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.
Four years ago I wrote about a great essay that Paul Graham had published way back in 2009 about two different kinds of schedules: the manager’s schedule and the maker’s schedule. Put differently, the manager’s schedule is one of command. It is for bosses to drop in for 15, 30, or 60 minutes at a time, say a bunch of things, and then jump to the next meeting.
The maker’s schedule, on the other hand, is one of doing, whether that be programming or working on an excel model. And the reality is that you can’t make or do much with only 15, 30, or 60 minutes. To make anything of real substance you need longer uninterrupted blocks of time. You need time to get into the zone.
I’m reminded of this dichotomy now, more than ever, because of video conferencing. It has never been easier to overload a calendar with meetings. Consequently, it has never been easier to screw up a maker’s schedule.
The Globe and Mail published this headline today: “Developers building more small condos, despite people clamoring for more space.” It’s behind a paywall and so some of you may not have read it. But the data looks something like this. Of all the new condo project launches that happened this year in Toronto, studios and one-bedroom suites accounted for 61% of all new inventory, according to Urbanation. This is a higher percentage than what the market saw in 2019 and 2018, and this is despite the fact that many/most people are still working from home and would probably appreciate a bit more space.
The short answer as to why this is happening is affordability. For years I have been clamoring for a dual aspect oceanfront penthouse on Miami Beach, but that time hasn’t come for me yet. Things cost money. And the downward pressure on unit sizes is a direct result of developers trying to ensure that their inventory is within the reach reach of buyers (there’s a sweet spot somewhere in the range of $500-700k right now). Developers are heavily incentivized to build what sells and rents, both quickly and at the highest price. That tends to be smaller units, especially early on.
Where this goes in the future is anybody’s guess. But with the dramatic price increases that we have seen on the low-rise side of the market, I suspect that we’ll see a subsequent surge in demand for condos — maybe even larger condos.
Every year my friends at Urban Capital publish an annual magazine called Site. And every year it contains some great articles about the real estate development industry across Canada. (Some of you may also remember that I’ve written a few articles for it in previous years.)
Well this year’s issue is out and there are a few featured articles that I’d like to draw your attention to:
What happens when 175 (mostly) women get together to design a condominium?Link
Why have Toronto condos become so %@$#$! expensive?Link
This last one is a topic that we have talked about many times before on the blog. But here, UC has provided a quantitative comparison between a project they did in 2005 and a project that they’re doing today in 2020. Here’s what they found:
Average condo prices in the City of Toronto are up about 150%. But…
Land costs are up 160%.
Soft costs are up 118%.
Construction and related costs are up 91%.
Financing costs are up 93%.
Government fees, charges, and taxes are up 413%.
And development charges (a subset of the above) are up 3,244%!
At the same time, the profit margin over costs is down about 45%.
(As a point of comparison, CPI only increased by about 26.5% during this same time period.)
The point here is that condos are so %@$#$! expensive largely because of cost-plus pricing. Government fee increases are also outpacing every other cost bucket.
If you’re developing new housing in Toronto, you have no choice but to accept these rising costs. You have to pay development charges and you have to pay them when you’re told, even if that means swallowing some new massive increase.
So by necessity, end prices get continually pushed as a way to try and absorb these costs. You figure out what your costs are going to be and then you price accordingly. But of course, you also have to ask yourself: Can people actually afford this kind of pricing and can this neighborhood support it?
Sometimes the answer is yes, which is why development continues. But sometimes the answer is no. In this case, the next step is simple: you don’t build.
We’ve all heard stories or know people who have made the decision to leave the city during this pandemic, either temporarily or permanently. Some young people have moved home until things settle down and some people have sold their real estate and bought something outside of the city.
I don’t know know what the exact numbers are, but you can see this trend being reflected today in downtown rental rates and other indicators. This is happening in many cities around the world.
But here’s what I think about when I hear these stories:
1) Are these people assuming that we will never go back to offices and that WFH is our new reality? In this case, the thinking is simple. The world has changed. I need a proper Zoom room and a home gym.
2) Did these people never really like urban living or have they simply outgrown the city? Pre-pandemic, family formation was still a major pull away from downtowns for many. In this case, a move was going to happen regardless.
3) Or are these people taking a short-term view of the world and forgetting/ignoring that our global cities are going to rebound and that 2 hour commutes really suck? (Sitting in front of Zoom all day is also no way to live in my opinion.)
There are both positives and negatives to urban living. There are forces that make people want to centralize and there are forces that make people want to decentralize. And the reality is that many of the benefits and perks of living in a city are temporarily turned off right now.
Things are not fun right now, but this isn’t going to last. I’m looking forward to the roaring twenties.
I really like photography and I really like cool light things. And so this Kickstarter project — called the Looking Glass Portrait — caught my eye today. I haven’t backed it (yet), but it strikes me that three-dimensional image capture and creation is going to be something pretty important going forward. I can’t wait for that to happen.
“…the pandemic and its aftermath have also created a rare openness to doing things differently. Seizing this opportunity won’t be easy, or a short-term affair. But if we can be certain of anything, it’s that cities will adapt and evolve, and that they have the potential to come back stronger.”
– Kearney 2020 Global Cities Report
The Kearney 2020 Global Cities Report is out and it incorporates two main rankings: their Global Cities Index (GCI) and their Global Cities Outlook (GCO).
The former is intended to be a snapshot of where things stand today and the latter is intended to be a forecast of where things might be heading.
Here’s their GCI:
And here’s their GCO:
Note: The big mover in their GCO is Toronto, jumping nine spots to take second place behind London.
I get that real estate developers don’t always have the best of reputations. We build buildings that cast shadows. We invest in (or gentrify) neighborhoods. And yes, like every other for-profit business, the goal is to make a bit of money along the way.
But believe it or not, there are developers out there who care deeply about the work that they do. They care about their craft. And they want to do the right thing.
Perhaps the best way for me to start to explain what I’m getting at here is to quote the late Steve Jobs. An obsessive perfectionist, Jobs was known for focusing on every little detail in the projects that he worked on. Here’s an excerpt from an interview he did for Playboy back in 1985:
“We just wanted to build the best thing we could build. When you’re a carpenter making a beautiful chest of drawers, you’re not going to use a piece of plywood on the back, even though it faces the wall and nobody will ever see it. You’ll know it’s there, so you’re going to use a beautiful piece of wood on the back. For you to sleep well at night, the aesthetic, the quality, has to be carried all the way through.“
As a developer and a fake architect, this paragraph really resonates with me. But here’s the thing. One of the differences between making a beautiful chest of drawers (or a computer) and making a beautiful building, is that buildings have an inordinate amount of rules that tell you what you can build where and then how you need to build.
Some of these rules, of course, make a lot of sense. Life safety is no joke. But some of these rules also make no sense. And sometimes these rules — that don’t make sense — prevent you from putting what I would metaphorically consider to be that beautiful piece of wood on the back.
The beautiful piece of wood isn’t about money. In fact, it’s going to cost you more compared to just using a piece of plywood. It’s about giving a shit and caring about your craft, even if nobody else does. It’s so you can sleep well at night.
With laneway suites permitted as-of-right across the entirety of Toronto, the City is now looking to other forms of accessory dwelling units and other ways to increase the supply of rental housing. The next frontier is likely to be something that the City is broadly referring to as garden suites. And the timing is likely to be as early as next summer. Here’s how they’re defining it (taken from this recent report):
Garden Suites are sometimes referred to by other names, such as “coach houses”, “tiny homes”, and even “granny flats”. However they are all effectively the same idea – a detached accessory dwelling unit generally located in the rear yard of a detached house, semi-detached house, townhouse, or other low-rise dwelling. It is generally smaller in scale, functioning as a separate rental housing unit. Garden Suites are similar in form and function to Laneway Suites, which are currently permitted across the City in all low-rise residential zones in the city-wide Zoning By-law, 569-2013. To avoid any confusion between these terms, the City is considering all types of detached-accessory dwelling-unit to be a Garden Suite, for the purpose of this review, with the exception of a Laneway Suite, which is already permitted and defined within the Zoning By-law.
The above report will be going to Planning and Housing Committee on December 8, 2020. The goals are to kickstart the public consultation process and to come up with the necessary recommendations to permit garden suites by the second quarter of 2021. Like laneway suites, they are expected to be as-of-right. That means straight to building permit. No variances (and contentious Committee of Adjustment meetings) required.
This is great news and I’m looking forward to seeing garden suites become a reality in 2021. For more information about what’s happening on December 8th, click here.
Art Basel Miami Beach was cancelled this year for obvious reasons. It had originally been scheduled to kick off on December 3rd. But Design Miami is still hosting some physical exhibitions and naturally a lot of online programming. They also partnered up with Dezeen (and others) to host a series of online talks as part of the festival. Here is one about Latin American architecture and its symbiotic relationship with Miami. For some, Miami is known as “the capital of Latin America.” This talk explores that idea, but also how the relationship really runs both ways. It’s with architects Tatiana Bilbao and Carlos Zapata, and developer Joseph Schwarzkopf.
I love the contrast in this villa between the more private spaces, which are housed in a brutalist concrete structure, and the more public spaces, which sit on top and are housed in minimalist glass box that is reminiscent of the Farnsworth House.
All of this was done in order to maximize views of the surrounding mountains from this upper floor. But it also creates a certain lightness within the next landscape. And I’m sure that the views out are that much better after emerging from such a contrasting space below.
Located to the southwest of Madrid, the villa was designed by Spanish architect Alberto Campo Baeza in 2000. It’s called the Casa de Blas and it’s currently on the market for €850,000. Listing information over here.
But I would also encourage you to check out some of the firm’s other work. It’s absolutely magical. One of my favourites is the House of the Infinite, which was designed in 2014 and, in my mind, shares some similarities with the above villa.
In both the Blas House and the House of the Infinite, the rooftop spaces feel like everything. In some ways, they have been privileged over almost everything else. And so instead of wanting to be inside the houses, the architecture seems to pull you toward wanting to be on top of them.
