Brandon Donnelly

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.

Subscribe

  • Current state of Toronto’s new condo market

    Ben Myers of Bullpen Research & Consulting was recently interviewed by Newinhomes.com about the state of Toronto’s new housing market. Ben is always interesting. And these are the sorts of things that I read in my spare time. So here’s an excerpt:

    The average price of popular new condo floor plans in the City of Toronto in October 2019 was approximately $1,275 per-square-foot (psf) and with growth of 3% a year, prices would hit $1,475 psf in 2024. I wouldn’t be surprised to see annual average growth of 4%, which would get you to $1,625 psf in five years in Toronto.

    This data was taken from BuzzBuzzHome and — by “popular new condo floor plans” — I believe he means that these are the floor plans that buyers tend to click on and review when they visit the site. So it’s a good indication of buyer demand.

    Here’s another quote that stuck out:

    Part of the reason that price growth has spiked is a rise in construction costs, development charges, and land prices – this cost-push inflation is passed on to consumers.

    That sounds right. And I have been writing about this phenomenon all year. Most of us can probably remember when $1,000+ psf was a high water mark for new construction condos. Now it’s pretty much a floor.

  • 4 decades of inequality

    We all know the story: Much of the world is becoming increasingly less equal thanks to the new knowledge economy. Using data from the Federal Reserve Bank of New York, the NY Times (Emily Badger and Kevin Quealy) recently published this interesting piece on “4 decades of inequality” in American cities. This is what the findings look like:

    In 1980, the United States was relatively flat in terms of wage inequality (except for maybe Fairfield). In fact, inequality in a place like Binghamton, New York was about the same as in New York City. But thanks to decline in the former and growth in the latter, New York City is now a much more unequal place.

    Economic growth is usually considered a good thing, but inequality is not. Emily and Kevin rightly call attention to the fact that — according to the above charts — these two things seem to come together as one package. See New York, Chicago, San Francisco, San Jose, Washington, D.C., and so on.

    The other takeaway from these charts is the way in which inequality seems to correlate with metro area population. We know that as the population of a city increases it tends to also become more productive. And so what we are seeing here are those urban agglomeration benefits accruing to some, but not all.

    There’s a lot that can be inferred from these charts.

  • Grinding it out over the long-term

    Fred Wilson’s latest blog post about “grinding” tells the story of how Twitter solved the infamous “fail whale” problem that plagued its platform in the early days. I remember that whale, as I’m sure many of you do as well. It was a problem and, according to Fred, it was a real threat to the business. The solution wasn’t all that sexy; though sexy solutions were attempted. The team just rebuilt everything, piece by piece. And eventually the fail whale problem went away.

    The lessons here go well beyond just this Twitter example (or at least, it triggers something for me). Here’s how Fred ends his post:

    If given a choice between a flashy operator or a grinder, I will take a grinder every time. It is a much higher percentage bet. It requires faith and patience and the results are sometimes hard to see. But if you look at the results from grinding it out over a long enough time frame, you can see the power of that approach.

    This kind of long-term patient thinking can be difficult, especially in an increasingly instantaneous world. We are all drawn to magic solutions, hot stock tips, and new condos that are destined to double in value over the next year. I suppose that’s partially why so many people enjoy playing the lottery, even though the odds of winning big can be as low as 1 in a million.

    Being a grinder is largely a higher percentage bet because you’re taking a longer, more disciplined, view. Warren Buffet has, admittedly, no idea how stocks will behave over the next week or year, just as I have no idea how condo prices in Toronto will behave over the next week or year. Instead, Warren chooses to bet on “The American Tailwind” and I choose to bet on the role of Toronto as a global city.

    Warren first invested in an American business in 1942. He was 11. Over the next 77 years, the S&P 500 would go on to return an average of 11.8% annually. Had he invested in a no-fee index fund and reinvested all dividends, his gain would have been 5,288 for 1. In other words, a $1 million investment would have grown to $5.3 billion on a pre-tax basis. (See: The compound effect.)

    77 years is, of course, a long time. But I am sure you get the point: faith. patience, and tenacity — even when, sometimes, the results can be hard to see. Real estate development is very much that kind of business.

  • Foster + Partners completes its first residential tower in London

    Foster + Partners has just completed its first residential high-rise in London. It’s a 50 storey building with 299 apartments, called Principal Tower. The tower forms part of a broader mixed-use project — that now houses Amazon UK — called Principal Place. The developers were Concord London and Brookfield Properties.

    Here’s a short 11 minute video from Dezeen talking about the project:

  • US counties with the highest per-capita income

    Below are the US counties with the highest per-capita income (as of 2018), according to this recent Bloomberg article:

    Teton, WY is home to the Jackson Hole valley (which has some of the best skiing in the world). And Pitkin, CO is home to Aspen. Turns out, rich people like ski towns.

    Interestingly enough, 2018 saw per capita income grow in the greatest number of US counties since 1981. According to the Bureau of Economic Analysis, it was 97% of all counties:

    For the full Bloomberg article, click here.

    Charts: Bloomberg

  • Vancouver approves new rental housing policy

    New rental housing measures were approved by Vancouver City Council this week. I haven’t gone through the policies in the detail (you can do that here), but they aim to increase rental housing supply by doing things such as “pre-zoning” for 6-storeys on main streets and by allowing rental apartments to be built on some side streets (up to 150m away from arterial roads).

    Here’s an excerpt from the staff report:

    Enabling new rental housing in all neighbourhoods would support an increase in supply and choice. The incentive programs have concentrated secured market rental development in selected neighbourhoods and along arterial streets. This has been effective at creating larger multi-unit projects, but has created an inequitable environment, where renters have limited housing choice. Expanding program coverage into low density areas, areas zoned for single detached housing and non-arterial locations to allow for a greater mix of structure types and densities (e.g. townhouses, small apartment buildings) are important considerations moving forward.

    It is yet another data point for what I wrote about here — the loosening of single-family zoning. Turns out, it can be difficult to meet the demand for new housing when you set aside a large part — or most — of your land for low-rise single-family homes. And there seems to be growing acknowledgement of that on the part of cities.

    Photo by Aditya Chinchure on Unsplash

  • Uncreative and greedy

    There’s a narrative out there that all developers are uncreative and greedy, and if only they would start being more creative and generous, we could solve the housing affordability problem that is plaguing many (if not all) global cities. In other words, the solution to increasing the supply of low and middle incoming housing is simply a psychological reframing on the part of developers.

    The problem with this mental model is that it ignores reality. Development happens on the margin. The market is competitive. It’s difficult to find developable sites. And it’s a challenge to make projects work. More often than not, you have to say no as a developer. No I can’t buy this land. No I can’t build housing here. And no the market will not support new office space here. Sorry, but no. (See cost-plus pricing.)

    Development needs to give back. On the blog we usually call this city building. And that’s because it implies a greater sense of civic responsibility. Developers aren’t just building one-off buildings, they’re building a city. I believe wholeheartedly in this. But the belief that projects can be saddled with an endless array of government fees and civic contributions is a problematic one. There are limits — because markets have limits.

    If only city building were that easy.

  • A theory of genius

    I thoroughly enjoy the way that Paul Graham reasons through arguments. There’s something hyper rational about it. And even if you happen to disagree with his position(s), you still end up appreciating the way he has taken you through his logic. I guess that’s what you get when you combine a computer scientist with someone who clearly likes to write.

    His latest essay is about how to do great work. Conventional wisdom, he explains, has it that you really need two things: ability and determination. That’s how you win. And that’s how you create new things. But Paul makes the case for a third ingredient — one that is arguably even more telling than the first two. Here’s an excerpt:

    If I had to put the recipe for genius into one sentence, that might be it: to have a disinterested obsession with something that matters.

    Aren’t I forgetting about the other two ingredients? Less than you might think. An obsessive interest in a topic is both a proxy for ability and a substitute for determination. Unless you have sufficient mathematical aptitude, you won’t find series interesting. And when you’re obsessively interested in something, you don’t need as much determination: you don’t need to push yourself as hard when curiosity is pulling you.

    He refers to this as his “Bus Ticket Theory of Genius,” because bus ticket collectors are an example, in his view, of a group with a “disinterested obsession.” They’re not collecting bus tickets for any particular reason, other than because of interest. And when you have this kind of obsession with things that (ultimately) matter, it can lead to important discoveries.

    Think Darwin and his obsession with natural history.

    But the other reason this topic resonates with me is because it makes the case for passion projects, side hustles, creative pursuits, and all other irresponsible things that seem to get harder to fit in the older we all get. I am believer in this. There’s tremendous value in indulging in the things that stoke our curiosity, even if they might seem to silly to others.

    And so I will leave you all with this final thought/excerpt:

    It might be at least as useful to ask yourself: if you could take a year off to work on something that probably wouldn’t be important but would be really interesting, what would it be?

  • Architectural ambition

    Alex Bozikovic’s review of the book Canadian Modern Architecture: 1967 to the Present raises something potentially troubling. Here’s what I’m talking about:

    It is by turns an exhilarating and depressing narrative: Canada, in this book, appears as a country that announced itself on the world stage in the 1960s and 1970s with incredible ambition but, since then, has retreated toward the mean.

    It is potentially troubling not only because I believe in the value of good design, but because I believe that architecture embodies the ethos and cultural context in which it was created.

    And so if you believe that our architectural ambitions have retreated toward mediocrity, you might also surmise that our overall level of ambition has retreated toward the same.

    That should be viewed as a serious problem.

  • Tesla’s new Cybertruck is growing on me

    Tesla’s new Cybertruck was the talk of the town last week. Its design is polarizing and both windows broke during the unveiling (Elon’s reaction was amazing). At first I couldn’t tell if this wasn’t some sort of spoof on Arnold Schwarzenegger’s Terminator. Everything seemed to fit, including the design of the car, the chosen brand typography, and Elon’s outfit.

    But within the first 24 hours and with no paid advertising, Tesla received 146,000 pre-orders for the truck (though, all it takes is a USD 150 fully refundable deposit to secure a place in line). So while a lot of you may consider this to be one the ugliest vehicles around, there are others who think this entire move is genius.

    The design was jarring when I first saw it. It looked like a comical representation of what we thought vehicles in the future were going to look like. But I have to admit that the design is growing on me. And I agree that for Tesla to win any sort of marketshare in the pick-up category, it needed to do something radical. Brand loyalty to Ford’s F-Series pick up truck is simply too strong.

    Marques Brownlee has a good video explaining this take (and why he ordered a Tesla Cybertruck):

    But if successful, I also wonder to what extent the Tesla Cybertruck will eat into the sales of existing pick-up truck models versus capture new buyers that historically wouldn’t have bought this kind of vehicle. In other words, we are seeing tech people and successful YouTubers, like Marques, pre-order this truck. But I bet that very few of them currently drive an F-150.

    Image: Tesla