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.
Every quarter, Apartment List publishes something that they call their Rental Migration Report. What they do is use search data from their website to determine where their (registered) users are hoping to move to and from. Their first report of 2020 is now out and below is their list of the most attractive US metros. It is based on search data from June to December, 2019.
Now, it’s important to note that this is really only a form of intent — taken from one particular website. This list may not, and probably doesn’t, accurately mirror how and where people are actually migrating within the US. But it is still interesting to see what is top of mind for Apartment List’s users. (If there were multiple search inquiries during a visit to the site, they counted the first metro area.)
Beautiful mountains. Great snowboarding/skiing. And a burgeoning tech ecosystem. I am not at all surprised to see Denver at the top of this list.
Earlier this week I wrote about the age groups that are most likely to live in an urban neighborhood in the United States. It was people in their 20s and, to a lesser extent, baby boomers. The data I was relying on used population density to measure urbanity.
Interestingly enough, the demand for co-living seems to mirror this. (Feel free to disagree.) From what I’ve been told, the fastest growing co-living segments are young people recently out of school and retirees. Intuitively this makes sense to me.
If we think back to teachings of Clayton Christensen (another recent post), we “hire” products and services because we have “jobs” that need to be done. In the case of a McDonald’s milkshake that job might be a breakfast that’s appropriate for a long and boring commute.
In the case of co-living, and in urban neighborhoods in general, one of those jobs has got to be social connections. (Again, feel free to disagree.) We do also know that single person households are increasing in many cities. Are these phenomenons related? How big could co-living get?
Note: This post was written on my phone on a flight, which is why there are no links or images.
If you end up taking the time to read the articles, you’ll be reminded of a couple of things about the way cities work. One, the way we use buildings changes over time. Two, the kind of architecture we pursue is always a reflection of the socioeconomic milieu at that particular moment in time. And three, the way we perceive buildings also changes over time.
In the case of Amsterdam’s canal houses, their original function was live/work. They were residences, but they were also warehouses. Amsterdam’s maritime dominance meant that it was more profitable to store things, instead of just house people. (Sometimes as much as half of the house was dedicated to storage.) Trade patterns had moved from the Mediterranean up to the North Atlantic, and that worked out pretty well for the Dutch in the 17th century.
In the case of Berlin, their typical mid-rise “rental barracks” went from reviled to coveted as the buildings aged, elevators made the penthouses desirable, and people started to appreciate some of their idiosyncrasies. It’s an example of what I was getting at when I spoke to the CBC for this article about Toronto’s skyscraper boom. Some things, including buildings, take time. They need to settle in.
Today I learned that Girona in northeast Spain is a mecca for cycling. Bike enthusiasts like it because the climate is mild; the roads are well maintained; the lifestyle is relaxed; and there’s easy access to the European Grand Tours in Spain, France, and Italy. Apparently Lance Armstrong bought an apartment there in 2001. Though there were other pro cyclists who had come before him.
Interestingly enough, all of this is allegedly having an impact on the real estate market. According to the WSJ, there has been a surge in the tourist licenses required to operate a short-term rental in the city. Ten years ago, the city had only issued 10 of them. But today, more than 700 have been issued. And as of the end of 2019, residential sale prices had increased about 15% year-over-year.
I’m not sure how much of this is a result of cycling tourism, Airbnb, Spain’s overall housing market recovery, or other factors. But it certainly sounds like a nice place to go for a bike ride.
Last year, the city of Berlin agreed to a five year rent freeze for some 1.5 million flats constructed before 2014. The way it was initially approved is that it would freeze rents at mid-2019 levels and allow for only 1.3% inflationary increases. All of this is being challenged in the courts, but the Financial Times is suggesting that it could still come into force by March 2020. Here is an excerpt from a recent article. (Guy Chazan isn’t holding back about the kind of people that he believes Berlin attracts.)
The legislation, which should come into force by March this year, is City Hall’s response to a lingering housing crisis that shows no sign of easing. Packed out with Brexit refugees, international party people and wannabe tech entrepreneurs, Berlin is in expansion mode, its population growing by 40,000 a year. Yet affordable housing remains scarce. Rents have doubled over the past decade, as new residential construction fails to keep up with soaring demand.
As I mentioned before on the blog, these policies are not intended to apply to new buildings. That would surely choke off new construction, which would only exacerbate the underlying supply issue that Berlin is facing. But not surprisingly, this move has also put a freeze on capital expenditures, according to the same FT article. Local trades are complaining that, “It’s as if someone’s just turned out the lights.”
Feargus O’Sullivan is doing a series in CityLab right now on the “home designs” that define four European cities: London, Berlin, Amsterdam, and Paris. The first one is on London’s classic “two-up, two-down” design, which refers to a two storey home with a living room and kitchen on the ground floor and two bedrooms on the second. It’s a simple design, but one that has supposedly endured.
O’Sullivan argues that for many, or perhaps most in Britain, this is what a “home” feels like. It’s grade-related and there are two floors. Indeed, only 14% of British people live in an apartment, compared to 57% in Germany (a majority). This percentage is much higher in London, with about 43% of people living in an apartment. But about 25% of the population still lives in some sort of attached house.
Home equals house. And for us North Americans, this is of course relatable. But the Germany example is a reminder that this is not necessarily universal. Attitudes toward housing are cultural. And cultures can and do change. I am seeing that happen right now in Toronto. Some of us are becoming less like the British and more like the Germans.
I was at a family dinner over the weekend and the topic of the Florida homestead exemption came up. The Florida Constitution bestows a number of advantages upon homeowners (provided the home is that person’s primary residence). And like all rules, it impacts behaviors.
For one, your primary residence is largely protected from creditors, meaning a sale generally can’t be forced in order to pay back what you might owe. If you’re out there in the world “betting the farm,” this might be a way to protect yourself.
There are also a number of property tax benefits. You can reduce your assessed value by certain specified amounts, and any increases are (I think) capped at the lesser of 3% or the rate of inflation. (Related post: California’s Proposition 13.)
As we’ve talked about before on the blog, this second exemption likely creates a disincentive for longtime homeowners to sell/move, as even a lateral move would result in possibly much higher taxes. So why move unless you really have to?
The counter argument is that it helps fixed income retirees not get squeezed by rising taxes (and that’s an important consideration in Florida). But it also means that first-time/younger buyers end up shouldering more of the property tax burden — at least initially.
If any of you have strong opinions about the Florida homestead exemption, I would be interested in hearing from you in the comment section below. I am not a lawyer or a tax expert. So please don’t consider this post as any sort of advice.
Below is an interesting chart from the WSJ showing total home equity cashed out in the United States by quarter. What is clear is that the US is nowhere near its pre-2008 peak in terms of total dollars. However, if you look at the percentage of homeowners who refinanced their home in 2018 and took out cash at a higher interest rate, it was nearly 60% of all refis. This is up in the pre-2008 territory and it’s about 3x more than the average from 2009 to 2017.
Now, you could argue that this is a fairly rationale outcome after a long period of economic expansion and home price appreciation. And interest rates were, on average, even lower in the 2012 to 2016 period. But, the WSJ posits that this could be a signal that people simply need the cash — which is why the majority are willing to accept a higher interest rate. Here is another chart from a different WSJ article:
Housing debt (mortgage balances) has come way down since 2008, but non-housing debt has come way up and now exceeds that of the former. Non-housing consumer debt rose by about $1 trillion in real dollars from 2013 to 2019, principally driven by student loans and car loans. Noteworthy is the fact that student loans are rising fairly linearly (along with dramatically), whereas car loans and credit card debt seem to follow the overall economy.
When people are feeling richer (and confident about their economic prospects) they go out and buy things, like cars.
The Nib’s recent comic about Jane Jacobs vs. The Power Brokers (i.e. Robert Moses) is a good little overview of her lessons and legacy. But I don’t understand the claim that developers co-opted her ideals in order to exploit and gentrify urban neighborhoods. According to the comic, gentrification is always a top-down affair by developers, and never a spontaneous emergence as a result of other humans and/or industry wanting to be in a particular place.
I can think of many neighborhoods that have seen investment from groups other than traditional developers, including from individual homeowners. Take, for example, Cabbagetown in Toronto. There was never a top-down developer moment. It was individuals who saw beauty (and also opportunity) at a time when others were scared of the area. Is that acceptable? Perhaps more importantly, did these people wear black suits?
The other missing piece is the fact that desirable urban neighborhoods are, today, in incredibly short supply. During the reign of Robert Moses, Jane Jacobs had a view of cities that was in opposition to the planning zeitgeist of the time. But over time, she went from controversial to enlightened, and alongside this we saw a return to cities.
Combined with strict land use policies, this rising demand for Jacobian-style neighborhoods has meant that many/most dense urban centers operate with a perpetual housing supply deficit. There’s not enough cool urban housing to go around. Add in the current low interest rate environment, and you then have even more money searching for that perfect home in the West Village. That tends to do things to prices.
Global household wealth is currently estimated at about $360 trillion, according to Credit Suisse’s 2019 Global Wealth Report. This represents an increase of about $9 trillion (~2.6%) from 2018-2019.
Over the last decade, much of this growth in household wealth has come from two countries: the United States and China. 40% of the world’s US dollar millionaires reside in the United States, and China now has the second highest number of dollar millionaires. (If there are any curious Canadians reading this, Canada represents 3% of the world’s total.)
The number of ultra-high-net-worth individuals — individuals with a net worth greater than $50 million — exhibits a similar pecking order. The US is by far the most dominant.
Of course, dollar millionaires represent a small percentage of the world’s total population. Credit Suisse estimates that there are about 5.1 billion adults in the world. About 56.6% have a net worth under $10,000 and about 0.9% (okay, 1%) are millionaires. This 1% controls/owns about 44% of global wealth. Thinking back to figure 7 (above), consider this math: 50% of the world’s millionaires are now in the US and China.
Fluctuations do happen, however. Australia lost some 124,000 millionaires last year largely because of a (-6%) drop in home prices, which tends to correlate pretty closely to the real asset part of household balance sheets. Australia shed about $443 billion in household wealth since 2018, making it the biggest loser in Credit Suisse’s report.
The other thing that you may find interesting from this report is the wealth/GDP ratio that they use. Household wealth and GDP tend to correlate. But the ratio of wealth to GDP also has a tendency to increase as a country develops. This makes sense because things like the rule of law and access to capital tend to increase people’s willingness to invest/borrow. But in developed countries, it could also be a signal for asset inflation.
If you’d like to download a PDF of the full wealth report, click here.
Note: Credit Suisse’s definition of household wealth is your typical net worth calculation: assets (financial assets and real assets) minus liabilities. For most people, the real asset part is principally housing.
