Tag: housing supply

• Shortage of cities

  Joe Cortright of City Observatory recently looked at “the myth of revealed preference for [the] suburbs.” In it, he cites the work of Jonathan Levine, who is the author of a 2006 book called, Zoned Out: Regulation, Markets, and Choices in Transportation and Metropolitan Land-Use.

  There’s an argument out there that, on average, people prefer the suburbs to urban neighborhoods because, well, more people in the US live in auto-oriented neighborhoods compared to urban ones. What Levine wanted to figure out was whether this was truly a result of consumer preference or simply a lack of urban neighborhoods – or a “shortage of cities” as Cortright calls it.

  To do this Levine examined two cities with very different urban fabrics: Boston and Atlanta. The idea was to take a city with lots of urban neighborhoods (Boston) and compare it to one with relatively few (Atlanta). 

  For his comparison, he classified all of the neighborhoods in both cities on a scale according to how urban they were. “A” meant very urban. And “E” meant sprawling/exurban. He then went out and interviewed residents, asking them about both the kind of housing they would ideally like to live in and how happy they were with their current housing. 

  What Levine discovered, among other things, was that in Boston – where about half of all housing fell into the top 3 most urban categories – about 83% of people with a strong preference for urban neighborhoods were also living in one. Whereas in Atlanta, just 48% of people with a strong for urban neighborhoods were living in one.

  Put differently, the study suggests that in cities with fewer urban neighborhoods, it is more difficult for people with a preference for that housing type to find and live in it, which makes intuitive sense. The spread between preference and reality widens, once again suggesting that this could be about supply rather than an issue of demand.

  Anecdotally, I have seen this phenomenon play out here in Toronto. I often hear people talk about the neighborhoods that they would ideally like to live in, if only they could find a reasonably priced home. (Low supply leads to upward pressure on pricing.) How aligned would you say you are with your ideal level of urban-ness? 

  For more on Levine’s work, head over to City Observatory.

  2018.11.16

• Japan’s solution to housing affordability

  

  There’s a debate among urbanists as to the full impact of housing supply on overall affordability. But it should make intuitive sense that as new people move to a city and as new jobs are created, there will be a need for additional housing. Here is an excerpt from Vox citing a recent FT article talking about how Japan may have figured out the solution to rising home prices:

  The reason, argues Financial Times writer Robin Harding, is that Tokyo does a better job of allowing housing supply to keep up with housing demand. In 2014, Tokyo issued permits for 142,417 new housing units. In contrast, the entire state of California — which has three times the population of Tokyo — issued permits for only 83,657 new housing units. Little wonder that demand for housing has outstripped supply in the Bay Area.
  

  In the United States, local housing markets are plagued by grassroots “Not In My Back Yard” (NIMBY) activists who organize to stop efforts to build town homes and apartment buildings in their local neighborhoods. Because every construction project is located near somebody, the result tends to be that little housing gets built anywhere.

  I don’t have a copy of the FT article and I do firmly believe that supply matters a great deal, but I think there are also a number of other factors that need to be taken into consideration here. Japan has a depopulation problem. The country has lost about 1.4 million people since 2010. 

  They also have fairly insular views around immigration. They are over 3.5x larger than Canada in terms of population and yet they take in fewer immigrants each year. So I think it’s worth looking at this conclusion closely. (This is me trying to avoid confirmation bias.)

  Image: Vox

  2018.10.16

• Housing supply and displacement in San Francisco

  

  Joe Cortright recently wrote about a study by Kate Pennington (UC Berkeley), which looked at the impact of housing production on legal eviction in San Francisco. The goal was to figure out if new housing supply actually causes displacement.

  To do this, Pennington went block-by-block and looked at new housing projects, as well as over a decades’ worth of eviction notices. 

  The relationship between the two was found to be “statistically indistinguishable from zero.” In other words, the “monthly probability of an eviction notice” does not change when new housing supply is completed nearby.

  Some have been critical of her findings and some have questioned whether legal eviction notices are, in fact, the right proxy for displacement.

  But I agree with Joe Cortright in that this still feels like a meaningful relationship to understand, especially when we’re talking about a tight housing market like San Francisco’s.

  Photo by Matthew Cabret on Unsplash

  2018.09.15

• Limits of housing affordability

  

  The San Francisco Chronicle recently published an article called, “SF residential projects languish as rising costs force developers to cash out.” It talks about the impact that rising costs (both construction and other) are having on new housing supply. Some developers aren’t building even though may have entitled sites. And that’s because the math doesn’t work, even though we’re in a market with a severe housing shortage.

  Here is an excerpt from the article that talks about the kind of pricing that is needed in order to make a project work:

  Chris Foley, a real estate investor and partner in brokerage firm Polaris Pacific, said that in the current construction environment a condominium developer needs to sell units for at least $1,400 a square foot for a wood-frame building and $1,800 a square for a taller, steel-frame midrise or high-rise. Even in a city where more than 80 percent of the population is priced out of the market, those numbers are a stretch, Foley said.

  San Francisco also has inclusionary zoning, which requires a certain percentage of units in any new development to be priced below market. According to the article, it is 18% for new rental projects and 20% for new condo projects. That’s a cost that needs to be absorbed by the remaining market rate units – so price accordingly. 

  The MIRA tower designed by Studio Gang is currently under construction and has 156 affordable units and 393 market rate units. The market rate pricing looks something like this:

  That’s the case with three buildings rising near the new Transbay Transit Center: Mira, the Avery at 400 Folsom St., and One Steuart Lane, which overlooks the Embarcadero at the foot of Howard Street. Unless there is a remarkable drop in the market, units in all three of those buildings will probably have an average sales price of more than $2,000 a square foot and penthouses could fetch $3,000 or even $4,000 a square foot. A 3,326-square-foot penthouse at 181 Fremont St., which opened last spring, recently sold for $15 million, or $4,500 a square foot.

  Projects being squeezed by rising costs is something that we are also seeing here in Toronto. And I don’t believe that the general public fully appreciates that there are limits to the costs that can be shouldered by new development. And the reason for that is because there are limits to what people can afford to pay for new housing.

  Photo by Jamie Street on Unsplash

  2018.09.07

• How Singapore fixed its housing problem

  There are a number of affordable housing plans being thrown around in Toronto right now given that we have a municipal election coming up this fall. 

  From what I have read, the plans are largely centered around surplus and/or available public land and possibly some subsidies. 

  These subsidies are very important because the money has to come from somewhere. This is often overlooked.

  In light of these debates, I thought I would share a short Bloomberg video that my friend Evgeny shared with me this morning all the way from Tokyo.

  The video is about how Singapore fixed its housing problem. If you can’t see it embedded below, click here.

  [youtube https://www.youtube.com/watch?v=2cjPgNBNeLU?rel=0&w=560&h=315]

  It strikes me as being very Singaporean.

  2018.08.31

• Hypervacancy in America’s legacy cities

  

  I was reading Aaron Renn’s post this morning on America’s vacant housing challenge and I was reminded of the stark contrast between what we are experiencing here in Toronto and what the US is experiencing in a lot of its coastal cities, compared to what is happening in many legacy cities in the US. The former industrial centers. In this latter case, the discussion is around neighborhoods reaching a tipping point in terms of vacant homes and then spiralling out of control. Below is an excerpt from a study that Renn cites in his post. It is from the Lincoln Institute of Land Policy and it’s called “The Empty House Next Door.” The above chart should also tell you a lot about the magnitude of this problem.

  Hypervacancy has been rising steadily in legacy cities since the 1990s. Although only one out of sixteen census tracts in Cleveland was hypervacant in 1990, by 2010, one out of two tracts in that city had reached hypervacancy. When vacancies rise above approximately 20 percent of an area’s total properties, the number of vacant buildings and lots may continue to grow indefinitely. Although vacancies rarely reach 100 percent—because even the most distressed neighbor- hood may have a few long-term owners—the market effectively ceases to function. Houses sell, if they sell at all, only to investors at rock bottom prices while the neighborhoods become areas of concentrated poverty, unemployment, and health problems.

  2018.07.07

• Blackstone enters Canadian multi-family sector

  

  A few days ago it was announced that Blackstone has entered the multi-family space in Canada through a JV with Starlight Investments. They are buying 6 undisclosed multi-family buildings. 5 in Toronto. And 1 in Montréal. The total is 746 units.

  The message in the press release is that apartment buildings in Canada are difficult to find and buy at meaningful scale. Most are held by small private investors and those owners are reluctant to sell. 

  At the same time, places like Toronto and Montréal have built relatively little purpose-built rental over the past few decades. Supply is restricted. 

  This is an interesting stat from the announcement: The Canadian rental market is about 2 million housing units. Dallas, alone, is 500,000 units. But this must only be purpose-built, investment grade, and/or some other subset of units. Because there are over 14 million private households and over 4.4 million rented households in Canada (2016 data).

  They also hint at a longer-term relationship between Blackstone and Starlight. Perhaps that will translate into some purpose-built rental development in the future.

  On a related note, I recently picked up the book, King of Capital: The Remarkable Rise, Fall, and Rise Again of Steve Schwarzman and Blackstone. It was published in 2012, so it’s not new. But as soon as I stumbled upon it, I picked it up. It was new to me.

  Once I’m finished it maybe I’ll report back here on the blog.

  Photo by Warren Wong on Unsplash

  2018.06.30

• Percentage of residential properties dedicated to single-family housing in US cities

  The Seattle Times has an article up about “widespread single-family zoning” that will feel familiar to many here in Toronto who, I know, are having similar conversations about the amount of land dedicated to low-density housing.

  The article, by Mike Rosenberg, estimates that 49% of all developable land in Seattle is dedicated to single-family housing; that 8% is dedicated to multi-family housing; and that another 8% is dedicated to commercial and mixed-use buildings. The rest of the land is institutional, open space, vacant, and so on.

  Of all the residential lots in the city, the estimate is that 69% of them are occupied by single-family houses. This is compared to 1% in Manhattan. 

  

  I tried to reverse engineer the 69% based on the land use areas in the article, but the math didn’t quite add up. In any event, the argument here is, of course, that single-family homes are too expensive in Seattle and that the city needs more land available for multi-family housing.

  Housing supply is no doubt important, but looking at the above chart, having a low, or lower, percentage of residential land dedicated to single-family housing doesn’t seem to necessarily guarantee affordable housing.

  2018.05.13

• Toronto is finally ready to permit laneway suites

  Some of you might remember that last summer the city refused my laneway house/suite here in Toronto.

  Well that was last summer and this is this summer.

  On May 2, 2018 – which just so happens to be my birthday – Toronto and East York Community Council will consider a staff report for a City-initiated Official Plan Amendment and Zoning By-law Amendment that would permit laneway suites in the Toronto & East York District.

  Here are a couple of excerpts from the summary section (full report, here):

  This report recommends establishing a planning framework to permit laneway suites on lands within the Toronto and East York District that are designated as Neighbourhoods by amending both the Official Plan and City-wide Zoning By-law.

  A second unit can take many forms but is generally considered to be subordinate to the primary dwelling unit on a lot. Second units are an important part of the City’s rental housing stock. Laneway suites are one form of second unit.
  

  This report contains a detailed planning rationale for the introduction and regulation of laneway suites within the Toronto and East York area and discusses the policy implications and intent of proposed performance standards and criteria. 

  These performance standards and criteria intend that laneway suites will provide a new form of ground-related, rental and extended family housing that will fit appropriately within the scale of established Neighbourhoods, and limit their impact on the existing physical character, while contributing to the growth of the City’s rental housing stock.

  What a thoughtful birthday gift. Thank you.

  2018.04.23

• Manhattan apartment rents post biggest decline since 2011

  A friend of mine sent me this article earlier today with a sarcastic comment about the relationship between housing supply and rents.

  The article talks about how rents in almost every Manhattan neighborhood have fallen compared to a year ago because of a flood of new apartment supply coming online. The median rent dropped 3.6% (year-over-year) which is the biggest decline since October 2011.

  

  There has also been a spike in the number of leases with some sort of incentive attached to it (see above). As a landlord you typically want to use incentives, such as free rent, before resorting to lower face rents. Because lower rents mean a lower overall net operating income, which in turns depresses the value of your property.

  But sometimes you have no choice:

  “Landlords have finally realized, ‘OK, we have to adjust these prices because the concessions aren’t doing as much,’” said Hal Gavzie, who oversees leasing for Douglas Elliman. “Customers are looking past the concessions being offered and just looking for the best deals they can find.”

  A few weeks ago I wrote about a similar story playing out in Seattle. It’s almost as if excess housing supply is driving down rents.

  2018.02.14