR headsets are a pretty narrow definition. I am both a lover of technology and a lover of cities. And throughout this pandemic I have been fairly consistent in writing about the resiliency of cities. Nothing in this post changes that for me.

  • Of course, Nike buys digital sneaker company

    This week it was announced that Nike has acquired RTFKT Studios (pronounced “artifact”) for an undisclosed amount. When I read the news (official Nike announcement here), I immediately thought to myself, “Yeah, of course!”

    Some of you may remember that I wrote about RTFKT back in April. They are perhaps best known for their digital sneaker NFTs (on the Ethereum blockchain). And so this is an exceedingly obvious and strategic buy for Nike.

    But more importantly, I think this is great validation for the crypto/NFT space and further evidence that our digital and physical worlds are continuing to collide in some new and very interesting ways.

    What this ultimately means for life in 10 or 20 years is anybody’s guess, but sneakers are the tip of the iceberg. And this doesn’t necessarily mean that we’re all destined to live in some sort of metaverse video game.

    Another way to look at this whole metaverse thing is to consider it not as an actual place or space, but instead as a moment in time (Shaan Puri makes this argument here). Put differently, the metaverse is simply a point in time where we begin to bestow tremendous value on our digital life and our digital assets.

    Instagram is one example of this. Profiles have become integral to people’s identifies. We use them to vet restaurants. We use them to vet travel destinations. And we use them to vet potential dating partners, among many other things.

    So while sneaker NFTs might be a new thing, there’s already lots of evidence that digital goods can have just as much value — and potentially even more value — than physical goods. I am sure that Nike recognizes this and it’s part of why they bought RTFKT.

  • To collect is to be human

    Nearly 1,000 lots from Karl Lagerfeld’s estate are soon to go up for auction. I was reading about it over the weekend in FT and, what is obvious, is that Lagerfeld liked to collect things. He had homes all over the place and in those homes were lots of nice things, ranging from art and tapestries to unique furniture and iPods.

    Yes, he really liked iPods. After he passed away, over 500 of them were discovered in one of this drawers and another 70 were found in his office in Paris’ 7th. Apparently he used to curate music on them and then gift them to people. It was one of his things.

    Of course, Lagerfeld was a wildly successful fashion guy and his estate is surely pretty unique. But I think it’s important to keep in mind that to collect is a deeply human endeavor. We have been doing it forever. And in this context, it’s not surprising at all why non-fungible tokens (NFTs) have taken off in the way that they have.

    Our world is profoundly digital, but before blockchains and NFTs, we were missing a way to validate ownership over digital assets. That’s no longer the case. For more on this, here is an interesting TEDx Talk by Roham Gharegozlou, who is the CEO of Vancouver-based Dapper Labs (the company behind CryptoKitties and NBA Top Shot). The talk is from 2018, but it’s just as relevant.

  • Crypto energy consumption

    One of the main criticisms of cryptocurrencies is that they consume a lot of energy and are therefore not sustainable. But all blockchains are not created equal and there are different ways in which transactions on a blockchain can be validated.

    Bitcoin and Ethereum use something known as “proof of work” (though Ethereum plans to change this sometime next year). This method of validation does indeed use quite a bit of energy.

    But another way to validate and maintain security on a network is through something known as “proof of stake.” This is what Solana and many other blockchains are now using. Put differently, there’s no “mining” required, which is the work that is so energy intensive.

    To demonstrate the difference, the Solana Foundation recently published this comparison chart:

    To try and further put this into context, the entire Solana network is currently doing about 20 million transactions per year. Right now, they are claiming that this is equivalent to the electricity usage of about 986 American households.

    If you’d like to take a look at the footnotes, click here.