Tag: housing

• My 2021 predictions

  Life will feel a lot more normal by spring/summer (Q2). By this time, the various vaccines should be broadly available (at least in the developed world). This is something that never happened during the Spanish Flu. From what I have read, the Spanish Flu lasted about two years and there were four major waves, the second of which was by far the most deadly. Ultimately, a vaccine was never found. It just petered out as people developed immunity. But medicine then was not what it is today, so surely we are destined to do better.

  What happens with working from home is going to be one of the most important outcomes of 2021. Right now it feels like tech vs. commercial real estate. The tech industry has been quick to renounce offices (while many large tech companies continued to lease more space through 2020). And the commercial real estate industry has naturally pointed out that we’re all still going to need physical offices.

  My view is that, yes, people appreciate the flexibility of being able to work remotely, but that we’re greatly exaggerating the extent to which work is going to disperse in the short-term. I think it comes down to three main things. 1) It’s nice being around other humans, both in the office and for those after work drinks. 2) Collaborative and knowledge-intensive endeavors work better when people are in the same room. And 3) corporate politics will encourage people to return to the office. Who do you think is going to get promoted first, the person who Zooms in from the Caribbean for meetings or the person who shows up to the office and grinds it out every day?

  As the world returns to normal, we will, however, see an explosion in global travel. Many will be questioning how Airbnb’s sky-high valuation makes any sort of sense, but it’ll have the right story for what’s going on in the world (some people call these “story stocks”). The reality is that there will be a massive amount of pent up demand that starts to come out as soon as people start to feel safe and governments start to allow people to travel en masse. I’m already looking forward to the 2021-2022 ski season, which I fully expect to be a blockbuster season.

  Because of this, we will see a decline in recreational real estate. The kind that was fulfilling people’s need for local travel during this pandemic. Instead, people will turn their attention to more international experiences and try and make up for lost time. Many will also come to realize that the whole working from home thing didn’t stick as expected and so they’ll start deriving less utility from their property outside of the city. Expect a kind of reversion to the mean when it comes to prices.

  Urban/downtown real estate will strongly rebound in the second half of 2021. As restaurants reopen, as people return to offices, and as urban life in general resumes, we will see an increase in demand for condos/apartments, and probably larger urban spaces given the run-up in prices for single-family homes that many cities saw last year. (A bit more on this point can be found over here.)

  The trends that are being accelerated as a result of this pandemic are not going to stop, though their rate of increase will temper. The apps and platforms that people started using in 2020, perhaps for the first time, have established new habits. People’s credit cards are now on file and it’ll be very easy for those online habits to remain. But the opposing force to all of this will be the strong desire for socializing, travel, and novel experiences. It’ll be the more routine stuff that will continue to live entirely on our phones.

  The restaurant/food industry will bounce back in a slightly different form. Sadly, many businesses will have failed. But we will also see an explosion in new ideas and new concepts, satisfying our demand to be out socializing and trying new things throughout the new roaring twenties. Ghost kitchens and on-demand food delivery companies will continue to disaggregate how some restaurants are setup. Companies like Uber will see their ride-sharing businesses quickly snap back, which will more than offset the decline in food delivery as people resume eating out.

  Public transit ridership probably won’t return to its pre-pandemic levels until at least the fall. Possibly late fall. This is going to be a serious problem for the various levels of government that subsidize virtually all public transit authorities. Many transit networks have seen ridership declines of 70% or so and, if my timing projections are correct, that will have been the case for about a year and a half.

  The migration from high tax states (like California and New York) to low tax states (like Texas and Florida) will continue. This trend was well underway before COVID-19 and so I don’t see it reversing. What is perhaps more interesting to consider is how this dispersion of economic activity will ultimately play out against some of the centralizing/polarizing forces of the global economy. Urban agglomeration economies aren’t going to go away.

  To end, I will say that I think it’s safe to assume that we’re all looking forward to the world getting back to normal, whatever that happens to mean. But ironically, once that happens, I reckon that some of us might look back on this period of time and feel hints of nostalgia. Perhaps you learned a new skill or perhaps you were able to spend more time with love ones. Time and distance may better reveal these silver linings.

  Onward, my friends. What a time to be alive.

  2021.01.01

• A new Frame Home in Brooklyn

  Fred Wilson (venture capitalist) and Joanne Wilson (also an investor) have been working on a passive house apartment building in Brooklyn for the last five years. Their development company is called Frame Home. And this past week they received a pretty great Christmas gift in the form of a Temporary Certificate of Occupancy from NYC Buildings.

  At 5 storeys and with only 10 two-bedroom units, you could classify this building as the kind “missing middle” housing that gets so much air time here in Toronto. And so not only have they managed to build relatively small, but they’ve done it using passive house design principles.

  Here are some of the apartment building’s features:

  • Cross-laminated timber (CLT) structure
  • Passive house design approach
  • Triple-pane windows
  • Interior polished and insulated concrete walls (presumably to act as a thermal mass to moderate heating/cooling throughout the year)
  • Solar panels installed on the upper facade and roof (passive house design should, in theory, allow these to supply a big chunk of the building’s energy needs)
  • No fossil fuels used throughout the building — everything is electrical
  • Fully sub-metered units
  • Outdoor circulation spaces/stairs, providing access to a shared rooftop courtyard (I’m assuming these also serve as required egress for the building)
  • Dedicated elevator entrance for every suite (i.e. no interior circulation/corridor spaces)
  • Composting facilities within the building
  • Bike room connected to the ground-floor lobby

  There’s also a co-working and community space planned for the ground floor called “Framework.” Interestingly enough, they have already responded to the current pandemic. Instead of open-air desks, you rent fully enclosed 8′ x 8′ pods that are sound-proofed and come with their own HVAC systems.

  Congratulations Fred and Joanne on such an exciting and pioneering project. (I would love to see the development pro forma!) If you’d like to learn more about Frame 283, here is their website and here is a profile that the New York Times did on the project back in January. Building with CLT is apparently prohibited in NYC. Frame 283 got an exemption.

  2020.12.25

• The case for density transition zones (and why people will probably hate them)

  Toronto is known for its tall buildings and its contrasting low-rise neighborhoods. More recently, we have seen a proliferation of mid-rise buildings along the city’s “Avenues.” This is despite the many challenges and costs associated with this building typology.

  But I think it’s pretty clear that a further evolution is also underway. Laneway housing, which is now permitted “as-of-right,” is in the early stages of being adopted and built out all across the city. And eventually I think we’ll see many of Toronto’s laneways evolve into fully fledged residential streets; perhaps not all that dissimilar from what you might find in compact cities like Tokyo.

  This is very exciting to me and I think of it as the city gaining a third hierarchy of residential streets. We’d have our major arteries and avenues. We’d have our residential side streets. And then we’d have our compact laneways. Dare I say that maybe some of these laneways could even house non-residential uses such as small-scale offices.

  

  But along with this shift, I think it’s time we look at another infill opportunity — something that planners Blair Scorgie and Sean Hertel are calling “density transition zones.” What these zones hope to be is a new middle transition zone between low-rise neighborhoods (where laneway suites are already permitted) and mid-rise avenues. A place where “missing middle” type housing might be built in close proximity to major streets and existing transit. Let’s call it a 100-200m zone that sits right behind our avenues.

  In my mind this is immediately beneficial for two reasons. The first is obvious. It could be a place for frictionless missing middle housing. Housing that’s more dense than a single family home + laneway suite, but less dense than a typical mid-rise building.

  The second immediate benefit is that this transition zone could be used to help improve the overall feasibility of mid-rise avenue development. The reality is that there are many blocks along Toronto’s avenues where the lot depths are simply too shallow for proper mid-rise buildings. Density transition zones could help with this, which would be not that dissimilar from how “Enhancement Zones” were intended to work (they were never approved).

  If this were to happen, I think there would also be a strong case for softening some of the “requirements” in the mid-rise design guidelines. Requirements like the 45 degree angular plane that new buildings generally need to conform to. All of this would only help the overall feasibility of more European-scaled developments along Toronto’s avenues and, in my opinion, that would be a great thing.

  But for the same reasons that Enhancement Zones were highly contentious, I would expect a lot of grouchy people and a lot of pushback on this idea. There will be concerns about encroaching on our single-family neighborhoods, and there will be the usual objections that come up with any new development (density, traffic, dog poo, etc.) But if we’re serious about building more missing middle housing, we are going to need to find ways to remove the barriers to entry. This scale of housing is simply too small to support a great deal of friction.

  To learn more about how density transition zones might work, I would encourage you to check out the great site that Blair and Sean have put together, over here.

  Image: Density Transition Zones

  2020.12.19

• Where people are moving in the US

  

  Another day, another set of announcements about large companies and rich people moving to lower cost US states. Yesterday it was announced that Oracle will move its corporate headquarters from Silicon Valley to Austin, Texas. (If you remember, Elon Musk also recently announced that he had moved himself to Austin from California.) The company has said that the move puts Oracle in the best position to grow and to give its employees greater flexibility about where and how they work.

  While these sorts of moves are making headlines right now, it’s important to keep in mind that this is not necessarily a new phenomenon. In fact, depending on how you look at it, you could argue that these headlines are a lagging indicator for trends that have been underway for some time. Below is a chart from New Geography showing the top 50 state-to-state moves last year. Number one is the move from California to Texas with 45,172 net movers. And number two is the move from New York to Florida with 38,512 net movers.

  

  According to New Geography, California saw a net domestic migration loss of 912,000 people from 2010 to 2019. And the most popular receiving states are what you would expect: Florida (1,230,000 people) and Texas (1,146,000 people). A big part of this story obviously has to do with housing affordability and the search for an overall lower cost of living. As well, since companies are always in need of young and smart talent, it makes since for them to locate in places where young and smart people want to live.

  But urbanists like Richard Florida have also pointed out at this relocation of companies could be a leading indicator for something else: the decline of innovation in America. Here, he argues that in the nascent stages of a new invention, there tends to be a tight clustering phenomenon. Think steel in Pittsburgh, cars in Detroit, and computing in Silicon Valley. However, as the industry matures, the tendency to centralize seems to decline and companies then start moving around.

  I’m not yet convinced that this is what’s happening. Because there seems to be a pile on happening in specific cities like Austin (which, by the way, I hear is terrific). Even before this pandemic, there was a growing sense (from the outside, mind you) that the Bay Area had simply gotten too expensive, both for individuals and for companies. It would seem that when you greatly restrict the supply of new housing and make it unattainable for many, people go find housing somewhere else. Sometimes in other states.

  Photo by Tomek Baginski on Unsplash

  2020.12.12

• How not to build missing middle housing

  Here is a good example of why “missing middle” housing is so challenging to build in Toronto, despite everyone talking about how great it would be if only we could build more of it.

  It’s the story of a minor variance application that was asking to sever a 50-foot lot at 2165 Gerrard Street East so that two semi-detached buildings and two laneway suites could be built. It would have added 10 family-sized rental units to a site that is on a streetcar line and that is within walking distance of both the subway and regional rail. And yet the consent to sever was denied.

  How come you ask?

  “I don’t believe dividing the property is in the best interest of the community,” said committee member Carl Knipfel, himself an architect and planner who complimented the beauty of the existing house and critiqued the design of the new buildings. “What is proposed is too dense … I really have serious concerns as to where this consent may lead us.”

  The last sentence is the best part.

  The article then goes on to argue that this is really all about the supremacy of single family homes and the desire to keep renters out of these neighborhoods. (Hey Airbnb, it’s not just short-term rentals that people have a problem with; it’s also long-term rentals.)

  The kicker, for Mr. Galbraith [the project’s planner], is he knows if he wanted to sever the lot for two single-family homes he could get that permission without delay and likely also get permission to build more than local zoning allows.

  “I can get variances for a one-unit McMansion every day of the week,” he said. “Lot coverage variances are very common; you want to take a bungalow down and make some big ugly house with a weird roof and a high first floor? You see those all over East York and Etobicoke.”

  If missing middle-type housing is “too dense” for sites that are endowed with every form of fixed rail transit that we have available in this city, then your guess is as good as mind as to where the hell it’s supposed to go. It’s time to grow up Toronto.

  2020.12.09

• The roaring twenties

  I’m looking forward to the roaring 20s.

  — Brandon Donnelly (@donnelly_b) December 5, 2020

  We’ve all heard stories or know people who have made the decision to leave the city during this pandemic, either temporarily or permanently. Some young people have moved home until things settle down and some people have sold their real estate and bought something outside of the city.

  I don’t know know what the exact numbers are, but you can see this trend being reflected today in downtown rental rates and other indicators. This is happening in many cities around the world.

  But here’s what I think about when I hear these stories:

  1) Are these people assuming that we will never go back to offices and that WFH is our new reality? In this case, the thinking is simple. The world has changed. I need a proper Zoom room and a home gym.

  2) Did these people never really like urban living or have they simply outgrown the city? Pre-pandemic, family formation was still a major pull away from downtowns for many. In this case, a move was going to happen regardless.

  3) Or are these people taking a short-term view of the world and forgetting/ignoring that our global cities are going to rebound and that 2 hour commutes really suck? (Sitting in front of Zoom all day is also no way to live in my opinion.)

  There are both positives and negatives to urban living. There are forces that make people want to centralize and there are forces that make people want to decentralize. And the reality is that many of the benefits and perks of living in a city are temporarily turned off right now.

  Things are not fun right now, but this isn’t going to last. I’m looking forward to the roaring twenties.

  2020.12.05

• Is that delay really necessary?

  The big news this week in Toronto planning & development is the province’s decision to approve three downtown development projects using a tool known as a “ministerial zoning order.” The impetus for doing this was to speed up the approval and delivery of about 1,000 affordable housing units (along with about 2,000 market-rate units).

  The province has made it clear that it wants to do what it can to reduce red tape and unnecessary delays when it comes to building new affordable housing. But this, not surprisingly, upset a number of local councillors who feel the province is overstepping and not allowing the city to govern its own city building affairs.

  Alex Bozikovic’s view in the Globe and Mail this week was: hey, maybe that’s not so bad. The planning process is painfully slow (and political). And Toronto is going to need a lot more housing over the coming years and decades. So why not speed up its delivery? Especially when there’s an affordable housing component and the architecture is exemplary.

  The reality is that our housing delivery system is rife with tensions. A big part of the process is predicated on local voters, who already live in a particular place, opining on their own interests and on the interests of people who don’t yet live there. The incentives in place are anything but aligned.

  We can debate which level of government should have more power and what might be considered an unnecessary delay, but what is clear to me is that it should not take 2-5 years to get new housing approved in this city.

  2020.10.28

• Super-prime property transactions in the first half of 2020

  

  This is a chart from Knight Frank showing the average value of “super-prime” residential real estate transactions in 12 global markets between March and June 2020, and versus the same period last year.

  Knight Frank classifies super-prime real estate as having a value greater than US$10 million and ultra-prime real estate as having a value greater than US$25 million.

  In this particular chart, London takes the top spot with an average super-prime transaction value of US$38 million. This is a big jump compared to 2019 where the average value was US$16.9 million.

  Typically it is Hong Kong that takes the top spot in this ranking, but this year it fell to third. Still, Hong Kong had the highest number of transactions with 60 super-prime sales taking place in the first half of 2020. This is down from 155 in the first half of 2019.

  Overall, Knight Frank recorded 281 super-prime transactions across these 12 cities in the first half of this year. This is, not surprisingly, a decline compared to last year, which saw 594 transactions over this same time period.

  But all things being considered and given some of these price increases, the super-prime market is certainly holding its own.

  Chart: Knight Frank

  2020.10.23

• Were the Victorians better city builders?

  A team of researchers at UCL recently surveyed 2,500 households across the UK to see how the design of their homes and neighborhoods has impacted their experience during lockdown (May to June 2020).

  Perhaps most notably, the report, called Home Comforts, found that people living in housing built in the last 10 years were more likely to feel uncomfortable during lockdown (1 in 5), compared to those living in homes built before 1919 (1 in 7).

  On top of this, people living in Victorian era housing were more likely to say that their neighborhoods were meeting their everyday needs, which seems to translate into convenient access to basic amenities (5 to 10 minute walk).

  So what does this tell us?

  That people want more ornament and clearly defined Zoom-friendly rooms? That the Victorians were better at city and community building? Or maybe that Londoners living in low-rise pre-1919 housing are generally well-established and have the ability to afford more conveniences? It’s likely a bunch of different things.

  There’s no denying that the way we build our homes and our neighborhoods has, for better or for worse, changed over the last 100 years. But let’s not forget that it’s easy to romanticize the past and the things we used to do. I’m sure it wasn’t puppy dogs and ice cream for all of the Victorians.

  2020.10.15

• Canadian real estate fundamentals

  Last week was the Vancouver Real Estate Forum. Benjamin Tal (chief economist at CIBC) opened things up, as he usually does, and he was pretty candid about what might be coming this winter. Here is an excerpt from a recent Globe and Mail article summarizing the event:

  “It’s reasonable to assume that the next six months will not be very pretty,” said Mr. Tal. “The honeymoon of the summer is basically over. Now we enter the winter months, and I think the next few months will be much more difficult. We will have a situation where we will clearly see a second wave, and it’s already starting. This second wave will overlap with the flu season, so everybody will be very confused. The fear factor will rise, and that’s something we have to take into account when we look at the trajectory of the economy.”

  Indeed, today kind of feels like the official start of the second wave. Here in Toronto, indoor dining, gyms, and a bunch of other things were just shut down for the next 28 days.

  But I think the more important takeaway from the article is this one here: the fundamentals around Canadian real estate remain incredibly strong. Another excerpt:

  “Let’s visit the market in 2023: I suggest the market will show the same trend we have seen in as 2019. This is a pause, but the fundamentals of the real estate market in Canada are so strong that the demand factor will continue to be there and supply will be limited. I suggest that after a two- to three-year period of some sort of softness, despite the V-shaped recovery that we are seeing, I see continuation of the trend.”

  As I’ve said before on the blog, it’s easy to get caught up in shorter-term and ephemeral headlines. But if one can look through some of that to the other side of this health crisis, I think we would all be in a position to make better decisions.

  As a general rule, I don’t like making long-term real estate decisions based on what is expected to take place in the next 6 months.

  2020.10.09