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.
And I highly recommend you read it. He’s been investigating this industry for decades.
Though the article is specific to Toronto, I know that there are middle people and archaic policies governing the taxi industries in many other cities around the world.
Here it revolves around taxi licenses issued by the city (known as “plates”), which are expensive and almost impossible to get. Last year the average price of a plate was $118,235 (2014).
The way it works is that people – typically non-drivers – buy/inherit/get these plates and then charge rent on them to drivers who want to use them. The result is a taxi cartel:
In fact, Toronto’s taxi plate system is anything but free enterprise. Instead, it is based on the artificial restriction of a natural market, and the granting of licences to a fixed number of participants. Even those who paid top dollar for a plate used to enjoy an annual return of more than 12 per cent. And for those who inherited plates, the return was manna from heaven.
So it shouldn’t come as a surprise that the taxi industry is grouchy about companies like Uber. But the cost structure of the incumbents is going to need to change if they want to stay in business.
Jeff Bezos of Amazon is famous for saying, “Your margin is my opportunity.” And that’s exactly what is happening here. A bloated legacy cost structure is being quickly supplanted by better/cheaper.
Earlier this week the Globe and Mail reported that the average price of a house in Toronto has risen to $613,933 and that the average price of a detached house has risen to $1,042,405. Those are a big numbers.
Low interest rates are a big part of this story. But there’s also a supply story at play here. The low-rise housing market in this city is heavily supply constrained and so we have an environment where people with more money simply outbid those with less money.
The high-rise side of the market, on the other hand, is creating lots of new supply. And in my opinion that’s why its price growth has been more moderate in recent years and why the pricing spread between low-rise and high-rise housing continues to widen.
Assuming these trends continue, one of the things I’ve thought about and written about in the past is whether we’ll eventually seeing a point where high-rise housing actually becomes a more affordable option for families. Because right now, if you’re in the market for a 3 bedroom home, a low-rise house is likely your most affordable option.
Here’s a quick comparison that I did up this morning between a detached house and a high-rise condo:
For the detached house, I assumed 1,800 square feet at a price of $1,042,405. That’s the average price mentioned above.
For the condo, I assumed a 1,500 square foot 3 bedroom home. I priced it at $650 per square foot (which would be above average for the city) and then added $40,000 for a parking spot. Here you have a slightly smaller condo, but it’s also priced slightly less.
I then compared operating/maintenance costs. For the condo, I assumed a maintenance fee of $0.59 per square foot (which I think is reasonable) and then added $100 per month for electricity. Typically electricity is billed outside of maintenance fees.
For the detached house, I tried to create a similar living situation. I assumed that the owner wouldn’t be cutting their own grass or shovelling their own snow. I assumed that money would be put away each month as a capital reserve for future house expenses (similar to the reserve fund in a condo). And I assumed a gym membership since most condos have a gym. I ignored property taxes and insurance.
The detached house still works out to be a less expensive to operate in this scenario, but not by much. Overall, the two appear quite comparable. Which is why I wouldn’t be surprised if we see a tipping point in the future where all of a sudden families start finally adopting the mythical 3 bedroom condo.
This afternoon I saw on Twitter that Toronto Police are now starting to crackdown on UberX drivers in the city. The investigation is called “Project Snowball” and they have already charged at least 11 people. The fines are anywhere from $200 to $20,000.
I get that Uber is a highly disruptive company. I’ve written about it many times before. But at the end of the day, this is not just about Uber. This is about a larger shift in the economy.
The buzz term is “sharing economy.” But one of the ways I like to think about it is like so: Facebook doesn’t produce any of its own content, and yet you could define it as a media company. Airbnb doesn’t own any rooms, and yet it is disrupting hotels. Uber doesn’t own any cars or plates, and yet it is disrupting the taxi industry.
What’s happening is that the internet and mobile phones are allowing for peer-to-peer connectivity and more decentralized forms of marketplace supply.
What does that mean?
It means that instead of having a fleet of cars or a centralized hotel building, anyone with an extra car or an extra room (and an internet connection) can plug themselves into the market. And that represents an entirely different cost structure for businesses.
It’s worth noting that prior to Uber, Travis Kalanick founded a peer-to-peer music sharing company called Scour (1998). Its closest equivalent would have been Napster. Remember Napster? This is not a new trend.
That said, I still think we’re at the early stages of this shift. I predict that many other industries will see disruptors similar to Airbnb and Uber. And so when I look at it in this context, I have a hard time believing that fining UberX drivers is the most enlightened way forward.
I believe we should instead be taking a leadership position and trying to figure out how to adapt our rules and regulations to this changing economy. Toronto is not alone in this battle. But we could certainly be the one to lead the way out.
Over the past few weeks I’ve been running a little experiment on Twitter where I tweet about a new development project in Toronto and I ask people to vote on it. If they like the project, I ask that they retweet (RT) it. And if they don’t like it, I ask that they favorite it (FAV).
As you can see from this experiment, about 69% of the people who participated seemed to be in favor of this project (at least at the time of writing this post). That said, the discussion following this tweet was a lot more negative than I would have expected.
Somebody also pointed out that in my experiment I’ve created a bias towards supporting the project, since a retweet means the project gets shared, whereas a favorite doesn’t do that. I would argue that the more distribution the better for an accurate consensus, but point taken.
So today I thought I would do this same experiment here on Architect This City.
At the bottom of this post, I’ve featured a comment from myself asking if you support the 1 Bloor West project. If you like the project, I ask that you “up vote” my comment. And if you dislike the project, I ask that you “down vote” it. You can do so by using the up and down arrows towards the bottom left of the comment.
Hopefully this hack will create a more neutral voting framework. I hope you will participate. If you’re reading this via email, you’ll need to open up the post in your browser by clicking “read more” at the bottom.
For Alex’s article, the Globe asked “prominent urbanists, architects, and scholars” from around the world to comment on what Canadian mayors should be focused on right now as we build the cities of tomorrow.
Here’s a list of what they said:
Make people, not cars, happy
Decrease speed limits
Empower city governments
Leverage density
Embrace the science of big data
Mix residences and workspace
Turn streets into destinations
Redevelop the inner suburbs
It’s a great set of recommendations. So I would encourage you to check out the full Globe and Mail article.
It should start from the premise that the fundamental underpinning of the Canadian economy to have prosperity is dependent on the success of the cities, because 80 per cent of Canadians live in cities. -Toronto mayor John Tory
This week the leaders of Canada’s 22 largest municipalities are gathering in Toronto to figure out how to put urban issues on our national agenda. This is a topic I’ve touched upon many times before on Architect This City, but I continue to believe that it’s one of our most pressing issues.
We know that the vast majority of Canadians live in cities (see above quote) and we know that the vast majority of our economic output is concentrated in cities. In fact, roughly half of Canada’s GDP is produced in our 6 biggest cities alone – Toronto, Montreal, Vancouver, Calgary, Edmonton, and Ottawa-Gatineau.
But despite this concentration of wealth and economic activity, our governance structures do not reflect this reality. They’re outdated. They were built for a Canada that has passed. And so in my view, there’s a significant amount of untapped potential lying dormant in our cities if only we could get around to properly empowering them. There’s a “stimulus package” waiting to be unleashed.
In anticipation of this week’s leadership meeting, the Globe and Mail published an article called, Canada’s big city mayors ready to push urban agenda. And in it they included a number of interviews with Canadian mayors. It’s fairly long, but definitely worth a read. Here are a few relevant sound bites…
Vancouver mayor Gregor Robertson
We have an archaic system. Cities aren’t recognized in our constitution. It’s unbelievable. But Big City Mayors have set aside those important gaps because the needs are now so urgent on housing and transit, we can’t afford to spend a couple years debating structural change. For the time being, the focus is just on ensuring there’s more federal capital provided for transit and other urban infrastructure.
Calgary mayor Naheed Nenshi (on municipal funding sources)
I would prefer to levy myself, so that I’m ultimately accountable to my citizens and, if they don’t like it, they can get rid of me. Allowing others to levy the tools takes away predictability and stability, as well. That said, we’re starving here, and any improvement to the system that leads to those predictable, stable cash flows is a good thing.
Winnipeg mayor Brian Bowman (on the most pressing issue facing Canadian cities)
I’d say without question infrastructure and new funding models to modernize the ways that cities fund themselves. That’s something I’ve started discussions on already with some of my counterparts, Mayor [Naheed] Nenshi in Calgary, Mayor [Don] Iveson in Edmonton as well as Gregor Robertson in Vancouver. We’ve talked about a number of topics including the missing and murdered indigenous women and girls issue, public transit and rapid transit development. But the one consistent theme is that the way cities are funded is outdated.
Toronto mayor John Tory
I start from this premise: Are people paying enough taxes? In many cases, you could argue, not only are they paying enough taxes, they can’t afford to pay any more. We should be looking at the total amounts paid to all three levels of government and how that is being allocated. Do we believe that, in the case of Toronto, the federal and provincial governments are making adequate investments in transit, given the amount of money they take out of this area in taxation? I would say the answer is: not yet. [But] they have been doing better.
Montreal mayor Denis Coderre
We are negotiating a new pact between the province and Montreal, and it’s all about municipal autonomy. We need tools so we’re not always waiting in the hallway at the end of legislative sessions looking for amendments to make the city work better. Since 85 per cent of immigration in Quebec is going to Montreal, we need more control over tools of integration, like job creation and housing. Montreal needs financial leverage…
The article talks about some of the things that the Rust Belt is doing to revitalize their cities and the lessons that many cities in Ontario – which are facing similar fates – could learn from. It’s worth a read.
I’m not going to summarize his article, other than to say that some of the key points were around tax increment financing, tax incentives, University connections, a DIY/entrepreneurial culture, and the American tradition of philanthropy – which Radwanski points out is probably the least imitable for Canada.
And it’s this last point that I would like to focus on first. The US has a deep history of people getting rich and then giving back – certainly more so than in Canada in my opinion.
If you think about the resurgence of cities such as Detroit, you’d be hard pressed not to think of people like Dan Gilbert. He has become the poster boy for Detroit’s resurgence by moving his companies to downtown and buying up most of the office buildings. If and when Detroit comes back (I think it’s a when), Gilbert will easily be one of the biggest beneficiaries.
Now, you could argue that this is made possible because of greater income inequality, but there’s something to be said about powerful individuals acting on intrinsic passion. Gilbert is investing in Detroit because he personally wants to see his home city come back. And that’s hard to replace.
The second point I would like to focus on has to do with this snippet:
With oil’s current slide, Canada really can’t afford for it to remain a drag – and in fact there is some expectation that Ontario will instead reclaim its old role as the leader of Canada’s economic growth. Its premier, Kathleen Wynne, recently expressed optimism that plummeting oil prices and a sinking dollar will prove a boon to manufacturing. “I don’t wish for low oil prices and a low dollar for Alberta,” she said earlier this month. “But at the same time, we want our manufacturing sector to rebound. So if that [low oil price] helps, then that’s a good thing.”
I don’t know what context this was said in, but I continue to feel strongly that we cannot rely on low oil prices and a low Canadian dollar for Ontario’s competitiveness. That is a terrible business model, and an unsustainable one. We need to figure out ways to create value and grow the economy without relying on currency differentials and other macroeconomic factors. Radwanski is right to point that out in his article.
So let’s hope we don’t let any short term benefits go to our head. There’s lots of exciting work to be done.
Yesterday evening I went to the Toronto Christmas Market in the Distillery District. I had actually never been before, but it was something that I had been meaning to check out for a few years now. And it was wonderful. If you’ve never been, I would highly recommend you go. This past weekend was the opening weekend and it runs all throughout Advent until Sunday, December 21st.
For those of who might not be aware, the Christmas Market festivity is a longstanding tradition that originated primarily in German-speaking Europe. Accounts of a “December market” were found as early as the end of the 13th century. The Toronto Christmas Market is a slightly more recent tradition (it’s only about 5 years old), but it was already selected as one of the world’s best.
But Christmas carollers and hot toddies aside, the Market is also a fantastic opportunity to see the Distillery District in all its glory. Every time I visit the Distillery, I can’t help but feel how lucky we are to have a district like this in the city. The architecture and scale of the place is incredible and – alongside the Toronto Islands and Kensington Market, sometimes – it’s pretty much the only car free zone we have.
However as someone who lived near the Distillery District in its early days, I remember how much of an “island” it was when it first opened. It felt disconnected from the rest of the city and the only way to get people there was to hold a special event. The retailers and galleries struggled and many didn’t last.
With all the condos that have been built, literally on top of the neighborhood, that has changed dramatically. Today the area has become much more balanced as a mixed-use community. But the real tipping point, I think, will come next year when Toronto hosts the Pan Am Games and the West Don Lands neighborhood starts to come online just to the east of Cherry Street.
Now all of a sudden the Distillery District won’t feel like the edge of downtown anymore, it will feel more like the middle of it. As my friend Alex Bozikovic of the Globe and Mail pointed out to me this weekend, the Pan Am Games are going to put the east side of downtown on people’s radars. And I would completely agree. Once that happens, the Distillery District will finally start to reach its maximum potential.
There are a lot of great architecture firms in Toronto, but one that I’ve been following for years is Solares Architecture. Founded by a husband and wife – Tom Knezic and Christine Lolley – the firm focuses on “environmentally integrated homes”, which is simply their title for incredibly sustainable and efficient homes.
I discovered the firm a few years ago when I was trying to get my laneway house off the ground, and they were unbelievably helpful. That laneway house is still a work in progress (more on that in the coming week), but I’ve followed the firm ever since. They have an awesome blog where they have meticulously profiled the renovation of their own environmentally integrated home. Their new home was also recently featured in the Globe and Mail.
As more and more people wake up to the importance of sustainability, I think that firms such as Solares Architecture are going to become even more important. This is not just about a LEED rating, it’s about a mission. And I think that’s also great for the profession of architecture because it expresses a clear value proposition: this is not just about stye (though that’s important); this is about measurable performance.
I was at a good friend’s wedding last night (congratulations again to Adrien + Rachel!), and one of the topics that came up at our table was whether it is better to own or rent your home. Now, in North America, conventional wisdom would suggest – almost mandate – that you have to own your place. If you’re still a renter, well then you’re “throwing away your money” my friend.
But are you really?
A big part of the value of owning your home is that it’s forced savings. Every month when you make those principal and interest payments, you’re paying down your mortgage and socking away money for the future. And this can be a great thing for a lot of people, particularly if you’re not disciplined enough to save otherwise.
But when you own a home, you’re also spending time and money on maintaining that home, and you’re also tying up capital that could be used elsewhere. So consider this: what if, instead of putting your savings towards a downpayment, you simply continued to rent and created an investment portfolio that you then contributed to on a regular basis just as you would a home?
Similarly, I remember being told in business school that companies that own their own real estate tend to under perform those that do not. And the rationale is that owning lots of real estate ties up capital that could otherwise be reinvested in the core business. In other words, if your core business is making widgets, then invest your money in making better widgets, not in real estate.
But this is not to say that everybody should rent. Obviously I’m a big believer in real estate. And for a lot of people, owning may make sense. This post was really just to say that the owning vs. renting decision may not be as black and white as you might think.
