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.
The headline, here, is that “the US is running short of land for housing.” But if you read the article, you’ll see that the headline should probably read, “the US has land-use restrictions in place that make it unnecessarily difficult to build enough new housing.” Here’s an excerpt:
Asking prices for homes in these new communities [the exurbs of Tampa] go as high as $900,000, in part because the land underneath is so valuable. That has a lot to do with land-use regulations.
Tampa’s zoning rules prevent developers from building anything larger than a single-family home in much of the city. When officials for Hillsborough County, which includes Tampa, adopted zoning regulations in 1950, they said the measures were necessary to prevent overcrowding and traffic jams and would preserve the neighborhood character, all “with a view to conserving the value of buildings,” according to the regulations.
If all you can build are single-family homes, then you’re going to need a lot more land compared to if you were allowed to build a bit higher and/or a bit denser. But it is a good way to ensure that supply remains somewhat scarce and that one is faithfully “conserving the value of buildings.”
It is, however, worth mentioning that we have invented ways to use land more efficiently. The population density of Hillsborough County is somewhere around 1,200 people per square mile. The population density of Paris, on the other hand, is over 50,000 people per square mile.
I have written about Koto a few times before (check here and here). They design and fabricate beautiful modular homes and cabins that are designed to connect you back to nature.
One location where you can already find these cabins is on Fritton Lake, which is about 2 hours and 45 minutes outside of London. The way it works is that you buy a plot of land in the Fritton Lake community and then you choose which Koto home you would like.
There are two models available — Ki and Miru — and they can be customized as either 2 or 3-bedroom cabins. Apparently it then takes somewhere between 4 and 6 months for your new cabin to be fabricated and delivered to site.
But today it’s perhaps easy to imagine a world where only the top end of the market builds on-site and custom. Koto is also evidence that these homes can be just as, if not more, beautiful and sustainable.
FYI: The Koto team is having an “open day” on Saturday, October 1, 2022 at Fritton Lake. If you happen to be in the area and would like to check out the cabins (and do things like swim in the lake), drop them a note to book a spot.
Here’s what I can tell you this morning: Real estate development is a bit more fun when you don’t have to constantly worry about supply-chain issues, access to labor, high inflation, and regularly increasing interest rates. That said, if you just want to buy a super-prime property in one of the world’s preeminent global cities, things seem to be just fine:
According to FT, both New York and London have continued to see a rise in super-prime sales this year and both have seen more of these sales in the first 8 months of 2022 compared to all of 2019 (before the pandemic). Note: These charts are showing home sales greater than US$10 million and greater than £5 million, respectively.
On top of this, many or most of these buyers are, apparently, still able to access financing at LTVs of 100% (i.e. no money down). For what it’s worth, there is a London mortgage broker quoted in the article saying that he has arranged more 100% mortgages this year than in his entire 20-year career. Turns out that the best way to ensure access to debt is to not need it in the first place.
At the end of August, our office closed for two weeks so that we could shuffle a bunch of desks around. During that time, we all worked remotely. I spent one week working from home and one week working from Utah. Being in Utah in the summer was, of course, a great treat. Everybody appreciates having more rather than less flexibility in how they structure their workday.
But at the same time, being away from the office reminded me just how much I hate working from home. I hate the onslaught of calls and zooms that ensue when you’re not proximate to the people you work with. I hate being distracted by the thought that I should probably do a load of laundry. And importantly, I also find that I have less energy.
One of the ways that extroverts and introverts are often defined is according to where they derive their energy from. The former is said to derive more of their energy from being around other people and the latter is said to derive their energy from being by themselves. Introverts need time to recharge. Of course, most people probably need both of these things. I certainly do.
But I think this is an important consideration as we all debate work-from-home policies. I enjoy being in the office. And I can tell you that our team overwhelmingly does as well. People were starting to get antsy during our two week hiatus. But not everybody feels the same way, which is why I wasn’t expecting this (the above) Twitter poll result.
At the time of writing this post there were fewer than 200 responses. But even with limited data points, I was expecting more of a bell curve, with the majority of people doing some sort of hybrid thing. That is not the case here. The results were fairly equal with 5 days a week having a slight edge. My sense is that WFH is continuing to wane.
But I don’t know, you tell me: What is your work routine right now and what would you consider optimal?
This Philadelphia Inquirer article is behind a paywall, but I can tell you that it speaks to the city’s increasing use of modular construction for infill apartment buildings:
Building modularly can save 20% on total construction costs, he said. Projects can be constructed in half the time, and rental revenue comes in sooner. Workers build apartments in pieces in a factory as others lay the foundation. Factory work doesn’t have to pause for inclement weather.
Alterra Property Group has found that modular construction is cost- and time-effective when it builds between 100 and 500 units and between four and six stories. Under that, building on-site is more efficient, Addimando said. Above that, builders can run up against building code restrictions.
Consider this recently completed project, called LVL North:
1.5 acre site
Site acquired in February 2020
Construction commenced in June 2020 (was it already entitled?)
Over 500,000 square feet
7 storeys
410 market-rate apartments
Two levels of commercial spaces
Over 300 parking spaces in a two-level below-grade parking structure
Construction completed in 24 months (it’s currently being leased up)
I am impressed by how quickly this was erected. Here in Toronto, it would likely take more than 24 months just to get through the rezoning process. Granted, a site this big in a central location next to transit would also likely beget multiple tall buildings.
But this form and scale of housing seems to be working for Philly. It is allowing the city to both build quickly and to experiment with emerging construction methods.
One of the most interesting things about NFTs is that some, but not all, come with very permissive licensing. What this could mean is that, as a holder, you are free to do whatever you would like with your NFTs, including creating businesses on top of them or using them for other commercial purposes. This is fascinating to me and I like NFT projects that adopt this open approach.
This might sound kind of crazy if you aren’t following the crypto space. But is it really? We already have virtual influencers with millions of followers, so why can’t we have virtual pop stars being signed to digital record labels?
I don’t know what this will ultimately mean for the holder of the above NFT, but imagine a world where the owner automatically receives X% of all the proceeds produced by the virtual artist. Now all of a sudden you have a cash flow stream that can be evaluated using traditional finance methods and an asset that can be valued and traded.
Matt Levine’s latest Money Stuff column does a good job explaining why a lot of smart people are trying to figure out a market-making model for homes (see companies such as Opendoor):
People want to apply the market-making model to homes. This makes sense. Buying or selling a home is a long slow uncertain annoying process. The value of immediacy is high, especially for a seller. If you decide to sell your house and go to a website and spend 10 minutes filling out a form and then someone wires you cash for the value of your house, that is much much much better than hiring a broker and listing the house and holding open houses and so forth. You’d be willing to pay a market maker a lot for that immediacy. (By selling your house to the market maker at a discount.) And if the market maker is good at acquiring houses, then it will have a lot of inventory, which will make it a good seller of houses. If you want to buy a house, you will naturally go to the market maker’s website, because it’s where the houses are.
Levine also explains why a market-making model is that much more difficult for homes compared to things like stocks. In a slowing/slumping housing market, it’s pretty easy to lose money as a market maker. (That is, unless you can somehow accurately predict that a slump is coming.)
Last month, Opendoor lost money on 42% of its home transactions. This is a result of them buying homes from people when prices were X and then selling these homes many months later when prices were less than X.
However, I’m not so sure that this has to be an existential problem. Opendoor’s primary value proposition is instant liquidity for homeowners. And this value proposition is at its strongest when the market is in fact slumping. Because the alternative — selling with a broker — is less attractive.
So the current environment may eventually turn out to be a boon for Opendoor. Of course, we won’t know for a number of months.
Full disclosure: I am long $OPEN. And yes, it is painful right now.
There is, of course, part of me that admires what King Charles III has been trying to do in Poundbury (a small master-planned community on the outskirts of Dorchester, England). It is a community that has deliberately rejected the modern suburban in favor of traditional main-street urbanism. It is denser than you’d expect. It has a mix of uses. And it has been generally designed around people, rather than the car.
To live here is to live under Charles’s rules (it is not clear whether William intends to be more flexible). Currently, Poundbury residents are embroiled in a debate about windows: The Duchy says that only wooden sash windows are permitted. Many residents would like to replace theirs with vinyl or fibreglass windows, which are easier to maintain and, crucially, more energy-efficient – and Poundbury is theoretically a ecologically advanced town. So far, the Duchy is not willing to budge.
The last thing I want in my life is someone telling me what kind of windows I can install and what kind of architectural styles are suitable. Messy and organic urbanism suits me just fine.
As some of you will know, MLH took over a decade to get built. I first did a design for the house back in 2009. Laneway housing seemed like such an obvious opportunity, and so I designed a compact house that could fit neatly within the confines of my 25-foot-wide backyard.
Technically, it was perfectly workable. But I could tell I was too early. After speaking with city staff, I immediately got the impression that this thing was not going to get approved. At least not now. So I shelved the project until 2017.
By this time, it was clear that laneway housing was on its way to becoming a reality in Toronto. It was simply a matter of time. And so Gabriel Fain and I decided to come up with a new design and try our luck at the Committee of Adjustment (we needed, I think, over a dozen zoning variances).
But it turns out that we were still too early. The project was immediately refused. After the decision, I had a few planning lawyers reach and offer to help me with a pro bono appeal. But I decided to wait until the new laneway policies came into force and the home could be built without any variances.
And that’s exactly what we did. In the fall of 2020 we submitted for a building permit, and about 6 weeks later it arrived. The home was then built that winter and it went up on the market for rent in March 2021. It rented right away, even in the midst of intermittent COVID lockdowns.
At this point, it’s hard to imagine that this form of housing was once illegal. Hundreds of permits have already been issued and this number is only going to increase. In fact, I believe that the humble laneway house is destined to become a defining characteristic of Toronto’s urban landscape.
I went out this morning to grab coffee from around the corner and, on my way back home, I ran into two people in the elevator that, from what I could glean, had hit the same button in the elevator and then struck up a conversation. He asked if she had just recently moved into the building. She responded with no, and that she usually doesn’t see anyone else on their floor. He was surprised by this response and said that he knows everybody on the floor.
Nearly a hundred years ago, architect Le Corbusier, as well as others, had the idea of creating “streets in the sky.” Perhaps the most famous example of this concept is his Unité d’Habitation in Marseille (pictured above). Now a UNESCO World Heritage building because of its role in the development of modernist architecture, the building houses five “streets”, two of which were intended to be fully-fledged shopping streets. These streets house(d) things like shops, restaurants, galleries, and even a hotel.
Le Corbusier was famous for his desire to create machines for living in. And these streets in the sky were part of this philosophy. The idea was that by having all of the things you needed under one roof, you would then be able to live an efficient, productive, and enjoyable life. Architecture and design could do that for you.
Of course, the other reason for this thinking was that we needed to get people away from cars. As the car became more commonplace in cities, conflicts arose. And architects began to grapple with how best to separate people and cars. One obvious solution was to simply lift people up and off the ground so that the street could be freed up for cars to do their thing. This was going to be the future.
The pitfalls of this line of thinking have since then been widely documented. And today, I think it’s pretty clear that most cities are in fact taking the opposite approach. Instead of removing people, they are removing cars through pedestrianization projects. Some of these projects are temporary, but many are also permanent. This happening almost everywhere from Toronto to Sao Paulo.
The other problem is that it’s extremely challenging to make retail uses work way up in the sky. And that’s why even second floor retail spaces often struggle compared to those on the ground floor. As I understand it, the non-residential tenancies in Marseille’s Unité d’Habitation have naturally evolved from being retail-centric to being more office-like. Supposedly you’ll now find architects and medical offices, which is not at all surprising.
But that doesn’t mean that Le Corbusier’s instincts weren’t directionally right. We now have lots of examples of tall buildings housing an intense mix of uses and public functions. And in the case of multi-family buildings, the corridors do often serve as a kind of street. I happen to live off of one that houses our building’s amenities. And so in addition to just running into neighbors, I’ll often run into the odd birthday party or Sunday afternoon sumo-suit party. True story!
It may not be the Champs-Élysées, but it is a kind of street for living.
