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.
It rained a lot today. According to Environment Canada, Toronto’s Pearson Airport saw 97.8 mm of rain fall before 2 PM. This is the fifth rainiest day on record; the record being July 8, 2013, which saw 126 mm fall. But today feels a lot like it did in July 2013. The same rivers, streets, and underpasses flooded. People needed rescuing. Cars got marooned. And more than 167,000 customers were left without power. I lost power in the Junction around lunchtime and it didn’t come back on until just before 7 PM. That really hurt productivity, although I did manage to get in a workout during the outage.
Sadly, all of this is expected. The thing about air is that its ability to hold water depends on its temperature. For example, according to Nasa, a given volume of air at 20°C can hold 2x the amount of water vapor compared to air at 10°C. So as the earth’s atmosphere warms, it is automatically going to hold more water vapor, and that means the potential for bigger and more severe storms. Some scientists predict that for every 1°C increase in atmospheric temperature, we should expect precipitation intensity during extreme storms to increase by about 7%.
This means that flood and water management are only going to become increasingly more important to all cities — not just the most vulnerable cities like Miami. And it’s going to require constant adaption as we figure out how to best manage the climate damage we’ve done. Of course, it’s easy to want to do something about this on days like today when everyone is sharing videos of flooded streets and floating cars. But the trick is continuing to do something about it once most people have forgotten what July 16 was like.
Last month, I wrote a post called, More people, fewer new homes. And in it, was a chart showing that for the 12 months ending July 1, 2023, Toronto grew by approximately 126,000 people, and the Greater Toronto Area grew by about 233,000 people. Big numbers. At the end of the post, I also mentioned that this is more growth than the city has seen over the six preceding years.
But how does this compare to other cities in Canada and the US? If we look at only central cities (not metro areas), Toronto is, in fact, first. Canadian central cities, in general, also seem to be growing more quickly than their US counterparts. After Toronto is Calgary, which added nearly 87,000 people for the same time period.
Looking at metro areas, Toronto is still first. I don’t know why the ~222k figure, here, doesn’t reconcile with the ~233k figure from last month’s post, but presumably it’s some sort of boundary difference. In any event, Toronto is first. But now, once you include metro areas, US cities do much better in this list. Number two is Dallas-Fort Worth-Arlington.
This difference between central cities and metro areas likely tells us something about the way in which these city regions are growing. Still, it would be interesting to see how much of this population growth is being accommodated through infill development vs. greenfield development. One way to measure that might be to look at changes in the footprint of their built up areas.
For more about the above two charts, check out this recent post from TMU’s Center for Urban Research and Land Development.
I’ve been thinking more about yesterday’s post and what it might mean for cities, and I’d like to add some additional thoughts. The report that I linked to looks at what the fiscal implications of WFH have been on a number of US cities (at least so far). That is the chart that I shared summarizing New York City’s “agglomeration losses.”
But along with this, there is an important assumption that we have not yet reached a new equilibrium. In other words, we are still in a period of adjustment, which feels right, especially if you talk to anyone in the commercial real estate industry. And that means that there are alternative and largely unknowable scenarios for the future.
In the report, they study the following three:
Doom loop prevails (current state where city finances get worse)
Recovery (cities regain their pre-pandemic levels of agglomeration economies)
Virtuous boom loop arises
Obviously the objective with their recommendations is to help cities achieve this last one. This is the scenario where cities regain prosperity because firms are able to simultaneously increase their concentration of high-value in-person workers (who benefit from agglomeration economies) and shift all the other stuff to WFH (which allows firms to save money and drive efficiencies).
More specifically, this scenario assumes that agglomeration economies start to grow again; that wages increase because of it; and that firms, overall, become 10% more productive. It also assumes that office real estate values recover to pre-pandemic levels.
The future is, of course, notoriously difficult to predict. But I am optimistic that the best and most desirable cities will figure out how to create a new virtuous boom loop. History has shown us that cities are remarkably resilient.
However, implicit to this discussion seems to be the creation of two classes of workers: workers who are expected to show up in-person and do innovative things with their colleagues, and workers who are encouraged to stay at home and do the tasks that do not benefit from co-location. Of course, lots of people do both of these things. But for the purposes of this post, let’s just compare and contrast these two.
Importantly, these two types of workers are expected to have different wage outcomes (in the above report). For WFH workers, wages are initially modeled to fall because of the loss in agglomeration-related productivity. But interestingly enough, before this wage decline happens, WFH workers are unambiguously better off — they have the same salary and none of the direct costs of going into the office.
On the other hand, in-person workers are modeled to have their wages increase because of the gains in agglomeration-related productivity. The authors of the report have calibrated their models so that these two types of workers eventually become equally well off, once you adjust for changes in wages and things like the direct costs of commuting. But what would this really mean in practice?
To oversimplify, we’re talking about two different types of workers:
An in-person worker who is expected to have higher wages, be more productive, and live closer to a city center because of their need to be physically present
A WFH worker who is expected to have lower wages, be less productive, and live further out (or in a different city) in order to equalize their lower earnings by way of less expensive real estate
If this is how our labor markets evolve, then it strikes me that there could be far-reaching socio-economic implications. What I worry about is further segregation within our cities. The above scenario means doubling down on the role of big cities as centers for innovation and agglomeration economies. But in doing this, how do we ensure that we don’t exclude everyone else?
Once again, I suspect that a good place to start would be lowering the cost of new housing and increasing the pace of production.
One of the interesting things about return-to-office trends is that there’s a meaningful difference between smaller and larger cities. In smaller cities, most people have returned to working in their offices. But in larger cities, this hasn’t been the case. This makes intuitive sense. Larger cities tend to have more expensive real estate (which forces people to decentralize) and, in turn, longer and more punishing commutes. So in a larger city, the individual benefits of WFH (i.e. having zero commute costs) tend to be far greater.
However, in-person interactions are critical to what are known as agglomeration economies. This is why we have things like financial districts — because there are real economic benefits to even competing firms locating proximate to each other. WFH arguably reduces these benefits. And in this recent report called, Doom Loop or Boom Loop: Work from Home and the Challenges Facing America’s Big Cities, the authors, Richard Voith, David Stanek, and Hyojin Lee, have tried to estimate what these agglomeration losses might be for cities like New York, San Francisco, and Philadelphia.
Here’s New York City:
If you agree with their assumptions, then you might also agree with their policy recommendations. Among other things, the report argues that larger cities, like New York City, should be focused on promoting themselves to industries/jobs that benefit the most from in-person interactions, recognizing that WFH isn’t going away. At the same time, cities should understand that reducing the cost and increasing the pace of housing production also helps to reduce agglomeration losses. It keeps more people centralizing around a particular place.
To download the full report, click here. It’s an interesting read.
As some of you know, I take a French class one evening every week. I have chosen to go in person, but apparently the majority of students enrolled at the school, don’t. They do it online, which is obviously easier for everyone. Call me old school, but I prefer being in a classroom, especially when trying to learn and perfect a language.
I was reminded of this as I read through this recent article by Alain Bertaud. Alain is perhaps best known for his book, Order without Design: How Markets Shape Cities, and so it’s no surprise that he would write an article praising the randomness of cities. In it, he talks about how it is, of course, possible to never leave home. Meetings, food, entertainment, and exercise all happen online.
Randomness makes city life exciting and productive, and how we design cities can multiply or reduce the chances of serendipitous encounters of people and ideas. Creativity and innovation, two of the most desirable traits of metropolitan environments, depend on unplanned meetings between people of different skills, tastes, and backgrounds.
Development is tough. Among a long list of other things, it requires making a lot, and I mean a lot, of decisions. Oftentimes you won’t have all the information. And sometimes they will be uncomfortable ones to make. But you need to decide on something. It is, arguably, almost always the case that any decision is better than no decision.
In situations like these, I often like to think back to something that my first boss in development used to drill into me. She would simply ask: What’s best for the project? Now, this is not to say that you should ever do bad things simply for the betterment of a project. That is clearly the wrong thing to do. What I am instead saying is that it can be helpful to keep this guiding light in mind.
Developers have a fiduciary duty to their investors and partners. But they also have a responsibility to the people who will ultimately occupy the spaces that they’re building and to the communities that they’re building in. And at the highest level, all of these groups should be aligned in wanting the best possible project.
So if you’re ever struggling with a development decision or you just need a goal reminder, try asking yourself this basic question. It may not work or apply in all scenarios, but I have found it to be helpful in situations where I’m wrestling with something and I need to take emotion out of the equation. What’s best for the project? That’s what it’s all about.
It was not my intention to make this building code week on the blog, but for some reason that has happened. So let’s continue. Here is an interesting guest essay — about elevators — written by Stephen Smith for the New York Times.
Stephen is the founder and executive director of a Brooklyn-based non-profit called the Center for Building in North America. And what they do is conduct research on building codes, specifically in the United States and Canada, and then advocate for reforms.
Here’s what he thinks about elevators (taken from the above essay):
Elevators in North America have become over-engineered, bespoke, handcrafted and expensive pieces of equipment that are unaffordable in all the places where they are most needed. Special interests here have run wild with an outdated, inefficient, overregulated system. Accessibility rules miss the forest for the trees. Our broken immigration system cannot supply the labor that the construction industry desperately needs. Regulators distrust global best practices and our construction rules are so heavily oriented toward single-family housing that we’ve forgotten the basics of how a city should work.
Here’s how the US compares to a few European countries:
Nobody is marveling at American elevators anymore. With around one million of them, the United States is tied for total installed devices with Italy and Spain. (Spain has one-seventh our population, 6 percent of our gross domestic product and fewer than half as many apartments.) Switzerland and New York City have roughly the same population, but the lower-rise alpine country has three times as many single-family houses as Gotham — and twice as many passenger elevators.
And here’s a set of cost comparisons:
Behind the dearth of elevators in the country that birthed the skyscraper are eye-watering costs. A basic four-stop elevator costs about $158,000 in New York City, compared with about $36,000 in Switzerland. A six-stop model will set you back more than three times as much in Pennsylvania as in Belgium. Maintenance, repairs and inspections all cost more in America, too.
If you’re interested in this topic, I would encourage you to give the full article a read. It’s highly relevant to our ongoing discussions around missing middle housing. If cities, like Toronto, hope to build a lot more apartment buildings (especially smaller-scale ones), they are going to need affordable and plentiful elevator options.
Conrad Speckert got in touch with me following yesterday’s post (about single-stair buildings) and he was kind enough to let me know that, this Thursday, Toronto Planning and Housing Committee will be considering this single exit stair item.
Included in the agenda item is a building code report that was done because City Council wanted to know if it were feasible to design multi-residential buildings up to four storeys that wouldn’t be detrimental to human health.
Now that the report is done, one of the recommendations being put forward this week is for Toronto to create a guideline that would help people prepare alternative solution proposals under the Ontario Building Code.
Alternative solutions provide greater design flexibility. We almost always have them come up on our projects. In essence, they are a way of saying, “yeah, I know this design doesn’t precisely meet the code, but it still satisfies its intent, and it works, so please approve it.”
In this particular instance, the idea is to create a public-facing guideline so that more people will be able to figure out how to build 4-storey buildings with a single means of egress. Again, the current maximum is 2 storeys.
Four storeys isn’t quite six storeys. But we’re getting there. And it has become increasingly obvious that it is now just a question of when, not if. At some point, we won’t be calling this an alternative solution proposal. It will just be — the way.
Point access blocks (or single-stair buildings) are now an important part of today’s discussions around housing supply in Canada. They are seen as a way to encourage more and different types of housing — something we have been talking about on this blog for years. Here and here are two recent posts.
This week, I discovered the work of Conrad Speckert, who works at LGA Architectural Partners and has become a leading voice for this movement. Conrad completed his M.Arch at McGill University and, as part of his thesis project, he developed this website called Second Egress.
Since then it has grown to become a major resource for point access blocks. But most importantly, it has evolved into a catalyst for change. On April 18, 2022, he and David Hine (of David Hine Engineering) submitted this code change request to the Canadian Commission on Building and Fire Codes.
The ask: Allow a single means of egress for multi-unit residential buildings up to 6 storeys. (The current maximum is 2 storeys.) Well done, Conrad and David. This is a massively important request with far-reaching benefits, and so I would encourage all of you to check out his website and spread the word.
P.S. My second favorite part of his site is a section called Manual of Illegal Floor Plans. It’s a catalog of highly livable single-stair buildings from around the world; all of which would be currently illegal to build in Canada.
For those of you who maybe aren’t familiar, La Défense is the largest purpose-built business district in Europe. It houses upwards of 40 million square feet of office space and covers about 1,400 acres. It’s also more or less where Paris decided to allow and put tall buildings. Though, it is about 3 km west of the city limits.
The Paris-CBD, on the other hand, is within the city limits and I’m assuming it refers to the quartier central des affaires (QCA). But regardless of the exact boundary definitions, what we are comparing here is a purpose-built business district to an older supply-constrained central one. And clearly there are, right now, meaningful differences in demand for the offices in these two areas.
What’s also interesting is that there’s a meaningful difference in the rents. According to Reuters, office space in La Défense is on average about 50% cheaper than the QCA. This, to me, is a reminder that monofunctional urban areas tend to be less resilient over time. And that’s why La Défense is actively working to add additional uses, such as more residential.
But it’s not just about uses. The area will also need to contend with the fact that it has a vastly different kind of built form; one that isn’t fine-grained and walkable like the QCA. This matters.
