Tag: brian potter

• China is estimated to have nearly 25% of the entire US building stock under construction right now

  I’m not an economist, nor am I an expert on China, but according to this recent FT article, more than half of the country’s largest developers (based on 2020 sales) are now in default:

  

  On top of this, there’s a lot currently in the pipeline:

  

  The National Bureau of Statistics of China is saying that, as of last August, there was about 8 billion square meters of real estate under construction in the country. That’s very roughly about 80 billion square feet of space, which I’m assuming covers all asset classes.

  This is such a big number that I really have no idea if it’s excessive or not for a country that is rapidly urbanizing and has some 1.4 billion people. So let’s compare it to the US.

  Back in 2020, Brian Potter came up with estimates for the entire US building stock. Interestingly enough, he determined that about 90% of buildings in the US are single-family homes. This is what the US builds and continues to build, by a long shot.

  However, single-family homes do tend to be smaller than, say, office buildings. So if you instead look at square footage (and not the number of buildings), this percentage drops to about 60% of all buildings in the US.

  On a square footage basis, single-family homes are estimated to represent about 200 billion square feet. And in total, Brian estimated the entire US building stock to be around 340 billion square feet (again as of 2020).

  This means that, right now, China could have nearly 25% of the entire US building stock under construction. I think that seems like a lot.

  Images: FT

  2023.10.23

• What makes cities grow faster?

  In may ways, this recent article by Brian Potter about how fast cities can grow, feels intuitive: Small cities tend to grow faster than big cities (on a percentage basis) and, as cities get bigger, their growth rates tend to decline. It is, however, still interesting to see the data behind this intuition:

  A city of less than 100,000 might be able to have growth rates of 10-20% or more, and cities of up to 3-400,000 can potentially have growth rates in the neighborhood of 10-15%. Potential growth rates tend to fall as cities grow larger, and cities above 1 million people almost all grow at less than 10% per year, and usually less than 5% per year. The US, the Middle East, Southeast Asia, Africa, and South America all seem to have followed this basic pattern, assuming the data is reliable.

  It is also a good reminder just how much of an outlier China is:

  Unsurprisingly, since 1950, Chinese cities have mostly exhibited higher growth rates than US cities. Only around 12% of US data points are above a 5% growth rate, whereas for China this is close to 50%. China also has 2.5x the fraction of cities growing above 10% per year, and 3.3x the fraction of cities growing above 15% per year.

  And some cities are outliers even within China. The most notable here is Shenzhen, which saw enormous growth after it became China’s first special economic zone in 1980. At a population of around 200,000, Shenzhen was growing at 35% annually, and it was still growing at over 20% annually when its population crossed 2 million.

  Just imagine these numbers compounded. Even small variances can result in significantly different outcomes over time:

  New York’s growth rate, however, declined less than Los Angeles or Chicago as the city grew larger. At around 3.5 million people, New York was still growing at over 3% per year, compared to less than 1% for LA and Chicago. This may not sound like much, but it’s the difference between doubling in size every 23 years vs. every 70 years.

  Now here’s what I’m wondering after reading the article: Should we be thinking of city size as the single most important factor in determining urban growth? Because my mind immediately went to population densities, zoning controls, and other factors that might constrain or encourage growth.

  But the data seems to suggest that, for many cities, this doesn’t seem to matter over the long run. It is as simple as saying, “this city has X number of people and so it’s more than likely growing at somewhere around Y% per year.”

  That said, what’s up with China? What is it that allows a city of 2 million people to still grow at over 20%? Is it the sheer influx of people migrating from rural to urban areas? Or is it that you need a one-party authoritarian state to really clear the way for growth?

  As cities get bigger there does appear to be a natural tendency toward slower growth. Part of this is the low base effect. But the declines are not always consistent and there are meaningful outliers. I am now curious to know what, for the most part, causes these differences.

  2023.10.12

• Los Angeles and the automobile

  Oftentimes when I think about Los Angeles, I think about the fact that you generally have to drive everywhere. And since I have a personal preference for dense and walkable cities, this thought helps me feel slightly less envious about their perfect weather.

  Los Angeles is probably the original car city. Here is an excerpt from this excellent post by Brian Potter, where he summarizes a 1987 book by Scott Bottles called, “Los Angeles and the Automobile”:

  Los Angeles was especially quick to adopt the car. By 1920 Los Angeles had the highest per-capita rate of car ownership in the US, four times more automobiles per capita than the US average, and eight times more than the much-denser Chicago. In 1920, 9 times as many people entered downtown LA via streetcar as via automobile. By 1924, that had nearly equaled.

  And interestingly enough, people started using them, almost immediately, to create Uber-like services:

  A popular early use of the car for public transit was the jitney. Car owners would pick up passengers (often waiting at streetcar stops) and drive them to their destination for the same price as a streetcar ride (5 cents). Car owners would often simply put their destination in their windshields, and pick up anyone along the way who was headed in the same direction. Because jitney travel was much faster than streetcars, and wasn’t limited to the fixed streetcar routes, jitneys often had better service than streetcars.

  Jitney travel first appeared in Los Angeles in 1914, and by November of that year was being used for thousands of trips per day. The jitney quickly spread to other cities. By early 1915, an estimated 62,000 jitneys operated around the country in cities such as San Francisco, Seattle, Denver, and Birmingham. As jitney travel became more popular, electric rail companies found that they were losing significant ridership

  What this again underscores is just how disruptive the car was — right from the outset. It was quickly seen as being more convenient, especially in a city like Los Angeles, which wasn’t as dense as its counterparts on the east coast.

  Sadly, and as Potter suggests in his post, it is not clear that the headwinds facing public transit have changed all that much since the first jitneys started appearing on the streets of Los Angeles a century ago.

  2023.08.11

• Mail-order homes speak to a simpler time

  There was once a time — generally in the early 20th century — when some people used to order their new home from a catalogue.

  You would pick the model you wanted and then all of the required materials, along with assembly instructions, would get mailed to you.

  Mind you, this was never the most popular way to make a new home. According to Brian Potter, mail-order homes, even at their peak, represented less than 10% of all yearly housing starts in the US.

  So arguably, it was never entirely successful as a model. Building a home is tough work, especially without fancy power tools.

  Still, it’s interesting to think about its relative simplicity: “Here’s a bunch of raw building materials and some instructions. Go figure it out. It’s like an Ikea bookshelf, except it’s your entire house.”

  Contrast this to what it takes to build new urban housing today. There is a litany of new barriers. It’s nowhere near as simple as ordering a kit of parts; so it’s no wonder housing is more expensive.

  For more on “The Rise and Fall of the Mail-Order Home”, check out this recent post from Brian Potter’s Construction Physics newsletter.

  2023.07.11

• Skyscraper construction speed by city

  Brian Potter, of Construction Physics, recently tried to determine which cities build skyscrapers the fastest.

  Here’s how he went about that:

  • He started by looking up the 50 largest cities in the world on Wikipedia
  • He then pulled data from the Council on Tall Buildings and Urban Habitat to get a list of every skyscraper completed between 2000-2020 that was over 100 meters, had a start and completion date, and had a gross floor area
  • The result was a list of 986 skyscrapers completed in 39 cities, most of which (~740) were completed in the US, China, Japan, and Canada
  • Finally, he calculated completed square feet per year and made some charts

  Here are the results:

  

  

  And here’s one thing he had to say about them:

  Interestingly enough, the huge outlier in slow construction isn’t the US, but Canada, with an average skyscraper construction speed of half that of the US’s.

  For a lot more information on this topic, click here.

  2023.03.24

• Construction usually doesn’t get cheaper

  If you’re working on a development pro forma and trying to figure out what construction costs might be at some point in the future, the surest bet is to assume that they will be more than they are today and that they will grow at a rate that exceeds the rate of inflation. And here’s some historical data to back up this claim.

  What here is, is a great post by Brian Potter, where he looks at various construction cost indices from about the last century to try and answer the question: does construction ever get cheaper? While the answer to this question is technically “yes”, it is doesn’t happen all that often. Typically, the average yearly increases look something like this:

  

  And if you net out CPI from these figures, you get a table that looks like this:

  

  Blue means that the respective index grew faster than the rate of inflation, and red means that it grew less than (or the same as) the rate of inflation. And here we obviously have more blue than red.

  So what’s causing this?

  Well, if you break out material costs, as Potter has done, you’ll see that over the same time period, building materials don’t usually follow this same trajectory. Instead, they tend to rise at or below the rate of inflation. What this suggests is that the culprit is likely labor costs, which would be consistent with the fact that construction labor productivity has been steadily declining since probably the middle of the 20th century.

  Tables: Brian Potter

  2023.02.01

• The fall of manufactured housing

  

  In 1973, 580,000 mobile homes (or manufactured home as they are now called) shipped in the United States. This represented about 50% of the number of single-family housing starts that year, and about 22% of total housing starts. So they represented a significant chunk of the overall housing supply.

  But following the collapse of the US housing market in 1974, an interesting thing happened. Manufactured homes never managed to reclaim their position in the stack. See above chart. Brian Potter, author of Construction Physics, puts forward a number of possible explanations for this, over here.

  Some have speculated that it was the result of new code changes that ended up increasing costs. Some have speculated that it was because of a new requirement to include a steel chassis on the bottom of every home, which also increased costs, but more importantly stigmatized manufactured homes. It made them seem transient, whereas previously they were installed on permanent foundations.

  There are also some theories that manufactured home production was harder hit during the economic downturn given that they had more fixed plant costs (compared to site-built homes with their variable labor costs).

  But Brian’s current working theory is that it comes down to capital flows. Manufactured homes tend to cater to lower-income buyers and so supply, as the argument goes, has largely depended on “lax lending” practices being made available to them.

  I’m not so sure that this is the only reason though. For one thing, multi-family housing starts have followed a somewhat similar trajectory to manufactured homes. We’ve certainly seen an increase in supply over the last decade, but we’ve never gotten back to that early 1970’s peak.

  And so I wonder: How much of this is actually just the result of the single-family home hegemony? This is arguably what the market has historically wanted (look at the split pre-1973 in the above chart), and so perhaps we simply refocused our attention there and worked to make this housing type as accessible as possible to the masses.

  Chart via Brian Potter

  2022.07.23

• How to tell if you have a housing shortage

  

  Housing supply is one of those topics that a lot of people can’t seem to agree on. Some people, including annoying city bloggers from Toronto, will tell you that we’re not building nearly enough new housing. While others will tell you that, no, everything is just fine. We are totally building enough to meet demand.

  So today I am going to encourage all of you to read Brian Potter’s latest Construction Physics article. In it, he answers the question: Is there a housing shortage or not? But just in case some of you don’t feel like doing that, here is the tl;dr:

  • You can’t look at construction rates alone and infer whether or not you have a housing shortage. There are so many other factors to consider, including household size (see above chart). A drop in household size alone, for example, means that you need more housing, even if nothing else is going on.
  • The US is probably short at least several million housing units right now.
  • Vacancy rates, within a market, are pretty useful for predicting housing cost increases. When vacancy rates fall, prices go up. This is one reason why housing supply matters.
  • Looking at the gap between population increases and housing supply increases is “hilariously non-predictive” if you’re trying to determine whether or not you need more housing. We’ve all seen this before: This city added X people, but only constructed Y new homes.
  • Finally, there is an extremely strong correlation between housing supply restrictions (i.e. land use restrictions) and home prices. It turns out that the harder we make it to build new homes, the more expensive they become.

  So yeah, Potter’s article is definitely worth a read when you get a moment.

  Chart via Construction Physics

  2022.05.11

• A world with less concrete

  Some people like to refer to concrete as cement. But that is technically incorrect. Cement is just one of the main ingredients in concrete, along with water and aggregates. So it’s a bit like referring to a beer as a bottle of yeast.

  That said, cement is pretty integral to concrete and it’s largely the reason why the embodied carbon is so high in this widely-used building material. According to Brian Potter, cement production is responsible for somewhere between 5-10% of global CO2 emissions.

  This is coming from the roughly 4.25 billion metric tons of cement that is produced annually and the 30 billion tons of concrete that it ends up in. The world likes concrete. And in particular, China likes concrete.

  China alone is now producing about half of the world’s cement. And since consumption generally tracks production, and the consumption of cement generally translates into concrete, China is using, by far, the most concrete.

  I don’t know what the right answer is to this particular carbon problem, but Brian Potter’s latest construction physics post is perhaps a good place to start thinking about it. In it, he covers who is producing it, where it is being used, and how we might get to a world with less concrete.

  2022.02.03

• Why construction productivity sucks and how it might be fixed

  

  We are living through an inflationary hard cost environment. In speaking with one of our cost consultants the other week, he was predicting that overall we could see another 9-10% increase next year here in the Toronto area. Now, who knows what will ultimately happen. But this is top of mind for everyone in the industry and it will continue to impact how and what we build.

  One of the challenges with construction — and this is will documented — is that unlike the manufacturing industry, which has seen sustained productivity improvements over the years, the construction industry has seen relatively little productivity growth over the last half century. In fact, you could argue that it’s been mostly negative in recent history.

  The obvious thought is why not just apply what we’ve been doing in manufacturing to construction. There is, of course, a long standing tradition of trying to do this, with varying degrees of success. But at the end of the day, building a house remains different than building something like a car.

  Probably the key difference is that every construction site has unique constraints and conditions and so the process is constantly changing. Whereas the innovations that Henry Ford pioneered were centered around interchangeable parts and a well-defined process that could be repeated millions of times to generate the exact same output.

  From what I can tell, there seems to be two ways in which we can think about improving productivity. One, we can try to be more Ford-like and drive standardization. This means more off-site factory construction and more standardization. This is the typical “pre-fab” approach and companies like R-Hauz, as well as many others, are already successfully doing this. The trade-off is less design flexibility.

  The second option has to do with better software and hardware. What if we had significantly better “digital twins” for our buildings such that we could see and experience it in 3D before it is physically built? I’m thinking strap on VR goggles and do a walkthrough with the team. This could allow us to pinpoint all of the issues before they actually happen on the job site.

  In parallel to this, what if we had far better on-site automation and robotics to then execute on the above digital twin? Think 3D printing concrete instead of using traditional forms. This is all happening and being worked on, but it doesn’t seem to be at a point where it is changing our industry. But it is exciting to think that it may one day.

  Photo by Di on Unsplash

  2021.11.27