Brandon Donnelly
Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly.
Brandon Donnelly
Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly.
Earlier in the week, I came across this post (via Fred Wilson), arguing that rapid technological progress is causing systemic deflation in the broader economy.
Here’s a chart that illustrates the author’s point:
What is happening here is that despite advances in technology and increases in productivity, real wages have been stagnant for decades. (This chart is for the US, but it likely applies to many other countries.)
This is an interesting paradox. For a long time, increases in productivity were met with corresponding increases in income. So why the divergence?
The author believes that it’s because the gains brought about by “extreme technological progress” are being unequally applied to the economy. In other words, they do not benefit the majority of people. He then goes on to argue that we could be entering an entirely new macroeconomic era:
“Economic growth may be over soon, at least in absolute terms. On the other hand that will be at least partially offset by the technological deflation. So instead of the decline of the innovation it will be just the opposite, the explosion of the innovation that will turn the economy to the decline. And moreover, it will not be a tragedy since we will be able to produce higher standard of living with fraction of the GDP today. Few adjustments needs to be done into our economic system to cope with the change for sure.”
When you read things like this it makes the idea of a “basic income guarantee” seem far more palatable.
The other chart that stood out to me was this one below, which shows the declining cost of solar panels and the rise of global solar panel installations.
It’s a great reminder that it’s only a matter of time before we wean ourselves off of oil. And, that we could be headed towards some sort of third industrial revolution where the marginal cost of energy is almost zero. Already about 25% of Germany’s electricity comes from renewables.
On that note, I am going to end with a fantastic interactive chart from The Economist (screenshot below) that outlines oil reserves around the world by country. If you click through to their website, you can then toggle the price of oil (per barrel) to see how much of those reserves are actually viable.
With the price of oil where it is today ($27.88 per barrel as of January 20, 2016), there are only a handful of countries with profitable oil. I am sure you could have guessed which ones.
What will happen if, or should I say when, that oil is no longer needed?
The United Nations recently released its 2015 version of World Population Prospects. It looks as if they put out and revise this report every 5 years.
The Economist then took some of their data and assembled it into the following charts:
Earlier in the week, I came across this post (via Fred Wilson), arguing that rapid technological progress is causing systemic deflation in the broader economy.
Here’s a chart that illustrates the author’s point:
What is happening here is that despite advances in technology and increases in productivity, real wages have been stagnant for decades. (This chart is for the US, but it likely applies to many other countries.)
This is an interesting paradox. For a long time, increases in productivity were met with corresponding increases in income. So why the divergence?
The author believes that it’s because the gains brought about by “extreme technological progress” are being unequally applied to the economy. In other words, they do not benefit the majority of people. He then goes on to argue that we could be entering an entirely new macroeconomic era:
“Economic growth may be over soon, at least in absolute terms. On the other hand that will be at least partially offset by the technological deflation. So instead of the decline of the innovation it will be just the opposite, the explosion of the innovation that will turn the economy to the decline. And moreover, it will not be a tragedy since we will be able to produce higher standard of living with fraction of the GDP today. Few adjustments needs to be done into our economic system to cope with the change for sure.”
When you read things like this it makes the idea of a “basic income guarantee” seem far more palatable.
The other chart that stood out to me was this one below, which shows the declining cost of solar panels and the rise of global solar panel installations.
It’s a great reminder that it’s only a matter of time before we wean ourselves off of oil. And, that we could be headed towards some sort of third industrial revolution where the marginal cost of energy is almost zero. Already about 25% of Germany’s electricity comes from renewables.
On that note, I am going to end with a fantastic interactive chart from The Economist (screenshot below) that outlines oil reserves around the world by country. If you click through to their website, you can then toggle the price of oil (per barrel) to see how much of those reserves are actually viable.
With the price of oil where it is today ($27.88 per barrel as of January 20, 2016), there are only a handful of countries with profitable oil. I am sure you could have guessed which ones.
What will happen if, or should I say when, that oil is no longer needed?
The United Nations recently released its 2015 version of World Population Prospects. It looks as if they put out and revise this report every 5 years.
The Economist then took some of their data and assembled it into the following charts:
It’s obviously extremely difficult to predict what will happen in the world by 2100, but to the extent that forecasting is possible, the world’s population is expected to reach somewhere around 11.2 billion people. Today it’s 7.3 billion.
The bulk of this growth is expected to happen first in Africa, and then in Asia. By 2100, Africa’s share of the global population is expected to grow to 39% and Asia’s share is expected to decline to 44%.
If you’ve been following population trends, most of this shouldn’t come as a surprise to you. The meaningful population growth happening in the world today is happening in the developing world.
That’s why architects, such as Rem Koolhaas, have been studying cities like Lagos (Nigeria) since the late 1990s and early 2000s. Below is a photo from a book/research project that I love called Mutations (2000). I pulled it from my bookshelf this morning.
It’s interesting to think about what all of this will mean for the global economy and for global governance.
The United States is about to be alone when it comes to advanced economies with a globally competitive population. Europe is shrinking, which leads me to believe that a strong EU is likely important. And we now have lots of megalopolises with big populations, but with very low income levels.
Nigeria is the largest economy in Africa, but per capita income is somewhere around $3,000.
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.
It’s obviously extremely difficult to predict what will happen in the world by 2100, but to the extent that forecasting is possible, the world’s population is expected to reach somewhere around 11.2 billion people. Today it’s 7.3 billion.
The bulk of this growth is expected to happen first in Africa, and then in Asia. By 2100, Africa’s share of the global population is expected to grow to 39% and Asia’s share is expected to decline to 44%.
If you’ve been following population trends, most of this shouldn’t come as a surprise to you. The meaningful population growth happening in the world today is happening in the developing world.
That’s why architects, such as Rem Koolhaas, have been studying cities like Lagos (Nigeria) since the late 1990s and early 2000s. Below is a photo from a book/research project that I love called Mutations (2000). I pulled it from my bookshelf this morning.
It’s interesting to think about what all of this will mean for the global economy and for global governance.
The United States is about to be alone when it comes to advanced economies with a globally competitive population. Europe is shrinking, which leads me to believe that a strong EU is likely important. And we now have lots of megalopolises with big populations, but with very low income levels.
Nigeria is the largest economy in Africa, but per capita income is somewhere around $3,000.
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.
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