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.

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Search results for: “road pricing”

  • There’s growing support for NYC’s congestion relief zone — particularly from the people who actually use it

    February 10, 2025 · View original

    It has now been over 4 weeks since New York City started charging motorists to enter Manhattan so that they pay for a portion of the impact they have on roadways in the city. And the data overwhelmingly supports that travel times have fallen as a result. Transit ridership also appears to be increasing, despite what some critics will tell you, and trains and buses appear to be moving more efficiently as well (via Fast Company):

    > More commuters are opting for buses to cross Manhattan, and those buses are now traveling more quickly, too. Weekday bus ridership has grown 6%, while weekend ridership is up 21%, compared to January 2024. (Subway ridership has also grown by 7.3% on weekdays and 12% on weekends, part of a larger trend in ridership growth happening since the fall, per the MTA. Anecdotally, some subway riders have said they’ve seen more packed trains on their morning commutes.) Buses entering Manhattan from Queens, Staten Island, and the Bronx are saving up to 10 minutes on their route times, which also makes their arrivals more reliable.

    Also noteworthy is that polls suggest that the majority of Manhattan commuters (~66%) now support the congestion relief zone. They are experiencing the benefits and probably doing the mental math that the time they are personally saving is worth at least $9. However, one figure that hasn’t changed all that much is that about half of voters across New York State still oppose the congestion charge (though it has dropped by a few percentage points compared to earlier polls).

    Paul Krugman speculates (in this recent post) that this negative view is, therefore, coming from people living in upstate NY, which is interesting, because how many of these voters will actually end up paying this charge and/or experiencing its benefits? That’s the thing about being asked to spend money that you didn’t have to spend before; if you can’t clearly see the value in doing so, then you’re not going to like the idea.

    At the same time, it can be hard to win political battles with facts, figures, and rational arguments alone. Krugman also argues that there are other reasons for why this congestion relief zone is being opposed by many people and why Trump, in particular, wants to kill it:

    > …maybe the biggest reason for Trump’s desire to kill the congestion charge is a phenomenon I identified the last time I wrote about this: the rage some Americans obviously feel at any suggestion that people should change their behavior for the common good. What we’re seeing with regard to the congestion charge is that some Americans feel that rage even when they themselves aren’t being asked to make changes.

    As I have said before, this is an important policy to follow because its success, or failure, will naturally set a precedent for the rest of North America. If transit-rich NYC can’t make a congestion relief zone work, then who can? However, my optimistic view continues to be that it will ultimately stick. And already we are seeing positive sentiment from the people who it directly affects/benefits.

  • Spain proposes 100% tax on property purchases by non-EU buyers

    January 15, 2025 · View original

    Spain is a beautiful country and lots of people want to visit and/or buy property there. But here’s what Prime Minister Pedro Sánchez recently had to say about this:

    > Just to give an idea, in 2023 alone non-European Union residents bought around 27,000 houses and flats in Spain. And they didn’t do it to live in them, they didn’t do it for their families to have a place to live, they did it to speculate, to make money from them, which we – in the context of shortage that we are in – obviously cannot allow.

    And by cannot allow, he means that Spain is preparing to implement a 100% tax on property purchases made by buyers of non-EU countries, such as the UK. It’s not quite a foreign buyer ban, but it’s certainly a punitive tax that should, in theory, dissuade the majority of buyers.

    I am, however, unclear as to how this will interact with Spain’s golden visa program. For over 10 years, Spain has been encouraging foreigners to buy real estate in the country (minimum value of €500,000) in exchange for permanent residency.

    Will this program remain, and will these foreign buyers now be taxed at 100%? Or will permanent residency also exempt you? I don’t know.

    Whatever the case, it is yet another example of government trying to appear as if they’re doing something meaningful about housing affordability. You might also remember that, last year, Barcelona came out with a complete ban of short-term rentals starting in November 2028.

    But once again, I think it’s important to remember that economics is the study of choice and that there are always tradeoffs. A decision in one place, will create second-order consequences somewhere else.

  • When will the pre-construction condo market return?

    November 27, 2024 · View original

    In years past, it was relatively simple for Toronto condominium developers to underwrite pre-construction sales (which, as most of you know, is a requirement for construction financing). Notwithstanding the temporary blips, like at the start of the pandemic, it was easy to feel generally confident that the sales would be there when you needed them. It was just a question of 1) pricing and 2) how quickly could you get there (i.e. get through the zoning and entitlement process).

    This is not the case today. And it’s happening in many (most?) markets, not just Toronto.

    Today, the market clearing price for new condominiums is below the cost of actually building them. So no developer knows what the pricing should be, because no developer can price there and still have a feasible project. In addition, the question of timing is no longer dependent on approval timelines (though please don’t take this to mean that approval timelines don’t impact projects). At this point in the cycle, there are lots of zoned sites available. The question is now: When will the pre-construction condo market return?

    It is impossible to know the answer to this. If you have a truly differentiated product catering to a specific buyer pool, then it is possible the answer could still be today. But if you look at the number of condominium suites under construction in the region (more than 85k) and the number of suites expected to finish construction this year (around 27k the last time I checked), most people are broadly assuming the answer is, at the very least, a few years from now.

    Not surprisingly, this is having a meaningful impact on high-density land values. If you don’t know when and for how much you can sell for at the back end, then it’s pretty challenging to run a residual land value model today. Because it’s a lot harder to have conviction in your assumptions. What this also means is that, if your assumption is the market will take years to return, then you need to add in this additional cost of time into your model.

    To provide an indicative example, let’s say that you’re buying land today for $75 per buildable square foot, but that you don’t anticipate being able to launch condominium sales for a few years. The result could be that once you add in interest charges and other carry on the land, your effective land basis could end up being somewhere closer to $125 pbsf. (Again, these are just indicative numbers.) The end result is that you have to pay that much less today.

    In today’s market, you need to have the flexibility of patience. So this is one of the ways that developers are thinking about new acquisitions, assuming they’re still active. And it represents a significant discount on land (>50% in many cases) compared to where we were a few years ago.

    Photo by Nadine E on Unsplash

  • Toronto’s highway 407 is doing what it is supposed to do

    In Google’s guide to its maps, there is a section on live traffic congestion, and in it, this image is used:

    It is a map of the Toronto region, and not surprisingly, it is showing traffic congestion on the 401 highway. But what’s interesting about this image is that there’s no traffic at all on the 407 express toll route. (This is the green highway running generally parallel and north of the 401, for those of you who aren’t familiar with Toronto.)

    This is, of course, accurate. A 2019 study by the Canadian Centre for Economic Analysis called the Economic Impacts of Highway 407 found that, at the time, an average of 413,000 drivers were using the 407 highway each weekday. And of these trips, more than 85% of vehicles were travelling at or above 100 km/h. This translates into a traffic congestion index of almost zero.

    During this same time, the highway 401 through Toronto showed that about 85% of vehicles were travelling below 50 km/h. Meaning, lots of congestion. This also had a significant impact on collision and fatality rates. On the 407, both were about half of what they were on the 401. (I couldn’t find any more decent data, but if you have it, please share it in the comments.)

    The reason for these differences is simple: the 407 charges for congestion. Here are the current per kilometer weekday rates for light vehicles travelling westbound:

    Naturally, there are people who think the 407 is too expensive and that it shouldn’t have been privatized. But the reality is that it works; really well in fact. And this is the only method that has been proven to reliably combat congestion. We can go ahead and spend a gazillion dollars building a new tunnel under the 401, and double the number of lanes (it’s already 18 lanes at its widest point), but we already know that it won’t solve our congestion problem.

    Either we price roads and congestion, or we don’t. But if we don’t, then we need to be brutally honest with ourselves about the economic trade off that we are making: free/underpriced roads = traffic congestion, and accurately priced roads and congestion = less traffic. The choice is ours. But know, there’s no such thing as a free lunch.

  • What happened in 2023

    As per tradition around here, I like to bookend the new year with two posts: a post that revisits my random predictions for the year and a post that talks about what might happen in the year to follow. Today’s post is the former. So let’s see how I did:

    • I thought the interest rate hikes would come to an end in Q1-2023. But that didn’t happen until the summer. I also thought this would lead to a mild recession in Canada. Technically, we are not actually in one, but according to some, we kind of are.
    • I thought the real estate sector would start seeing some distress in the first half of the year, and that a new equilibrium would be found in the second half. This proved to be overly optimistic in terms of timing. A lot ended up being on pause for the entire year, and I now think that my forecast was at least a year too early. The sea change is still underway.
    • Given the overall slowdown in real estate, I felt that construction costs had to see some softening. This did, in fact, happen with some of the “earlier trades”, such as shoring and excavation, and we did see some specific trade pricing, such as concrete formwork, come down by as much as 30%. The smart cost consultants we work with now expect to see overall hard costs come down by a further 5-6% next year in Toronto. This makes sense given construction starts are way down.
    • With me expecting the interest rate increases to stop in Q1, I thought that pre-construction condominium sales would return in a meaningful way by the spring. While we did see some buoyancy around that time, it was short lived. Sales remained nearly shutoff for the entire year, but for maybe a handful of projects. The more successful projects tended to be outside of the Toronto core and at lower price points.
    • With respect to home prices in more tertiary/fringe markets, my sense then, as it is now, was that these prices would remain below the peaks for many years. In addition to the upward momentum created by low rates, my view was/is that some of this pricing was the result of a bet on urban decentralization. I don’t think that has played out as many expected it to, so that’s why I think it will be many years before the pricing we saw in early 2022 returns.
    • The momentum around “expanding housing options” in our low-rise neighborhoods is many years in the making. And a lot of progress was made in 2023. Here in Toronto, we adopted new multiplex policies that now allow fourplexes plus an accessory dwelling (so 5 homes in total) on an as-of-right basis. I continue to believe that this momentum is only going to grow. I also think we will see the arrival of more mixed-use opportunities.
    • I believed that, broadly speaking, urban transit ridership would remain below pre-pandemic levels for all of 2023. This proved to be the case for most US and Canadian cities. But things are improving. For Canada as a whole, it looks like we’ll see full recovery sometime in 2024 based on this trend line.
    • I thought 2023 was going to be the year I took my inaugural ride in an autonomous vehicle. Sadly, this didn’t happen. The sector as a whole also saw some setbacks. Hopefully I’ll get a chance next year.
    • I assumed that Apple would finally release its augmented reality device. And though they didn’t technically release Vision Pro, they did announce it. So I guess that counts for something. I also thought that 2023 would be a big year for “phygital” goods. Maybe it was. Or maybe it was more of a building year. A lot of people are curious to see how Vision Pro does in 2024. It’s not set up for the mass market, just yet, but I think it will do exactly what it is supposed to once it’s out in the wild.
    • Finally, crypto. I know that a lot of you like to skip over these posts, but it is something that I feel strongly about. A year ago, though, I was pretty bearish on Solana. Boy was I wrong. Solana ended the year as the best performing major crypto asset — up 933% at the time of writing this. Oops! However, Ether is also +91%, and I continued to dollar-cost average in all throughout the year.

    Next up: What will, or more accurately, what might happen in 2024.

  • New York City is piloting about a dozen motion sensor cameras

    This won’t come as a surprise to many of you. But I recently attended a community meeting where someone was advocating for adding new lanes to a particular road. Their argument was that traffic congestion is forcing too many cars to sit needlessly idle and that that is bad for the environment. The proposed solution of adding new lanes would get traffic moving, reduce idling pollution, and therefore be overall better for the environment.

    I disagree entirely.

    But transportation planning seems to be one of those things that many people feel is intuitive. It’s one of those things where people feel confident saying, “I know how to fix this. We just need to do this.” But the reality is that cities are incredibly complex organisms and it’s not always obvious what should be done. So I think that a big part of making our cities better comes down to having much better data. And that’s why I’m very intrigued by the work that startup Viva, and others, are doing.

    Viva uses small street-light mounted cameras and machine learning to track urban mobility (see image above). Currently they track 9 different modes: pedestrian, bicycle, e-scooter, motorcycle, car, van, light truck, semi-truck, and bus. And after they collect this data, the relevant information is extracted and then everything else is deleted for privacy reasons. There are also plans to make this data openly available to the public so that people can use it and/or build on top of it.

    Obviously this is still going to raise privacy concerns and that is something that will need to be carefully addressed. But I do think that the data from a platform like this is going to be invaluable for cities. Among many other things, it will help us to better allocate space among the various modes and design much safer streets. Hopefully it can also help to take some of the politics out of these sorts of decisions: “Here’s the data. Take a look.”

    Viva currently has 1,000 sensors already installed in London (where they are being used to evaluate the impacts of congestion pricing), and about half a dozen in New York. So it’ll be interesting to see what this leads to. And who knows, maybe it will actually turn us all into amateur transportation planners. We’ll certainly have access to a lot more data.

    For more information on Viva, here’s their website.

    Image: Viva

  • Dubai is now the capital of branded residences

    One way to define “brand” is that it is “the sum of how a product or business is perceived by those who experience it.” And it’s a pretty awesome construct when you stop to think about it. Because if I perceive one brand to be superior to another — which might just mean that it better matches my sense of self — then there’s a good chance I’d be willing to pay more for that brand.

    And if I happen to own a brand that people perceive to be valuable, then I can also monetize this brand by lending it out to other people for money.

    It is for this reason that in the world of real estate development there is something known as branded residences. Broadly speaking, it involves a pretty simple trade. Person 1 has a brand that lots of people perceive to be desirable. Person 2 has real estate that it is looking to sell, but it doesn’t have a brand with the same kind of cachet as person 1.

    So what happens is that person 1 offers the following trade to person 2: pay me $X (upfront and/or over time) and then I will let you use my highly coveted brand to sell your real estate. And hopefully you won’t screw it up by doing weird things with it. (But other than this, person 1 isn’t really taking on much risk with this trade.)

    Because person 2 believes that they’ll be able to sell their real estate for more money and/or faster than without the brand, it gladly accepts the trade. And as long as the benefit it gains is, in fact, greater than the cost of using the brand, it should be a good trade and both person 1 and person 2 should be happy with the outcome.

    Now here’s an actual example. Earlier this month, the proposed Baccarat Hotel and Residences in Dubai set a new pre-construction pricing record when it sold a ~14,507 square foot apartment for 203.1 million dirhams (or US$55.3 million). For those of you who are wondering, this works out to be about US$3,812 psf.

    Supposedly this is the most that anyone has ever paid for a new place in Dubai, and there’s a strong argument to be made that the developer got this pricing because it was a branded residence.

    Image: Bloomberg

  • What would you do if you were Mayor?

    Let’s assume that you’re Mayor of your city and that, for whatever reason, you have no need to pander to voters. You’re a benevolent dictator. You can do whatever you think is best overall for the city and it will just happen. What would you do? This is more or less the question I asked on Twitter this morning, and I think it’s only fair that I answer my own question. So here is a non-exhaustive list of items that came to mind while thinking of Toronto:

    • Substantially increase the pay of public sector workers throughout the city and bonus them based on measurable outcomes. Forget things like time limits on development applications; instead align incentives. For example, if we’re trying to get more shovels in the ground on affordable housing, incentivize people based on building permits issued. I’ll never forget what Roger Martin told me while I was at Rotman. When he became Dean of the school, Rotman was a whatever business school that wasn’t faring all that competitively in the rankings. One of the problems he discovered was that the school’s professors were getting paid far less than those at Wharton, Harvard, Stanford, and so on. So if you were a star, why would you ever want to teach at Rotman? He immediately matched the salaries of those top-tier schools and then, not surprisingly, the top-tier talent arrived. You get what you pay for.
    • Immediately price roads and congestion, and direct, to the fullest extent possible, the funds toward transit and cycling infrastructure. At the same time, the planning and building of transit would be depoliticized. There would be a reccurring funding stream and a plan that we’re continually building out. Minimize protracted debates. Never stop building. There’s a lot of talk this mayor election about solving traffic congestion. I have yet to see a plan that will actually work. Accurately pricing congestion likely won’t be popular, but I can guarantee you that it will be highly effective.
    • Ensure that property taxes are sustainably covering the costs of operating the city and then, at a minimum, peg all future increases to CPI.
    • Make any new housing development less than 12 storeys as-of-right. That would mean, no rezoning process and no site plan approval; just straight to building permit.
    • Empower the private sector to build affordable housing through incentives and subsidies. Affordable housing isn’t feasible to build on its own, which is why nobody is doing it. Inclusionary zoning also won’t get us there. Make developers want to build it and they’ll do it.
    • Liberalize licensing and cut red tape to empower small entrepreneurs across the city in various industries. A perfect example in my mind is street food. Toronto is the most diverse city in the world with some of the best restaurants, and yet the only thing you can buy on the street is a stupid hot dog. If we empowered small entrepreneurs to setup shop on our streets, we would easily have the best street food scene in the world. And I am positive that there are countless other latent opportunities in this city that are being held back by dumb and archaic rules.
    • Make dramatic improvements to our public realm with an eye toward becoming the most beautiful and livable city in the world. Finally pedestrianize Kensington Market, remove the elevated Gardiner Expressway, make it so that we can swim in the Lake, build beautiful public washrooms all across the city that are actually open and aren’t gross, and the list goes on. And yes, “beauty” should be requirement so that we don’t end up with shit like this.
    • Focus on art, design, culture, and innovation as central pillars of Toronto’s brand. Miami is a good example of what this approach — along with favourable taxes and nice weather — can do for a city. I’ve said this before, but here’s just one example: Toronto is in many ways the birthplace of the cryptocurrency Ethereum. Why is nobody talking about this? Why are we not celebrating and leveraging this? It’s a missed opportunity. Broadly speaking though, I think just having and doing three things can be effective in promoting new ideas for these pillars: have reasonably affordable housing, be a city that young people want to live in, and remain open and tolerant to immigrants.
    • Stop thinking of the night-time economy as a nuisance and instead think of it as a powerful economic development tool. I recently responded to this “night economy survey” that the City of Toronto released and the obvious bias is that nighttime things are seen as a terrible nuisance. In other words, “tell us how do we make all of this less annoying for grouchy voters.” My response was to extend last call to 4am and to start thinking of it as an opportunity to draw in young people, tourists, and whoever else. This complements my previous point.

    This is, again, a completely non-exhaustive list. But if I had to summarize the overall ambition, it would be to make Toronto a truly exceptional and remarkable city. We should never be happy with mediocrity.

    What else would you do? Leave a comment below.

    Photo by Aditya Chinchure on Unsplash

  • How affordable is a Nabr home?

    We have been speaking about Nabr and the productization of housing for the last year (and, more broadly, about prefabricated housing for probably as long as this blog has existed). And now it is possible to go on to Nabr’s website and reserve a new home in their San Jose project. Here’s what that looks like:

    What is immediately clear is that this is an obvious improvement over the way that new homes are typically purchased. The pricing is transparent. You can easily see the floor plan and features of each home. And if you’d like to reserve one, you can go ahead and do that right away for $1,000:

    You can also specify whether or not you’re interested in Nabr’s lease-to-purchase program (known as LEAP). More information on that can be found, over here.

    But the exciting question remains whether thinking about and executing on this new housing as a product, rather than as an individual project, will ultimately bring greater cost efficiencies and savings. In other words: can it make housing more affordable?

    Today, the base pricing for SoFA One looks something like this:

    • Home 1002: $1,415,000, ~1080 sf (excluding exterior space), $1,310 psf
    • Home 1003: $2,144,000, ~1547 sf (excluding exterior space), $1,386 psf
    • Home 1108: $938,000, ~795 sf (excluding exterior space), $1,180 psf

    These are just the first 3 homes that showed up for me when I opened the website. And while I’m not intimately familiar with the San Jose housing market, Realtor tells me that the median sold price is $1.2 million and that the median list price per square foot is about $766.

    Though not really an apples-to-apples comparison, this suggests to me that the above pricing may not be as affordable as some people were hoping for. However, it is more or less where I figured pricing would need to be in order to make a high-rise project like this pencil.

    Does this change over time with more product scale? I think it could.

  • What could happen in 2023

    The central bank tightening and interest rate hikes that we saw last year will come to an end in the first quarter of 2023 as inflation gets under control. This will ultimately lead to a recession but my sense is that it will be more mild than severe. For this reason, I don’t think anyone should expect ultra-low rates to return in the short-term.

    Much of the real estate sector went on pause in the second half of 2022. But ultimately this reset to a more balanced market is going to be necessarily painful for some. And I think we will see that pain play out in the first half of the year. This will obviously be bad for some, but it will create opportunities for others.

    Construction costs tempered in the second half of 2022 and started to show some evidence of price softening. I think we will see more of this in 2023, which will be healthy for the market. Cost management over the last few years has been a meat grinder for the development industry.

    Pre-construction condominium sales for well-located projects will return in a more fulsome way by the spring. This will be driven by buyers now having clarity around where interest rates will be hanging out in the short-term and, in the case of Canada’s largest cities, by record-high immigration levels.

    For the tertiary/fringe housing markets that saw big run ups in pricing during the pandemic, I unfortunately think it will take many years for prices to fully rebound. The price increases we saw in these submarkets were of course a result of low rates, but it was also driven by a view on urban decentralization that in my view did not actually materialize.

    The desire to add more housing to single-family neighborhoods will continue to pick up steam across North America. How exactly this plays out will be market specific, but in Toronto I expect to see new planning policies put in place, as well as supportive building code changes.

    Public transit ridership will remain below pre-pandemic levels throughout 2023. This will continue to exacerbate public finances.

    Autonomous taxis will grow rapidly this year. Companies, such as Cruise, will expand into a number of new US markets and, at some point during the year, I will take my very first ride in an autonomous vehicle.

    2023 will be a big year for augmented reality and “phygital” goods. Last year I thought Apple would release a new product in this space. That didn’t happen, but it will this year. At the same time, we will see more companies releasing products that blur the lines between our online and offline worlds (hence “phygital”). This will include NFTs and other crypto-related things that will start to operate more seamlessly in the background of consumer-facing products/services.

    I continue to be bullish on Ethereum and I think it will overtake Bitcoin in terms of market cap in the next 2-3 years. But I was very wrong about Solana last year. And now I am struggling with its value proposition. Today, layer 2 chains such as Polygon feel more likely to win out. Broadly speaking, I suspect 2023 will be a positive year for crypto, but not a record-setting one.

    In summary, I think we are going to see more pain at the beginning of 2023, but that on the other side of it will be healthier and more balanced markets. This means that we can look forward to the end of the year feeling much better than it does right now. All of this said, please keep in mind that I’m often wrong and that nothing in this post should be construed as actual advice.

    Happy 2023, friends. I’m excited to get going.