Here is a short video by Dave Amos (of the YouTube channel City Beautiful) about the splitting of Berlin into two. What a fascinating urban case study. I just recently discovered his channel, but he seems to cover some interesting topics, all of which are related to cities and city planning. When Dave is not making YouTube videos, he is a professor of city and regional planning at Cal Poly. He also graduated with a Master of Architecture at some point before getting his Ph.D., so presumably he knows a few things about buildings and cities. I guess that also makes him an imposter architect, like me.
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South Korea’s idiosyncratic and counterintuitive home rental system
Over the weekend I learned about a unique feature of South Korea’s housing market. It’s called jeonse. And the way this housing contract works is that, instead of tenants paying a monthly rent to their landlord, they pay a huge lump-sum amount up front. Usually this “key money” is equal to somewhere around 50% of the value of the home, but oftentimes it’s even higher (60-90% range). In 2014, the average cost of a jeonse deposit in Seoul was somewhere around US$300,000.
In exchange for this huge lump-sum amount, jeonse tenants are able to live in the property for a period of time (usually 24 months) without having to pay any rent. Because what they are actually doing is paying via the opportunity cost of having their money tied up during their occupancy. Jeonse landlords are free to invest these lump-sum deposits however they see fit. The money they make from investing is their “rent” on the property. (The deposits are secured through a lien on the home, but of course that isn’t without some risk.)
At first glance, this seems entirely counterintuitive. If you have hundreds of thousands of dollars available to you, why not buy? Why hand it over to a landlord so that they can go invest in things? Well, usually when there’s a marketplace for something it is because both sides stand to benefit. And in this case, the jeonse system supposedly emerged as the country was developing and people were rapidly urbanizing. Credit wasn’t widely available and so the jeonse system grew to help both tenants and landlords.
For tenants, it was cheaper than owning a place outright and the “rent-free” period allowed them to more easily save up so that they could eventually buy. And for landlords, it was access to low-cost capital and the opportunity to invest in other money-making stuff. Some even credit the jeonse system with being instrumental in South Korea’s rapid rise in the second half of the 20th century.
But is it still relevant today? Good question.
The data suggests that it could very well be on the way out. Jeonse deposits have been declining for years and, based on this, it was overtaken in 2012 with more people choosing to pay rent on a monthly basis. As of 2019, it had grown to over 60% of tenancies in Seoul. And so it feels like the end could be near. But if any of you have first-hand experience with renting in South Korea, I would love to hear from you in the comment section below.
Photo by Cait Ellis on Unsplash
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How new technologies spread (and what that means for superstar cities)
We know that innovation and economic growth tends to be unevenly distributed. This is the bull case for living in cities and, more particularly, for living in certain cities. But of course, the big question these days is whether or not our little work from home experiment has proven that, for the first time ever, work can now decentralize.
Well here is a unique study that looked at 29 disruptive technologies over the last two decades in the United States. Using three main sources — patents, job postings, and hundreds of thousands of earnings calls — the team traced where new innovations/technologies have tended to emerge and then how they spread (or didn’t spread) across the rest of the US.
Their initial findings won’t surprise regular readers of this blog. There are indeed a certain number of pioneering superstar cities. Within their list of new disruptive innovations, the team found that about 40.2% of them came from California. The next “super-cluster” was along the Boston-Washington corridor in the northeast with ~21.2%. By narrowing down their list to “disruptive patents”, as opposed to all patents, innovation looks even spikier.
Next the team looked at how these disruptive technologies tend to diffuse across the country. This is where job postings and earnings calls come into play. New technology gets created in California garage. Cool. But at what point do CEOs across the country start talking about it and hiring people who are capable of doing things with it? This next figure shows that diffusion at various time intervals.
Now here are the important takeaways. New disruptive technologies clearly take time to spread. However, high-skilled hiring tends to spread much more slowly than low-skilled hiring. This kind of makes sense as you’ve got a built up and entrenched knowledge base in these pioneering locations.
But what this also means is that pioneering locations tend to maintain their hegemony for quite some time — decades. The high-paying jobs stick closer to home for much longer, presumably because geography makes it harder to transfer knowledge. This is, of course, based on historical data. But I remain highly suspect that Zoom calls can really disrupt the importance of our superstar cities.
Maps: Vox
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What happens when you eliminate parking minimums? Lessons from Buffalo.
Back in 2017, the City of Buffalo introduced something known as the “Green Code.” It was the first overhaul of its zoning code in over 60 years. I wrote about it here. One of most notable changes as part of the Green Code was the complete elimination of parking minimums. Which is another topic that has gotten a lot of air time on this blog.
Now that it has been a few years, Buffalo provides an interesting case study: What do developers do once you eliminate parking minimums in a mid-sized city? I mention mid-sized because I think the size of the city is relevant here. There is a common argument that you can’t eliminate parking minimums unless you’re in a big and transit-rich city. “This isn’t [insert big city]. People drive here.” I am sure that many of you have heard this before.
But is that really the case? Here is what Daniel Baldwin Hess & Jeffrey Rehler found when they studied the development response to removing parking minimums in Buffalo:
- The study looked at 36 major developments in the first two years after parking minimums were eliminated
- In aggregate, the 36 developments built 21% less parking spaces than what was previously mandated, likely demonstrating that the old zoning code was resulting in an excess supply of new parking
- Mixed-used developments (of which there were 14, generally consisting of residential + retail) built 53% less parking than what was previously required
- One exception to this trend is that single-use projects (both residential and commercial) built either the same or more parking (most of these projects were in the suburbs outside of the downtown core)
What this suggests to me is that the previous zoning code was maybe appropriate for what the market was demanding (for parking) in suburban locations. Maybe. But it was certainly overshooting what the market was and is willing to accept in more urban locations in Buffalo. Mixed-used (i.e. being able to support retail at grade) is likely a good measure of the project’s urbanity.
Perhaps more importantly, I think this study shows that developers are incentivized to build what the market wants — no more and no less. Building parking that nobody wants is bad business. As is building too little parking such that you can’t rent or sell your space(s). A Goldilocks parking ratio is what you’re after, but it is constantly changing and finding it can be a bit of an art. Eliminating parking minimums is a good way to let the market try and figure it out.
Photo by Seth Yeanoplos on Unsplash
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New land development across the US between 2001-2019
The Washington Post just published this interactive feature showing new developed land (i.e. urban sprawl) across the US between 2001 and 2019.
It is based on these land cover maps which were published by the US Geological Survey earlier in the summer. Their findings show that between 2001 and 2019, more than 10% of the land cover in the lower 48 states changed during this time period. Mostly in forested areas.
The WP feature allows you to search by city/address and I would encourage all of you to try it out. As an example, here is Salt Lake City. The gray areas represent land that was already developed in 2001. The purple areas represent land that was developed sometime between 2001 and 2019.
Images: Washington Post
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Making sense of public ledgers
One of the things about crypto and blockchains is that they are mostly public. Every transaction gets logged in a public ledger, which means that if you know the address of a particular wallet, you can see its balance, all the in and out $/crypto flows, any NFTs that it may own, as well as probably many other things that I am still working to get my head around. In all likelihood you won’t know who the wallet belongs to, but you’ll be able see what’s going on at that particular address.
This is a pretty radical feature if you compare it to the way things generally work today. And what it signals to me is that we are headed towards a world with a lot more transparency and real-time data. Today I learned of a company called Dune Analytics. It is an analytics company built around open blockchain data (there’s no proprietary data). At the same time, it’s also a community. And it is this community (think of them almost as analysts) that helps to make sense of the open data.
To give you an example, here is a chart from Dune showing monthly volume by NFT marketplace. OpenSea looks to be running away with things right now. And there’s no guessing. Here is all of the data.
But, of course, this is just one example. Blockchain data could also be used to generate something like a real-time profit and loss statement for a company, which again, is pretty radical when you compare it to the way (and how slowly) that things are done today. It’s hard to not to see all of this and think about the far reaching implications of what’s unfolding right now. Everything from healthcare to real estate will almost certainly be transformed by this next iteration of the internet.
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Architect Bjarke Ingels announces new “design living” company
News has just dropped that architect Bjarke Ingels, Roni Bahar, and Nick Chim are launching a new “design living” company called Nabr. Their website says that it is “coming soon to Silicon Valley” and so presumably there will be tech involved and we should actually be calling it a startup.
The video embedded at the top of this post (link here) will tell you a little bit about it. But from what I can glean from their website, the focus is on using technology and modular construction to deliver housing that is more personal / adaptable, more sustainable, and more attainable. There is a note on their site about buying with only 1% down.
We have talked a lot on this blog about the antiquated and slow-moving nature of design, development, and construction. So what it absolutely clear is that there are many problems to be solved here. I am excited to see what the team brings forward.
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America’s return to the office
Envoy, which is a workplace platform that offers products such as these, recently used its data to publish a kind of return to work index. More specifically, they used millions of anonymized employee and visitor sign-ins from their platforms to figure out who was returning to the office. Their dataset covers over 14,000 locations and all 50 states. And what they found was what you see at the top of this post, which is a look at workplace foot traffic in the top 10 US metropolitan areas compared to a May 2020 baseline. On average, traffic is up over 200%. And for some metropolitan areas, like the Philadelphia metro, it is up over 360%. There was a blip around January, but I think the trendline here is pretty clear.
For more on Envoy’s return to work index, click here.
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Development as a leading indicator
Building new buildings takes a really long time. It is not uncommon for development timelines to to span 5-10 years, and sometimes even longer. It is particularly frustrating when you see unnecessary roadblocks and delays throughout the process. But that’s a topic for another post.
Perhaps one of the positives of these timelines is that they force you to think well into the future. Take for example electric vehicles. Most car manufacturers have already announced aggressive electrification targets for the year 2030.
What that means is that if you’re starting a new project today, you have to assume that it will be completed into a world where many more people will be coming home and plugging in their car. Perhaps it will be the majority of people. So you probably need to plan for that.
Another way to think about development is that it is a leading indicator for what’s coming. If we stick with the example of cars and parking, I think it’s pretty clear that parking is becoming increasingly scarce in our biggest cities. The pressures are simply too great.
In all of our Toronto projects, we are currently building no more than about 0.4 parking spaces per suite. And there’s pressure to bring this number down even further. There are lots of examples of zero parking. The biggest reason is costs, but we also know that big cities don’t function well when everyone is driving around.
This is also not a new trend.
If you look at the multi-family buildings that Toronto completed in and around the 60s and 70s, many will have parking ratios in the range of 1-2 parking spaces per suite. This is totally untenable in today’s environment (except for a small subset of the market) and I bet you that a lot of this parking is now sitting vacant.
Things change. Development can sometimes tell you what those changes might be.
Photo by Michael Fousert on Unsplash
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The Netherlands is short 330,000 homes
The price of an existing home in the Netherlands increased 14.6% in the first 6 months of this year alone, according to this recent FT article. This is in comparison to 6.1% for existing homes across the EU on a year-over-year basis. Some economists estimate that the Netherlands is short about 330,000 homes right now and that it needs to build at least 1 million more over the next decade to better align supply and demand. I know that there is a lot of debate about the extent to which supply alone can solve problems of affordability. And indeed there are other factors at play here, such as low interest rates. But 330,000 is a lot of missing housing and numbers like this are not unique to the Netherlands. Most big cities have a supply of housing that is highly inelastic because of how difficult we make it to build. Most of us recognize this. But it remains a problem.
