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.
As further evidence that real estate is a local business, let’s take a look at the housing market in Japan today. It’s a very unique market.
According to this Freakonomics podcast, 50% of all single family houses in Japan are demolished by the time they reach 38 years old. That’s their half-life. By contrast, in the US, this number is 100 years.
The reason for this is rapid depreciation. Real property typically consists of two things: land and the building. Land doesn’t depreciate. But the structure sitting on the land does.
In Japan, the building or structure is thought to be fully depreciated (and therefore worth nothing) after about 30 years for a single-family home and after about 40 years for an apartment/condominium.
The result is that there’s virtually no resale housing market. When somebody buys a house, it is usually torn down and completely rebuilt. It’s a uniquely Japanese phenomenon.
So why does this happen?
The Freakonomics podcast presents a couple of hypothesis. Some believe that it’s caused by a Japanese fixation with newness. New is seen as pure and clean.
Others believe that it has to do with a building code that is constantly changing due to the high frequency of earthquakes in Japan. 20% of the world’s earthquakes with a magnitude of 6.0 or greater happen in Japan. And so there appears to be a belief that newer homes – with the latest seismic technologies – are the safest.
Whatever the case may be, the fact that there’s virtually no resale housing market in Japan, not surprisingly, produces some interesting outcomes. For one, maintenance and DIY home projects are uncommon. Why invest in your home when it’s not viewed as an asset, but as a disposable good?
At the same time, people worry very little about marketability when they are building new. And this is a big reason why Japan is so famous for its radically designed homes. When you’re building only for yourself, you just do what you want.
But most importantly, some (such as Richard Koo, who is interviewed in the podcast) believe that this approach to housing is a huge “obstacle to affluence.” Without a functioning resale market, the Japanese don’t get the opportunity to build wealth/equity in the same way that other countries do.
I recently heard Brad Burnham (venture capitalist at Union Square Ventures) say in a talk that if you’re thinking about Bitcoin just as a currency, then you’re thinking about it in the wrong way. If you take nothing else away from today’s post, I think you should remember that. Bitcoin, and the underlying block chain architecture, have the potential to be very transformative.
The Fast Company article was written by Matt Weiss of IDEO (the powerhouse design and innovation firm). Here’s an introductory snippet:
Insert block chains: a relatively new and promising technology that could transform the way we digitally exchange value, similarly to how Internet protocols, like TCP/IP, transformed the way we exchanged information. For example, to transfer ownership of a home today, there are countless check of authenticity and intermediaries involved to insure the transfer is legitimate. By using a distributed database (a.k.a. “a block chain,” the same technology behind Bitcoin) to prove authenticity, we could legitimately transfer ownership immediately without the need of a middleman. In fact, when we think about block-chain technology and the industries it could disrupt, real estate tops the list. While Trulia, Redfin, Angie’s List and others have brought some transparency to the opaque world of home buying and home ownership, most of our experiences in this industry are fraught with incomplete, inaccurate, and asymmetric information.
Following this, he goes on to talk about what it might be like – each step of the way – to buy a house using the block chain technology. There are even mockups of what the app could look like. I highly recommend you give it a read if you’re interested or involved in this space.
The real estate industry hasn’t seen a lot of innovation. It remains an opaque market with lots of information asymmetries. I have no doubt that will one day change; it’s just a question of when. Perhaps it’ll be the block chain that makes that happen.
By accident, this week on Architect This City seems to be turning into Elon Musk week.
Yesterday, Musk announced something called the Powerwall home battery. Measuring about 3′ x 4′, the shield looking battery pack will charge using the electricity generated from solar panels (or from the grid when rates are at their lowest) and then power your home.
It’s designed for consumers and will cost between US$3,000 – $3,500 depending on capacity. The individual Powerwalls can also be daisy chained to increase capacity. It will be available starting this summer.
A wall battery may not seem all that interesting to some, but I think this is actually a big deal for a few reasons.
Renewable energy is often both intermittent and produced when you don’t need it. Here’s a great chart from Tesla that shows what I mean:
During peak solar hours, most people aren’t home and most people aren’t consuming at peak levels. That’s why it’s important to be able to store the energy that you collect, whether it be from solar, wind or other renewal energy source. And from what I hear from my friends in the industry, storage has been a bit of an Achilles heel for adoption.
It will also help to further decentralize energy production. What is produced locally (from say solar panels) will be stored locally for when it’s needed locally. This is in contrast to centralized production or producing energy locally and then feeding any excess capacity into the grid for use somewhere else. That requires transmission and will be by definition less efficient.
Finally, the other interesting thing about Powerwall is that it closes the loop on two of Musk’s businesses: SolarCity and Tesla. SolarCity is about the production of renewable energy and Tesla is about the consumption renewable energy. But as the chart above shows, storage is often needed to link those two activities in an efficient way.
All of this makes me excited about Powerwall.
If any of you are an expert in this industry (which I am not) or you just have additional thoughts, I would love to hear from you in the comment section below.
A few days I retweeted the above home from Dwell Magazine. Then yesterday I was driving through midtown Toronto and I stumbled upon it. And that got me thinking more about this kind of project.
The house is a triplex with, presumably, one unit in the basement, one unit on the main floor, and one unit across the 2nd and 3rd floor. The existing detached house was only 2 storeys and so a third floor was added to create what is likely the “owner’s suite.”
It’s not uncommon for many of the houses in central areas of Toronto to be converted into duplexes and triplexes or to flip back into single family homes after being subdivided for rentals. It goes to show how adaptable the single family house can be.
But it’s not everyday that you see such a high end triplex being built as, what seems to be, a permanent residence and kind of dream home for the owners. Historically, when people built their dream home it has meant a single family home.
Part of this I’m sure has to do with rising housing costs. But I think it also has to do with valuing location over raw space and with an acceptance of urban density.
I don’t know about you, but I would have no concerns with permanently laying down roots in a house like this. It’s beautiful.
I don’t have a lot to say today. I had a busy day and then this evening I set up some new shelving in my apartment. Here’s what it looks like:
There’s a bulkhead directly above it (that you can’t see in this picture) and so I’ve been wanting to put shelving in this corner ever since I moved in almost 2 years ago. I haven’t really organized the contents yet, but I did get some wine into the bottom of it. First things first.
Initially I thought about getting built-in shelves. But custom millwork is expensive and, to do something even remotely interesting, the pricing got stupid. So I searched and searched and eventually stumbled upon the Muuto stacked shelf system designed by JDS Architects.
This is the picture that sold me:
My setup doesn’t look nearly as impressive, but I’m still thrilled with it.
The way it works is really simple. You stack up the boxes however you would like and then, once you’re satisfied, you just clip them together. That’s what those yellow things are in my picture. You can hide them at the back if you want, but I purposely ordered yellow ones in order to highlight how the system actually goes together.
It wasn’t the cheapest option out there, but I’d rather have fewer things of higher quality. I already have too many things.
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.
Poll: How much do you think this home is or will be worth? Respond in the comment section below. I’ll be giving away one free ATC t-shirt. (Comments)
A few weeks ago a good friend of mine – who is a builder – called me up and told me that I had to come and see a house under construction in Etobicoke (west end of Toronto). He told me that the owner was doing everything from geothermal to a car elevator, and that he was doing it all, not with the intent of ever being able to sell it, but because he just wanted to build something really cool.
I thought: Amazing. I need to see this.
So this past Saturday afternoon, I drove out to 37 Canerouth Drive in Etobicoke to take a look. Situated near Centennial Park, the house is at the end of an unassuming cul-de-sac filled with post-war bungalows that you could probably pickup for anywhere between $800,000 to $1M, fully renovated. This house, on the other hand, has had many multiples of that sunk into it.
But before I get into the house, let me start from the beginning.
The owner actually used to live next door on Canerouth Drive. He lived in a nice, newly renovated bungalow, but he wanted something else. Something cooler. Something he could create from scratch. Being a car collector, one of the driving forces behind a new build was to create a place for all his cars. At one point he had around 7 or 8 of them. So he had decided that it was time to do a knock-down and start again.
But before he could demolish his house, his neighbors – whose bungalow hadn’t been renovated, but which had a slightly bigger and better lot – said to him: “You’ve got to be crazy. Your place is fully renovated.”
Somehow that comment led to the two neighbors actually switching houses. (I think this is fascinating, because I wonder how many of these types of transactions would be possible under the right circumstances.) The neighbors got a newly renovated house, and he got a better lot to build his dream home. It was a huge win for the neighbors, but it also meant one less neighbor to oppose him at the Committee of Adjustment when he went in for his variances.
The biggest variance was apparently density. The house is almost 6,000 square feet. It has somewhere around 4 bedrooms, but also includes a few studio and study areas, a spa area, 2 walk-in closets the size of the bedroom in my condo, and even a “meditation hallway”. The master bedroom and main living areas are all on one floor so that as the couple ages the home remains functional. (There’s also an elevator just in case.)
Being at the end of a cul-de-sac, the lot is pie shaped and the architecture of the house mimics it. The front is concave and the rear is convex – opening up the main living areas and master bedroom to the ravine at the back (see above photo). The owner was absolutely firm in his belief that these curves were central to the architecture. Without them, the house simply wasn’t worth doing, he said.
The initial intent was to build a completely passive solar house, but he found that it was extremely difficult to do so within the confines of our building code. Still, the house contains a significant amount of thermal mass, which is one of the principles of passive solar design. The home uses precast hollow core slabs with 3" of poured concrete on top and in-floor radiant heating and cooling. All of the floors will be polished concrete – love it.
Here’s the main stairwell (check out the support stringers):
Here’s the view from the kitchen looking towards the living room and out to the backyard (the far wall will be outfitted with custom millwork for his pottery collection):
Here’s a shot of the through-fireplace that will connect the living room area to the main stairwell area shown above:
And here’s the meditation hallway:
The most over the top part of the house though, is probably the underground parking garage. This shouldn’t come as a surprise to you given that he’s passionate about cars and it was one of the main reasons he wanted a new house in the first place. At the front of the house (shown in the first image above) is a single car garage, which conceals a parking elevator he sourced from the US.
It looks like this from the basement:
And it leads into this below grade parking area:
There’s enough room for all of his cars and it’ll be fully equipped so that he can work and tinker on them.
But what stood out to me most from my visit – more so than the scale of this project or all the fancy bells and whistles – was his attention to detail and his passion for design. Here is a guy who is worrying about baseboard details and the design of the space down to the centimeter.
Here’s his door detail:
In fact, he gave me a number of examples where a couple of inches here and there were having a profound impact on the experience of the space and he forced the trades to change it. He even spoke about how the 3" concrete floor topping had changed his experience of the outside (for the better). These are subtleties that most people don’t even notice, or care about.
But he sure does.
Of course, in some ways, this is the difference between building for yourself and building strictly for profit. When it’s a passion project, you do things that you love, but that other people will tell you don’t make economic sense. But sometime it’s good to be crazy. I mean, what do those other people know?
So today, I thought we would play a little game on ATC where you try and guess what you think this home will be worth upon completion? Take a guess. There’s no wrong answer here. I’ll also randomly select somebody from the comments to receive a free ATC t-shirt.
I have a rough idea of the costs in my head, but I’d like to see what you come up with on your own first. I’ll also be forwarding this post to the owner, so make sure you respond in the comment section below as opposed to via email or on social media. I’m sure he’d love to see your numbers 🙂
To add one last piece to this story, I discovered midway through our tour that the owner of this house used to be my family’s veterinarian before he retired sometime in the mid 2000s. What a small world. He was an excellent veterinarian (my mom told me to tell him that), but that clearly wasn’t his only passion.
The garage shown above (with the pseudo green roof) is located in the Chelsea neighborhood of London. It measures about 11’ x 7’ and it – along with the site it sits on – is about to go up for auction.
It’s expected to go for more than £550,000 according to the DailyMail UK, which would make it the most expensive garage ever sold in the UK. The site area is 535 square foot – about the size of an average 1 bedroom condo in Toronto.
Below is an aerial view of the site. It basically looks to be residual land.
But as awkward as this site might appear, the expected value is being driven by the fact that planning permissions were granted to turn it into this:
It’s a 2 bedroom house that feels a lot like a laneway house. It certainly fits the description of “a house behind a house”, which is often how laneway housing gets described here in Toronto.
I wanted to share it because it supports my belief that, sooner or later, Toronto will come around to laneway housing. As property prices rise and affordability continues to erode, people will – quite justifiably – start looking in all sorts of new places for a decent urban home.
Many thanks to my friend Adrian for sending me the link.
Today was my mother’s PDI for her new condo. For those of you who aren’t in the industry, a PDI is a “pre-delivery inspection” that happens about a week or two before you take occupancy of a new home. It’s basically a time for you to identify all the mistakes that the construction team has made and have them (hopefully) correct them before you actually move in.
But for someone like my mother who is making the move from a house that she’s lived in for decades, a PDI is actually something much more significant: It’s the first time she saw her new “home.” And a home is something much different than just a house or a condo – it has emotional significance.
It’s going to be an adjustment for her. One of the first things she did was open up the oven to see if she could fit her Christmas turkey in it. But in the end, I have no doubt that she’s going to love her new home. As I’ve mentioned before, people often overestimate the potential risks of change. But never be afraid to give up the good to go for the great.
Toronto Life recently published an interesting article called Stuck in Condoland. A lot of people have mentioned it to me, so there seems to be a lot of interest in the topic. It basically profiles the lives of a few young families who live downtown and are trying to raise young children in relatively small condos (think 700 square feet).
I thought it was interesting because I like the idea of small and efficient living. The average post-war bungalow in Toronto was probably less than 1,000 square feet. And so this modern notion that you need a big house in order to properly raise a family is a relatively recent phenomenon. Although we’re a richer city today and that’s what happens when people become wealthier: they consume more.
But the article also makes it seem that developers only want to build small condos and that larger condos and single-family homes just aren’t profitable enough. Thus the reason all these families are being forced to into tiny shoeboxes in the sky. But that’s not really true.
Look, just like every other for-profit business on the planet, developers are concerned with making money. And so they will always look for ways to increase efficiency, drive down costs, and so on. But there are certain realities of the market that developers don’t have control over.
First, developers aren’t building new single family homes in the city (at any sort of meaningful scale) because there’s no land to do so. And because the land use policies in place and the current thinking around how we can more sustainably build our cities for the future dictate that we should be building more intensely. In other words, building up. So it’s not a question of developers not wanting to build single family homes; it’s a question of not being able to.
Second, trust me when I say that if the market wanted large 3 bedroom family units, developers would build them. Mandating them is a useless exercise if people don’t want them or are unable to afford them.
The challenge we face is that a reinforced concrete condo tower is more expensive to build than a wood-framed single family house. So until land values get to a point where single family homes become the more expensive option (compared to condos), I don’t think we’ll see a huge rush towards 3+ bedroom suites.
This is my hypothesis at least. Because when you buy house, you’re really buying two things: the house itself and the land. If the house itself (wood) is cheaper to build on a per square foot basis than a condo (concrete), then the variable that will make a difference is the land. And as people like to say: “buy land, they ain’t making any more of it.”
So what I’m saying is that I just don’t think the situation is as simple as: “developers are bad, all they want to do is build tiny condos and make lots of money.” It’s more complicated than that. But I do believe the question of how families are going to live in the city is an important one.
