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.

  • How urban density dictates how we vote

    “It’s remarkable that even as the internet disperses information and enables us to form online communities across great distances, our politics are still highly correlated with physical environments. Who we are is largely defined by where we are. For architects and urban designers, this is an important reminder that space is and always has been political, from the days of the valley section to the postmodern stage of Trump.”

    The above excerpt is from a Places Journal article by Neeraj Bhatia called, Environment as Politics. The premise of the article is that residential population densities have long shaped political outcomes and that that was certainly the case in the 2016 U.S. presidential election.

    But before we get into the work and drawings of Places Journal, let’s first talk about one of the inspirations mentioned in the article. In 1909, the pioneering town planner Patrick Geddes drew the following “Valley Section”:

    The point of this section drawing is to make clear the relationship between humans and their environment. In this case, it speaks to occupation. The physical geography of where you lived determined what you did: fish, hunt, mine, and so on.

    For those of us now living in cities, these “natural occupations” may not seem all that relevant. But that same human-environment relationship remains.

    In the 2016 election, 49 of the 50 highest density counties voted for Hillary Clinton. And 48 of the 50 lowest density counties voted for Donald Trump. It turns out that how close you live to your neighbor had/has a tremendous impact on your political views and the way you vote(d).

    Below is a chart from Places Journal that plots the 2016 election results for all U.S. counties:

    On the y-axis is “vote capture” by Democrats and on the x-axis is “Distance to Neighbor (feet).” What you see here is a dramatic drop off in liberal voting as distance to neighbor increases. And the tipping point appears to about 608 feet.

    Part of the explanation for this is that living in close proximity to others change how we feel about others. It can reduce fear and prejudice. In other words, it makes us more open. And as Bhatia points out in his article, one could argue that this last U.S. election was in fact a “clash over the openness of society.”

    We often talk on this blog about how space impacts our lives. As Jan Gehl once said: we shape cities and then cities shape us. Today we are reminded that space is also highly political.

    In my case, the distance to my neighbors is likely about 8-10 inches. Sometimes I can hear somebody sneeze. But most of the time I don’t hear anything at all. It’s usually pretty quiet around here. Whether I acknowledge it or not, this distance is shaping me and how I see the world.

  • Fake architect charged on 58 counts

    I had to read the following announcement a few times just to make sure it was legitimate. 

    A few days ago, attorney general Eric T. Scheiderman (New York State), announced that as a result of “Operation Vandelay Industries”, he was indicting an alleged fake architect named Paul Newman on 58 counts of larceny, forgery, fraud, and unlicensed practice of architecture. 

    And yes, the Seinfeld reference was entirely deliberate. Can you believe the guy’s name is Paul Newman? For over 7 years, Newman had been pretending he was an architect and had stamped drawings for over 100 buildings in Albany, Rensselaer, and Saratoga Counties.

    For those of you who weren’t Seinfeld fans (I assume there are some), George Costanza liked to pretend he was an architect, among many other things. He would also sometimes go by the name of Art Vandelay – an “importer/exporter” who ran a company called Vandelay Industries. Hence the operation name above.

    In any event, a funny announcement, but a not so funny reality for the hundreds of clients and building industry professionals that believed Paul Newman was indeed an architect. 

    Moral of the story: It’s one thing to pretend you’re an architect to meet women. It’s another thing to pretend that you actually have the professional ability to stamp building drawings.

  • The post-Wall techno music of Berlin

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    I’ve written about Berlin many times before on this blog. It’s such a fascinating case study for me because of its history, its urban development patterns, and its famous techno scene.

    Last month, Nick Paumgarten wrote a piece in the New Yorker, called Berlin Nights, where he dives into the city’s club culture and its reputation as the cradle of techno music. 

    But in doing that, he is necessarily forced to talk about the once divided city and its unique “post-Wall” condition. When the Wall came down, the East became – as a result of its under-utilized built form – a breeding ground for the pent up energy and creativity of the West.

    Here is an excerpt that speaks to the importance of those empty spaces and sparsely populated neighborhoods:

    The post-Wall abundance of derelict building and excess housing was decisive. “Empty spaces allowed there to be a club culture,” Robert Henke said. “With no empty space, you get a closed-at-2 a.m., restrictive-alcohol culture.” At first, the reclamation seemed slapdash, improvisational, anarchic, as squatters took over buildings and neighborhoods and set off a period of cultural ferment. But the powers that be had been dreaming up developments for years before the Wall came down, and now—amid a boom in real-estate speculation and investment (everyone spoke of the Swedes)—empty space, and the sense of wildness that comes with it, has become harder to come by. “Flats are getting more expensive,” Hegemann said. “But we still have many free spaces. This is the secret for why Berlin is still alive.”

    And here is the story of one such building:

    Some empty spaces have completed their life cycles. One afternoon, I visited the old Reichsbahnbunker, a five-story fortress of reinforced concrete built by the Nazis in 1942 as an air-raid shelter. The Soviets turned it into a jail for P.O.W.s. Then it was used to store bananas and other tropical fruit. It was abandoned. In the nineties, it became an infamous techno night club, the Bunker. No ventilation, no fire exits. The government eventually shut it down. In 2003, an advertising executive and his wife bought the building and converted it into a museum to house their collection of contemporary art. They also built a glass-and-steel penthouse on the roof, to house themselves. Now the collection is open to the public, by appointment only. I joined a tour one afternoon. The guide, a young art student with a sweet monotone, took us into a cell-like space featuring giant manipulated photographs of the night sky, by Thomas Ruff, and explained that it had been the original dark room of Berlin. “It was very extreme,” she said. “It was hot, damp, loud, and dark. It was said to be the hardest club in the world. I’m sure you can imagine the things.” She gave a coy smile.

    If you’re interested in cities and/or electronic music, the essay is well worth a read.

  • 16 new housing measures

    The big news today in Toronto real estate is that the province of Ontario introduced 16 new measures intended to rein in the housing market. 

    Some of the most notable measures, which many of you will have seen in the headlines, include a 15% tax on home purchases by non-residents and expanded rent control for buildings completed after 1991. Previously it only applied to older buildings. The maximum annual rent increase for existing tenants will now be capped at the rate of inflation, up to a maximum of 2.5%.

    Here’s some more information from the Globe and Mail and CBC.

    I’ve had a few people ask me to blog / comment on the above, but I haven’t yet had time to do a deep dive into the details. I would like to do that first rather than provide a knee-jerk reaction. In the meantime, I would love to hear your thoughts in the comment section below.

  • Steven Ballmer launches USAFacts

    Steven Ballmer – the former CEO of Microsoft and current owner of the LA Clippers – has just launched a website called USAFacts

    He describes it as a 10-K for the US government. Put differently, it is a non-partisan website offering a “data-driven portrait of the American population, our government’s finances, and government’s impact on society.” It provides a complete look at revenue and spending across federal, state, and local governments.

    There is no commercial motive behind the website and Ballmer has been quoted in the New York Times saying that he’s “happy to fund the damn thing” whether it ends up being 3, 4, or even 5 million a year.

    I love good data and in this current era of “fake news”, I think these sorts of initiatives are exactly what we need.

  • Autonomous vehicles are the new big box store

    I would like to pull out one more idea from Derek Thompson’s article, What in the World Is Causing the Retail Meltdown of 2017? It is this prediction that self-driving cars could maybe become the new retail store:

    “Once autonomous vehicles are cheap, safe, and plentiful, retail and logistics companies could buy up millions, seeing that cars can be stores and streets are the ultimate real estate. In fact, self-driving cars could make shopping space nearly obsolete in some areas. CVS could have hundreds of self-driving minivans stocked with merchandise roving the suburbs all day and night, ready to be summoned to somebody’s home by smartphone. A new luxury-watch brand in 2025 might not spring for an Upper East Side storefront, but maybe its autonomous showroom vehicle could circle the neighborhood, waiting to be summoned to the doorstep of a tony apartment building. Autonomous retail will create new conveniences and traffic headaches, require new regulations, and inspire new business strategies that could take even more businesses out of commercial real estate. The future of retail could be even weirder yet.”

    It’s an interesting idea. And perhaps not as far fetched as it may seem. Delivery timelines are constantly being compressed. And as the purchasing data gets better, it may be possible to anticipate sales before they even happen such that you’re minimizing the amount of unsold product being hauled around.

    I’m going to end here because it’s now time for some Raptors playoff basketball. But what are your thoughts?

  • The importance of shareable experiences for retail

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    There is no shortage of articles talking about the disruption currently taking place in the retail space. Just this past weekend the New York Times wrote: Is American Retail at a Historic Tipping Point? With nine U.S. retailers filing for bankruptcy protection in the first three months of 2017 alone, one could certainly make this argument.

    The obvious explanation is the shift to online shopping. Mobile spending now also makes up > 20% of total digital dollars spent. But you already knew that. Nothing new here. Perhaps less trite is one of the explanations that Derek Thompson offers up in this Atlantic article: Americans are spending less on material possessions and more on meals and experiences with friends.

    Take a look at this FRED (Federal Reserve Economic Data) chart taken from the article:

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    According to Thompson, spending at “food services and drinking places” has grown twice as fast as all other retail spending since 2005. Americans now spend more money in bars and restaurants than they do in grocery stores. Last year was the first year that happened.

    But the possible reason behind all of this is arguably the most interesting: young people are looking for ways to create great social media content. And going out for gluten-free dinners with friends and traveling to Tulum “with bae” are clearly far better fodder for that than scouring the sale racks at J.C. Penney. 

    Social media is redirecting discretionary income. This is our new reality. Whether you’re a city builder or a retailer, you must now ask yourself: How shareable is the experience that I am trying to create? 

  • Current state of renewable energy

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    The United Nations and Bloomberg New Energy Finance recently published a report covering global trends in the renewable energy space for 2017

    Here are some of their key findings:

    – 2016 was a record year in terms of renewable power capacity installed worldwide. This includes wind, solar, biomass and waste-to-energy, geothermal, small hydro, and marine sources.

    – The share of global electricity generated from renewable sources rose from 10.3% (2015) to 11.3% (2016).

    – However, overall investment in renewables declined in 2016 for two main reasons. Costs went down (good news). And China and Japan exhibited a dramatic slowdown in terms of investment activity (bad news).

    – Acquisitions of renewal assets, such as wind farms and solar parks, hit a new peak at $72.7 billion.

    – A number of promising new pricing records set in 2016: $29.10 per MWh for solar in Chile and $30 per MWh for onshore wind in Morocco.

    – In one year, the cost of solar generation dropped on average about 17% and onshore wind dropped about 18%.

  • Toronto real estate is out of control

    You can’t have an Easter dinner in Toronto right now without somebody bringing up the topic of our “crazy” real estate market. 

    Below is a chart from Bloomberg showing the year-over-year change in home prices in the Greater Toronto Area since 1990. It also shows the historical average (in blue) and how in March 2017 we hit 4 standard deviations above that. Home prices rose 33% in March compared to a year earlier.

    If I were a realtor, I’d probably tell you that the market is hot hot hot. Now is the time to sell because you’ll get some absurd number above your asking price and now is the time to buy because prices are going nowhere but up. Don’t miss out. 

    I would like to try and be a bit more nuanced than that. Here are 3 thoughts:

    1)

    There’s no question that low rates / cheap money is one of the root causes of the real estate valuations we are seeing today. But frankly I have no idea when or if that will change. There is an interesting argument out there that capital is no longer scarce. Our economy is going through a fundamental shift, which is why real estate is not the only asset class seeing these sorts of valuations and growth figures.

    2)

    There are a number of global factors which are helping to cement Toronto’s position as an alpha global city and destination for human capital. Think Trump, Brexit, and so on. I agree with Richard Florida’s argument that our real estate market will see more – not less – pressure going forward. Here is a snippet from a recent interview with Florida in Toronto Life:

    I think Toronto is going to get an even bigger influx of the creative class. With the rise of Trumpism, more and more people who might otherwise have gone to the United States are going to come to Canada. We’re going to see American tech companies invest more and more in Toronto. And if we think the housing affordability and economic divide we see today is bad, it’s going to grow ever more gaping. 

    3)

    I believe that there are always opportunities in the real estate space, but that you have to be disciplined, focused on fundamentals, and willing to do things that others won’t. What bothers me is when I hear people say things like: “Real estate only goes up. You can never go wrong.” I started my career pre-2008 and lived in both the United States and Ireland. I saw what down looks like.

  • We are all being manipulated by behavioral economics

    Ever notice how whenever you’re taking an Uber the driver usually gets another fare just before he (Uber drivers are overwhelmingly male) is about to drop you off? That’s on purpose.

    Earlier this month the New York Times published an interactive feature describing how Uber uses behavioral economics (or psychological tricks) to encourage its drivers to work longer, take more fares, and so on.

    Here’s a quick sidebar note about behavioral economics from Francesca Gino of Harvard Business School:

    According to the traditional view in economics, we are rational agents, well informed with stable preferences, self-controlled, self-interested, and optimizing. The behavioral perspective takes issue with this view and suggests that we are characterized by fallible judgment and malleable preferences and behaviors, can make mistakes calculating risks, can be impulsive or myopic, and are driven by social desires (e.g., looking good in the eyes of others). In other words, we are simply human.

    And now back to Uber. One tactic they use is goal setting. People are drawn to goals. This translates into driver messages like this one: “You’re $10 away from making $330 in net earnings. Are you sure you want to go offline?”

    But the experiment I found most interesting from the NY Times piece is the one that Lyft completed where it discovered that showing drivers lost/dropped fares was a far more powerful motivator than showing completed rides. In other words: Look at all this money you’re losing out on by not driving!

    This finding is in line with something I’ve written about a few times before on this blog: prospect theory. One of the tenets of this theory is that “losses hurt more than gains feel good.” We, humans, tend to focus more on the former.

    Of course, Uber is not alone in employing behavioral economics. Every app on your phone is being continuously optimized so that it gets as much of your attention as possible. But where is the line between encouragement and manipulation?

    If you’re interested in this topic, check out this HBR article called, Uber Shows How Not to Apply Behavioral Economics.