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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Tag: bloomberg

  • Hong Kong is building new “light public housing” — why?

    We have spoken before about how the average wait time for public housing in Hong Kong is now over 6 years. This is a problem for the quarter million people who are on this list, and so the city has decided to start building modular housing as a kind of stopgap:

    The city has embarked on a $3.3 billion plan to build about 30,000 temporary apartments over the next five years, which Housing Secretary Winnie Ho has said is a “very important social project.” The aim of the program is to give people an option to move out of cramped quarters while waiting for public housing. Critics say it only shows the government’s inability to deliver enough permanent homes.

    I think many would agree that “light public housing”, which is what this is being called, is probably better than no public housing. But is this really the most effective move? According to some sources, this light varietal may actually cost more to build than their typical public housing.

    So why even bother? Is it just speed? I’m not sure.

    Also, it is interesting to note that even in a city as dense, built out, and in need of housing as Hong Kong, finding support for new development can be a challenge:

    “We understand that Hong Kong needs land to build public housing for people in need, so we never objected until this time,” said Andy Ng, an accountant who bought an apartment in the Upper RiverBank project early last year. The government is squeezing thousands of people on a single plot of land without planning or consultation, he added. “The district simply can’t stomach so many people.”

  • Upsizing in Hong Kong

    It is well known that Hong Kong has some of the most unaffordable housing in the world and that one response to this has been to build increasingly smaller homes — some with the moniker of “nano apartments.”

    But then earlier this year Beijing decided that these nano apartments are actually too small for people, and so a new rule was created requiring homes in Hong Kong to be no smaller than 280 square feet.

    At the same time, interest rates obviously went up, the price cap on homes that can be bought by a first-time buyer with just 10% down was increased, and people have continued to leave Hong Kong for places that are, I’m guessing, more open and less Chinese.

    The unsurprising result is that home prices are now down some 14% for the year, according to Bloomberg. But the other interesting thing about all of this is that buyers are now shifting toward larger homes:

    Developers were only able to sell 48% of the studio apartments available in the first 11 months this year, while the rate for one-bedroom and two-bedroom apartments stood at 53% and 67% respectively, according to Midland Realty.

    Even with the interest rate hikes that we have seen, what seems to be happening is that people are starting to take advantage of this softer market to buy something bigger. Hong Kong is still Hong Kong, meaning grab whatever space you can find when you can.

  • The Derek Zoolander autonomous vehicle problem

    According to McKinsey, something like $100 billion has been invested in trying to get autonomous vehicles to work and yet the industry remains stuck with problems like this one here:

    State-of-the-art robot cars also struggle with construction, animals, traffic cones, crossing guards, and what the industry calls “unprotected left turns,” which most of us would call “left turns.”

    The industry says its Derek Zoolander problem applies only to lefts that require navigating oncoming traffic. (Great.) It’s devoted enormous resources to figuring out left turns, but the work continues.

    Right now certainly feels like an autonomous vehicle winter (we have many winters going on at the moment). The industry has spent a lot of time and money getting maybe 90% of the way there, but this last bit has proven to be a lot more challenging than I think most people anticipated.

    This has a lot of people thinking that it’s going to be many decades before we finally get full autonomy (if ever) and that, in the interim, all we will have are very specific use cases: trucks on highways, mining machines (the above article writes about this), and so on.

    This may very well be the case. Frankly, I don’t know. But it’s perhaps important to remember two things: (1) pessimists aren’t usually the ones who change the world and (2) there is something known as the Gartner hype cycle, which is a graphical representation of how new innovations typically get adopted.

    The Gartner hype cycle has five phases. The important ones for this discussion are the first three. First there is a technology trigger. Second there is an inflation of expectations (until it hits a peak). And then third, there is a trough of disillusionment. This is the moment where interest wanes and people begin to think it’ll never happen (until it does happen).

    That might be what we’re living through right now, or it might not be. But my gut tells me that it’s the former.

  • New York City proposes a bounty for reporting bike-lane blockers

    The general rule when it comes to bike lanes is that, if you build them without some sort of grade-separation, at some point a car is going to park in them. But here are two possible solutions to this problem. The first is that you could build some sort of grade-separation that can’t be driven over. And the second is as follows:

    Now a New York City Council member is pushing a bill that would give civilians the power to report bike lane scofflaws, as well as vehicles that block entrances or exits of school buildings, sidewalks and crosswalks. New Yorkers who submit evidence of a parking violation can earn 25% of a proposed $175 ticket. The Department of Transportation would review the evidence to determine whether an infraction has occurred, according to the bill’s text.

    What this essentially does is decentralize rule enforcement by paying people to be rats. Off hand, I can’t think of any other cities that have done something like this and so I don’t know how effective it might actually be. But being a rat sounds like it could be a good paying job.

    Let’s assume that somebody decided to treat this as their full-time job and work 8 hours a day, Monday to Friday. And then let’s assume that they were able to rat out one person per hour. Here’s how much money they could make in a year:

    • $175 x 25% = $43.75 per illegal incident
    • $43.75 x 8 incidents per day = $350 per day
    • $350 per day x 5 days a week = $1,750 per week
    • $1,750 per week x 52 weeks = $91,000 per year

    Now, if the goal of this rat-people-out program is to ultimately change behaviors, then it might make sense to assume that your revenues would decline over time as more people start following the rules. Either way, something tells me that more than a few people would be happy to take on this job.

  • The average wait time for a rent-controlled apartment in Sweden is now over 9 years

    I’m not all that familiar with Stockholm’s housing market, but according to this recent article, it would appear that, like most big cities, there isn’t enough affordable housing to go around. This is despite the fact that everyone in Sweden is technically entitled to it.

    As of December 2021, there were 736,560 people (in Sweden) in the queue for a rent-controlled apartment, resulting in an average wait time of about 9.2 years. So basically what you want to do is put yourself on the list as soon as you turn 18. And then hope that at some point in the future you’ll be granted an affordable apartment.

    Given this dynamic, it makes sense there would be a long waitlist. If everyone is entitled to a rent-controlled apartment, you are effectively giving people two options: pay the market price or put yourself on this list, wait for a decade, and then pay less than the market price.

    Why wouldn’t you at least try to pay less?

    The problem with this approach is that supply will almost certainly never keep pace with demand. It also appears to be fuelling a robust (and I guess illegal) secondary sublet market. Because if you have a below-market contract that is yours to keep forever and that lots of other people want, you have a valuable asset.

    Getting housing right certainly isn’t easy.

  • Turns out big cities are pretty safe

    Conventional wisdom suggests that cities are pretty dangerous. There’s crime, the chance of getting killed, and there are lots of cars, some of which have a tendency to fly off the road and do bad things on occasion. And in some ways, this is true. Here is a chart from Bloomberg showing homicides per 100k people:

    What this tells us is that if you live in a large metropolitan area in the US, you have a higher chance of being killed by someone else than if you were to live in a rural non-metro area. However, based on this data, one of the safest places you could actually live is in New York City. This might surprise some of you.

    On top of this, if you layer on the chance of dying from a transportation-related accident, the absolute safest place you could live in America is in fact New York City:

    This is because New Yorkers are only about a third as likely to die from a transportation-related accident as compared to the average American. Oddly enough, when you have a city where the vast majority of residents don’t drive their own car around, people seem to die a lot less from traffic accidents.

    But how does this compare to other cities around the world? Let’s take Paris, which is another big and important global city. According to Bloomberg, the risk that Parisians face from possible killing and transportation accidents is about one-third that of New Yorkers. So it’s even safer over there.

    Turns out that some big cities aren’t as dangerous as people might think. For the full Bloomberg article, click here.

  • New York City is back

    So here’s the headline: More people are moving to Manhattan than before the pandemic. This is true. But an even more accurate description might be that New York City was losing people before the pandemic and it is still losing people. But things have rebounded since the lows of the pandemic and it is now losing less people. Here are two charts from Bloomberg:

    This is generally good news since the increased exodus (to places like Miami) led some to believe that one of the most important global cities in the world was now dying. I never thought that was the case. But there’s no arguing against the fact that the fastest growing cities in the US are the ones with more affordable housing and fewer constraints on new development.

  • Money as social construct

    In Matt Levine’s latest Money Stuff newsletter he talks about how money is really just a social construct. In his words, money is “a way to keep track of what society thinks you deserve in terms of goods and services.”

    But over the years, we have learned that it can be manipulated through the actions of central banks and other authorities. This, he argues, has become more obvious in the last 15 or so years. Which is one of the reasons why people continue to argue that cryptocurrencies are both a good thing and something we need more of.

    Crypto is neutral, or at least that is the intent. But at the same time, it too remains a social construct. Cryptocurrencies have value because that is what we have collectively decided to layer on top of their math-based blockchains — a global market cap of nearly $2 trillion.

    Ironically, the more value we ascribe to them the less neutral they are likely to become. Because the more they ingratiate themselves into mainstream society, the more likely they are to get regulated. But Matt’s overarching argument is that this is in fact a good thing.

    Monies exist through webs of interdependencies that generally keeps us all in check by encouraging “prosocial behavior.” So the fact that authorities can intervene, when needed, isn’t a bug, it is a feature. It means that when you clearly misbehave, the world can punish you by doing things like freezing your foreign reserves.

  • Apartment rents in San Francisco have yet to fully recover

    On last week’s earnings call, apartment landlord Equity Residential mentioned that the two US markets most impacted by a delayed return to office appear to be San Francisco and Seattle. They went on to say that San Francisco is the only market in which they operate where rents have not fully recovered to pre-pandemic levels.

    According to Bloomberg (which is relying on employee swipe-card data), office utilization in the San Francisco area is sitting at around 25% as of October 20, 2021. This is compared to a national average of around 37%. The obvious rationale here is that large tech companies have delayed their return to office and/or been more aggressive in adopting remote/hybrid work.

    Looking at these numbers, it is clear that as someone who has been going into the office every day since the start of summer, I am currently in the minority.

  • Zillow pauses algorithmic homebuying business

    Zillow just announced that it has paused its (algorithmic) US homebuying business for the remainder of this year. The company acquired some 3,800 homes in Q2 of this year and, apparently, it now has a backlog of repairs and sales to work through. As a reminder, this business model, which is sometimes referred to as iBuying, is based on using algorithms to quickly value and buy homes (mostly online). The homes are then renovated and flipped for a profit. The problem, as most of you know, is that this pandemic has, among other things, disrupted construction supply chains and made it difficult to hire people. That has hurt the renovation component of this model.

    Today’s news was bad for Zillow’s stock, but good for Opendoor’s stock, which is their main competitor. Opendoor subsequently came out and announced that they remain open for business. (Disclosure: I am long $OPEN). But this announcement is perhaps a good reminder that buying and selling real estate remains a different animal than, say, buying and selling stocks. And so there are some perfectly understandable reasons for why real estate hasn’t been disrupted by the internet in the same way that other industries have. Matt Levine does a great job explaining this in his recent column, “Sorry, Zillow’s Computer Can’t Buy Your House Right Now.”

    Here’s an excerpt:

    “I’ll pay you $350,000 for your house as long as a human can go out there, look around, and make sure that price isn’t wildly off” is an interesting model but it’s not quite the same as “push this button to sell your house for $350,000.” And “I’ll pay $350,000 for a house and then send out a crew to replace the carpets” is not quite the same as “I’ll pay $350,000 for a house and flip it 20 minutes later for $355,000, collecting a small spread for providing liquidity.” Computerization has come into the housing market, but it hasn’t taken it over yet.

    One of the challenges is that the supply of homes is heterogeneous, even in a suburban community or in a multi-family building where you might have the same set of floor plans that repeat. Because maybe the home has been renovated and fit out entirely in gold. Or maybe it’s the opposite and it has been poorly maintained. There are variables to contend with that have historically necessitated more rather than less human involvement. Homes are also something that don’t trade all that frequently, which is less than optimal when it comes to online marketplaces.

    But what if buying and selling a home was dramatically cheaper and easier to do? How often would people actually do it? Presumably more often. I agree with Matt that “computerization” hasn’t taken over the real estate industry just yet. But algorithmic homebuying still appears to be one of the more promising approaches.