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.
Property rights, whether for real world things or for digital things, are the foundation of developed economies. Because if you don’t feel like your property is going to be safe and secure, why would you bother investing and trying to accumulate assets?
Above is a chart I found, in this great thought piece by Ryan Goldman, showing the direct relationship between “protection against risk of expropriation” and GDP per capita. The more protection, the higher the GDP.
This is, of course, fundamental to the way we live our lives offline. But it is also becoming increasingly important in the way we live our lives online. Because we now have digital assets that people actually care about owning and protecting. You know, like pictures of apes.
This market is only going to continue to grow and the above relationship between rights and economic development will certainly hold true. But I think the big question is whether there will be more distributed and equitable access to opportunities in this emerging world.
The “drive until you qualify” approach to finding housing that you can afford is a well established practice. Anecdotally, I can tell you that I have friends who are right now looking for a grade-related home under the C$1 million mark. This constraint, as most of you know, is pushing them to the outer reaches of Toronto’s suburbs. But if it were up to them, it would be their preference to stay in the city. According to the “two millennials” behind The Habistat, the average distance of an entry level detached house from the Toronto core (defined as a 3 bed, 1 bath under $800,000) is now 81.8km.
There’s a lot to be said about this. For one, home prices across many/most markets are way up. Earlier this week on the blog it was mentioned that the average price of a US home is up about 19% year-over-year. This is likely unsustainable. We are coming off of a period of easy money policies and at some point things will normalize along with the broader economy. Looking at the equity and crypto markets, it may be happening right now, but I don’t really know. (Fred Wilson wrote a post last year calling this “one of the great asset bubbles of modern times.”)
We know that the centralizing forces inherent to most cities have been weakened during this pandemic. For periods of time, they were completely off. So it is no surprise that we have seen greater decentralization (sprawl) than what might have ordinarily happened. I was in a (zoom) meeting this past week with somebody who has spent the last two years traveling around South America while working remotely. It sounded like a lot of fun and I was admittedly a little bit envious of her adventures. But as I argued at the beginning of this year, I think most people are going back to offices and this centralizing force will have an impact on real estate.
Because “driving until you qualify” is a function of an affordability constraint, it tells you certain things about consumer preference, but not all things. What I mean by this is that it tells you that somebody is willing to trade the cost of a commute for more space and/or the housing type of their choice. This has been an easier trade during COVID because the cost of commuting has been relatively — albeit temporarily — low for many people. So less of a discount for distance. But what I think this doesn’t tell you is what true consumer preference would be if all things were more equal and we increased housing supply and options in other areas of our cities.
At the same time, there’s a very real question of whether the measuring stick in the above chart should be a grade-related detached house? Is this a reasonable expectation in the same way it was for prior generations? I am not a fan of dictating what people should and shouldn’t do. But maybe 100km away from the core becomes untenable. And again, maybe if we increased both supply and options, we would find new housing preferences revealing themselves. I am specifically thinking of those who would prefer to stay in the city, but can’t find something they think is suitable.
At the end of the day, we can’t ignore the fact that we are profoundly hypocritical when it comes to the delivery of new housing. We acknowledge that we’re in a housing crisis and we acknowledge that we need more affordable housing (both for sale and for rent), and yet we continue to make it systematically more difficult and more expensive to deliver it. The development charges, parkland fees, and many other costs that continue to increase and get applied to new housing are a real worry to those in the industry.
It is a worry because we’re all wondering how much price elasticity is left in the market. That is, how much more can consumers afford before they stop buying and renting? It is a worry because it means that new rental housing, which has always been a challenge to pencil in our market, is now completely infeasible in many more submarkets. Our solution to all of this is to mandate a certain number of affordable units in new developments. But this is yet another tax on new housing.
To be fair, the delivery of new housing is subject to countless competing interests. This is arguably why it is such a tricky problem to solve and why there are no easy answers. But that’s what we do around here. We explore new ideas. And maybe, just maybe, there are other options besides just driving until you qualify. Next up (or soon up): A look at the competing interests behind new housing.
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.
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.
Berlin is considering something pretty radical. A grass roots movement called Volksentscheid Berlin Autofrei, or the People’s Decision for Auto-Free Berlin, is trying to turn the entire core of the city into a car-free zone. (There would be some exceptions and so we should maybe call it primarily car free.)
The area in question is everything inside of the city’s circular S-Bahn train line (pictured above), which would make it the largest car-free zone or mostly car-free zone in the world. It’s larger than Manhattan and it’s about the size of London’s zones 1 and 2, to help give you a sense of the scale.
So far the group has collected about 50,000 supportive signatures and, according to Fast Company, the Senate of Berlin is set to make a decision on the proposal next month. I have no idea how much community and/or political momentum this actually has, but I love how bold of an idea this is.
Is it too bold?
Again, it is perhaps useful to flip the question and use Seth Godin’s status-quo-bias-checker model when thinking about this. If the center of Berlin was already car free and a community group had just come forward with a plan to now allow vehicles, how do you think you’d feel? I could see that being contentious.
The latest US consumer price index report was recently published and for the 12-month period ending December 2021, the all items index rose 7.0%. This is the largest 12-month increase since June 1982. Here’s a breakdown:
Gasoline (all types): +49.6%
Used cars and truck: +37.3%
Meats/fish/poultry/eggs: +12.5%
New cars: +11.8%
Food at home: +6.5%
Electricity: +6.3%
Food away from home: +6.0%
Apparel: +5.8%
Transportation: +4.2%
Shelter: +4.1%
The obvious standouts here are the price of gasoline and the price of used cars and trucks. Too much demand and not enough supply, it would seem. But the other conspicuous line item for me is shelter at only 4.1%. Is that it?
As Charlie Bilello points out in his latest newsletter, US rents were estimated to be up about 17.8% in 2021 (the highest increase on record according to Apartment List) and the Case-Shiller US National Home Price Index was similarly up about 19% year-over-year.
I also just glanced at the latest Urbanation rental report that came out today, and condominium rents were up 10.8% year-over-year here in the Greater Toronto Area. So I don’t know about this 4.1% number. But maybe I just missed something in the fine print.
So slime mold, which is a fungus-like single-celled organism, has a tendency to build highly optimized networks across its food sources. In other words, if you scattered a bunch of food on a surface and then dropped in some slime mold, it would naturally create an interconnected web of linked veins across this surface. And this web would be based on the shortest and most efficient paths of travel between the various food sources.
I am mentioning this odd factoid because ten years ago researchers in Tokyo used this naturally occurring phenomenon for the purposes of trying to improve transportation planning. What they did was map out greater Tokyo. They then placed oat flakes (i.e. food) in spots that correspond to the various cities and urban centers that surround the city. Alongside this, they blocked off the areas where transportation networks do not typically run, such as through mountains and into the water. They then dropped in some slime mold, wet the surface, and watched it grow.
What they found was that the resulting network was remarkably similar to Tokyo’s actual rail network. The slime mold had found the most efficient routes, eliminated redundancies, and generally discovered the optimal way in which to connect its food sources. And if you think about it, this is basically what transit networks are supposed to do. They should connect clusters of people in the most efficient way possible.
It has been a decade since this slime mold transportation discovery was first publicized, and it would seem that it hasn’t really caught on as an invaluable planning tool. So I’m going to go out on a limb and suggest that we should take out a map of every major city in the world, plot its population centers, drop down some oat flakes, and then let slime mold tell us all the ways in which we are screwing up and over-politicizing our transportation planning efforts.
Thank you to Angus Knowles for making me aware of this study. Angus writes an occasional newsletter about cities and housing, over here.
I watched this for the first time last night. It is the late and great Anthony Bourdain hanging out in Montréal and Québec City with two of Canada’s most respected chefs and restaurateurs: Dave McMillan and Fred Morin of the famed restaurant Joe Beef. Initially aired in 2013, it’s hard not to miss Bourdain when you watch it. And it’s also hard not to love Québec. This is an episode about humility, authenticity, good living, and, of course, some of the best food and drink in the world. Bourdain has a great line right before they visit Wilensky’s (in Le Plateau area of Montréal) where he says, “no matter how you feel about Québec as either separate or as an essential part of Canada, any reasonable person loves this place.” I couldn’t agree more.
If you can’t see the embedded video above, click here.
In 2018, the Utah State Legislature passed a bill creating a new land authority to guide the future development of 600 acres of state-owned land in Draper, Utah (just south of Salt Lake City). It’s near an area called The Point of the Mountain and so that’s what’s this project is now being called — The Point. Here’s a map to help you get situated:
In addition to this being a big and meaningful development opportunity with an estimated 7,400 new households being contemplated, the land authority also wants this to become an innovation hub and a model “15-minute city.”
There has been a lot of talk about 15-minute cities over the course of this pandemic, but the idea is simply to have all/most of your daily needs within walking distance of where you live and to not have to always rely on a car. This is a difficult thing to achieve in many cities, but I think it’s one the greatest urban amenities out there.
A big part of this is creating the right street network and planning for enough density, which is why this can be so challenging to do after the fact. Street grids, in particular, tend to be extremely sticky and mostly immutable. In this case, the plan is to create car free zones (or limited vehicle zones) across the various centers of the development.
Developing walkable communities from scratch is a lot harder than slotting into existing urban fabrics, particularly when you have a contrasting context all around it. You have to get a bunch of different things right for it to be successful. But we continue to see lot more of these urban-focused masterplanning efforts and I think the trend will only continue.
What it shows is (1) the number of new housing using created through the addition of secondary suites, such as basement apartments and laneway suites; (2) the number of housing units lost to demolition or “deconversions”, such as when a duplex or triplex gets converted (back) to a single-family home; and then (3) the net new units added over the last three years.
In looking at the chart, you’ll see that the City of Toronto actually lost about 2,000 units from its existing housing stock between 2019 and 2021. Again, these numbers only consider what’s happening in the city’s existing low-rise residential housing stock. They don’t factor any of the housing supply being delivered through new condominiums and multi-family apartments.
Still, it’s evidence for something that is perhaps already well known: many of Toronto’s low-rise neighborhoods are losing people. They are losing people because the existing structures are housing fewer residents and they are losing people because we make it difficult to build new housing. We want them to be “stable.” But stable built form doesn’t necessarily mean that things aren’t changing on the inside.
Now compare this to what’s happening in Brampton (a suburb of Toronto). CUR is calling Brampton the land of secondary suites. Over the last three years, it added nearly 11,000 housing units and was on pace (at the time the data was published) to create nearly 6,000 last year alone (most of which are basement apartments). This is all within its existing housing stock.
With all of this, I think there’s an interesting question about about how much of this is being driven by market demand and how much of this is being driven by land use policies. There’s obviously demand for expensive single-family homes in Toronto, which is why “deconversions” are happening. But to what extent does this change if/when we become more permissive around multi-unit dwellings?
