Tag: housing

• Toronto real estate is out of control

  You can’t have an Easter dinner in Toronto right now without somebody bringing up the topic of our “crazy” real estate market. 

  Below is a chart from Bloomberg showing the year-over-year change in home prices in the Greater Toronto Area since 1990. It also shows the historical average (in blue) and how in March 2017 we hit 4 standard deviations above that. Home prices rose 33% in March compared to a year earlier.

  

  If I were a realtor, I’d probably tell you that the market is hot hot hot. Now is the time to sell because you’ll get some absurd number above your asking price and now is the time to buy because prices are going nowhere but up. Don’t miss out. 

  I would like to try and be a bit more nuanced than that. Here are 3 thoughts:

  1)

  There’s no question that low rates / cheap money is one of the root causes of the real estate valuations we are seeing today. But frankly I have no idea when or if that will change. There is an interesting argument out there that capital is no longer scarce. Our economy is going through a fundamental shift, which is why real estate is not the only asset class seeing these sorts of valuations and growth figures.

  2)

  There are a number of global factors which are helping to cement Toronto’s position as an alpha global city and destination for human capital. Think Trump, Brexit, and so on. I agree with Richard Florida’s argument that our real estate market will see more – not less – pressure going forward. Here is a snippet from a recent interview with Florida in Toronto Life:

  I think Toronto is going to get an even bigger influx of the creative class. With the rise of Trumpism, more and more people who might otherwise have gone to the United States are going to come to Canada. We’re going to see American tech companies invest more and more in Toronto. And if we think the housing affordability and economic divide we see today is bad, it’s going to grow ever more gaping. 

  3)

  I believe that there are always opportunities in the real estate space, but that you have to be disciplined, focused on fundamentals, and willing to do things that others won’t. What bothers me is when I hear people say things like: “Real estate only goes up. You can never go wrong.” I started my career pre-2008 and lived in both the United States and Ireland. I saw what down looks like.

  2017.04.15

• Peach skin

  I am fascinated by the way the Japanese think about housing. It is very different than the way we think about housing here in North America. Below is a small house tour that reinforces that. If you can’t see it below, click here.

  [youtube https://www.youtube.com/watch?v=4fEeh-8OFT8?rel=0&w=560&h=315]

  2017.03.27

• Housing is a bitch

  I just discovered Steve Randy Waldman’s blog called Interfluidity and, more specifically, a post he wrote called: “Home is where the cartel is.” I am now following him.

  He starts off by saying that housing is a bitch, which is just him saying that urban housing is a difficult problem to solve. A truism for this audience.

  He doesn’t profess to have all of the answers, but he does write a thoughtful piece that covers, among other things: the “market urbanist” (supply-side) solution to solving housing affordability, the reasons why the “housing cartel” will never approve of this, and the inherent contradiction between housing as an investment and housing as a sustainably affordable good.

  He also offers up Singapore and Germany as examples of two very different housing markets. It reminded me of a tweet I retweeted this morning which shows Germany as having the 2nd lowest homeownership rate (45%) among OECD countries.

  2017.02.22

• Important things

  

  Last weekend I watched Minimalism: A Documentary About The Important Things. I’ve been reading the blog for awhile now (I blogged about it) and so the movie has been on my to-do list since it came out.

  Now, I am not a minimalist to the same extent as Joshua and Ryan, and some of the people featured in the film. I have not reduced all of my personal belongings to 51 things and I have not renounced any sort of permanent residency. I own some stuff.

  But I am very much attracted to the philosophy that less can be more. That less can make us happier. That quality is more important than quantity. And that we actually need far less stuff than we think we do, especially in a consumerist society like ours.

  One word that comes up a lot in the documentary is: deliberate. In other words, we should be more deliberate about the choices we make, the things we buy, and so on. Will it create value in my life?

  And that’s one of the reasons I like this notion of minimalism: It’s a challenge. You have to think. Because if you don’t, you will be told what to do and what to buy, and you will accumulate things without even knowing. It’s essentially a constant battle against excess.

  Perhaps the biggest potential for excess happens with our choice of housing, which is why small homes feature so prominently in the film. A tiny house isn’t going to be for everyone, but many people have certainly come to the realization that square footage alone does not equate to more happiness.

  2017.02.06

• The long and narrow of property affordability

  

  Lots sizes and dimensions vary from city to city, as well as from neighborhood to neighborhood. They come in many different shapes and sizes from long and narrow (common in Toronto) to rectangular or even wide and shallow. Charlie Gardner wrote a terrific post on this last year where he used Bing Maps to illustrate some of these differences. Tokyo, for instance, is shown as having more rectangular lots (32′ x 38′), whereas Buffalo is shown as having more long and narrow lots (30′ x 175′). Charlie then asks: why the prevalence of inefficient long and narrow lots? These dimensions obviously produce long and skinny houses.

  As he rightly points out in his post, there are economic reasons for this. Assuming you’re starting with deep blocks and lots, then there’s going to be a natural tendency toward subdividing and going long and skinny. That’s because the key dimension is frontage onto the street. The more frontages you create, the more front doors can be built, the more lots with access to the Mississippi can be created, etc. And that’s how you end up with 10-12′ wide row homes, which also helps to address overall housing affordability. This is not a new phenomenon.

  To further demonstrate this point, let’s look at how this phenomenon has translated into the condo market – specifically the mid-rise condo market here in Toronto. In this case street frontage morphs into window frontage (access to light). That’s now the guiding dimension. In a 1 bedroom apartment, that dimension might be something around 6-7m. That allows you to have both a bedroom and a living room with a window. So it makes for a great 1 bedroom or 1 bedroom + den apartment. (I’m ignoring corner suites for this thought exercise.)

  However, a tension often arises when you begin to look at larger suites, such as 2 bedrooms and 3 bedrooms. The obvious response would be to simply give over more window frontage. So instead of 6-7m, the suite may get 10m. This would allow you to create a split 2 bedroom apartment (both rooms get windows) with a living room in the middle. This would be considered a highly desirable floor plan.

  But up until now we’ve been ignoring the depth of the apartment. And as is the case with lot dimensions, this can have an impact on the amount of street/window frontage that gets designed. We’ve talked a lot about mid-rise buildings before on this blog and one of the challenges here in Toronto is that the 45 degree angular plane guideline produces deep floors on the bottom of the building and narrow floors on the top. Given this, it would not be unheard of to end up with 12m apartment depths on some of the lower floors.

  The counter argument would be that nobody is forcing these larger floor plates. Simply carve the building back. But the economic reality is that the margins are so thin on mid-rise buildings, that it would be inconceivable to give up this floor area. You have to max out the envelope.

  Why does this matter? Well let’s assume that the average downtown Toronto condo will cost you $857 per square foot. Using back of the envelope math, that means that the above 6m x 12m apartment (1 bedroom) could cost around $663,000 (774 square feet x $857 psf). And that the above 10m x 12m apartment (2 bedroom) could cost around $1,106,000 (1,291 square feet x $857). 

  These are obviously big numbers. Question becomes: Who will be able to afford these?

  So naturally the design exercise becomes about reducing the size of the apartments and often this means reducing the amount of window frontage. Of course when you do this, it means that one or more of the bedrooms will need to be pulled back from the front windows, which is how you end up with inset / recessed bedrooms (indirect light) and long and narrow apartments. These are often pejoratively referred to as “bowling alley suites”, but they are driven by a push for greater affordability.

  Again, this is not a new phenomenon. It is simply a trade-off that gets made. It’s the long and narrow of property affordability.

  2017.01.08

• The third Los Angeles

  

  I just stumbled upon an interview with Christopher Hawthorne (architecture critic for the Los Angeles Times) talking about a “third Los Angeles.” 

  His argument is that the first Los Angeles ran from about 1880 to World War II, and was characterized by a form of urbanism that most of, today, do not associate with LA. It was a city of streetcars, innovative multi-family housing, and local landscapes.

  The second Los Angeles was the second half of the 20th century. And it is the LA that probably comes to mind for most people when they think of LA. It is the city of freeways, single-family homes, and sprawl.

  The third Los Angeles is the city’s most recent iteration and started sometime around 2000. Like many things in life, it is in some ways a return to the past: namely the first LA. It is about urban intensification, transit, and more drought resistant landscapes. It is a city that senses its geographic limits.

  I like how he talks about some of the challenges associated with intensification and this third LA:

  “People in very good conscience who live in Santa Monica or San Francisco think of a moratorium on development as a progressive thing to support rather than reactionary or conservative or just in their own political self-interest. I don’t have a problem with somebody who bought a house at a certain point saying, “I bought into a certain place, you know, I want it to stay this way, and I’m going to use whatever resources I can to keep it that way.” They have every right to say that, even if I disagree. I have a problem with people saying that’s consistent with a progressive agenda about cities or a forward-looking attitude about the environment or about resources. It’s not.”

  2017.01.03

• Triple-glazed sliding doors (or walls?)

  After my post about “the great balcony debate”, there was a bit of discussion on Twitter. Ken Wilcox then responded with a video talking about the mixed-use Timmerhuis building in Rotterdam designed by OMA. 

  At the 1 minute mark there’s a clip of one of the residents opening a large set of sliding doors. Here’s a screenshot of what that looks like:

  

  I did a bit of digging on the project and found this fact sheet. The sliding doors in the residential units measure 1.8m x 2.6m. They go from floor-to-ceiling (~8′-6″). The windows are also triple-glazed! (3 glass panes + 2 air chambers.)

  I think this is a great way to open up a suite to the outdoors. It also looks like the glass balustrades sit inside, which keeps the building’s exterior envelope uninterrupted. Some of the other suites have large terraces where the building steps back.

  In case you’re wondering, the construction costs for the entire project was about €100 million and the total gross floor area (including all of the non-residential uses) is about 45,000 m² (~484,200 sf). Unit rate seems reasonable given that triple-glazing is virtually unheard of in Toronto.

  P.S. I am having some technical difficulties with Tumblr (my blogging platform) and Mailchimp (my email service provider). They both had problems and a few daily emails didn’t get sent out. Sorry about that. Hopefully it’s resolved now. If you missed the last couple of posts, you can read them online.

  2017.01.02

• Supply down. Prices up. Unit sizes up.

  This morning BILD released its November new home data for the Greater Toronto Area. 

  The story is one we’ve been hearing for a while. Supply is trending downward. It’s becoming harder to build. And prices are up. The average new detached house in this region is now C$1,230,961 and the average new condo is now C$493,137 (~$601 psf). Overall, average pricing is up 20% for low-rise houses and up 10% for condos, compared to this time last year.

  One of the things that I find interesting about the data is how unit sizes have recently started trending upward on the high-rise (condo) side. Below is a chart from Altus Group that shows what I’m talking about. Look at the increase from the middle of 2015 to today. The average is now 820 sf, compared to what looks to be around 770 sf at its lowest point.

  

  Now, there are a number of possible explanations for this. One is that boomers are starting to sell their houses and move into condos in larger numbers, and 500 sf just don’t do. The market is starting to cater to them. Another possible explanation is that low-rise pricing has become so out of reach for many people and families, that they are now looking to condos to fill that need.

  I see both scenarios playing out in new projects today. But this second scenario, in particular, is one that I’ve been thinking about for a few years now. It’s less obvious than the boomer play. But I think of it as the market maturing. I like seeing families living right in the city and I am sure we will see more of that in the future.

  2016.12.22

• One becomes four

  The New York Times posted an interesting article today talking about how roommates in the city are dividing and conquering expensive rentals using temporary walls. This is obviously not a new practice. But it’s a good case study in what people will do in order to make living in a specific location affordable – in this case, Manhattan.

  The first example is a one bedroom apartment that was converted to a 4-person apartment. Here is the floor plan (from the New York Times):

  

  The living/dining room was divided up using a T-shaped partition wall – which is required to stop 2 feet shy of the ceiling – to create two additional bedrooms. The original bedroom is then shared via two twin beds. Et voilà. Now you have an apartment where the $3,750 per month rent becomes less than $1,000 per person.

  Probably the most annoying thing about this setup would be the lack of acoustic privacy. Since the partition walls don’t go all the way up to the ceiling (photo here), you’d obviously hear everything. One person in the article described it as living in the same room as all of your roommates, but not being able to see anyone.

  Of course, there’s also a space consideration:

  Mr. Meyer, 23, has the smallest room by far. “It kind of feels like you’re living in Harry Potter’s cupboard,” said Mr. Meyer, who is in his freshman year at Columbia after serving for three years in the Israel Defense Forces.

  The roommates, three of whom grew up together in Toronto, don’t mind the close quarters or the lack of privacy. “It’s definitely not for everyone,” Mr. Meyer said. “When you live with your best friends, it couldn’t be better. We hardly spend time in our rooms.”

  I saw a lot of this here in Toronto while I was in undergrad. 55 Charles Street West was always a great candidate for these sorts of hacks because the units are large and because the building is filled with solariums. Inevitably, they became additional bedrooms. 

  (Sidebar: My understanding is that there was a period of time in Toronto where solariums were excluded from gross floor area calculations. So developers used to always put them in to capture more area. That’s why buildings of a certain vintage always seem to have them.)

  In any event, the above certainly makes the case for more micro units and co-living arranagements. Many people seem willing to deal with a variety of living situations in order to live where they want to live. Urban affordability is certainly a global concern.

  2016.12.09

• Opendoor.com is so risky that it may just work

  

  I have been writing about the startup Opendoor.com for over 2 years now. And I continue to believe that they are the most promising disruptor in the residential real estate space. 

  Here is the first post that I wrote back in July 2014 after they raised their first round of funding. Here is the second post that I wrote after they launched in Phoenix. And here is another post that I wrote 6 months ago where I argued, once again, that they are doing something worth paying attention to. (This last post explains how the platform works.)

  Well, about a week ago it was announced that they have raised another round of funding: a $210 million Series D. In all likelihood, the company’s valuation is now over $1 billion. Here’s the Techcrunch announcement where the message was: huge ass number; risky business model.

  In response to this, Ben Thompson wrote a terrific and widely shared blog post called, Opendoor: A Startup Worth Emulating. I love his post because he says what I have firmly believed and argued for many years: Zillow and Redfin are not disruptive real estate startups.

  This is what he says about Zillow:

  “And yet, the most successful real estate startup, Zillow (which acquired its largest competitor Trulia a couple of years ago), is little more than a glorified marketing tool: the company makes most of its revenue by getting real estate agents — the ones collecting 6% of fees, split between the buying and selling agents — to pay to advertise their houses on the site. Certainly a free tool that makes it easier to find houses in a more intuitive way is valuable — Zillow has acquired the sort of userbase that allow it to build an advertising business for a reason — but at the end of the day the company is a tax on a system that hasn’t really changed in decades.”

  And though very risky, he argues that Opendoor is far better positioned to shake up the status quo. 

  Here are two of his key points:

  “Sellers are uniquely disadvantaged under the current system, which is another way of saying they are an underserved market with unmet needs.” [Sellers are the side of the market that Opendoor is specifically targeting.]

  “Opendoor has a new business model: taking advantage of a theoretical arbitrage opportunity (earning fees on houses sold at a slight mark-up) by leveraging technology in pursuit of previously impossible scale that should, in theory, ameliorate risk.”

  And here’s what that could ultimately mean for the industry:

  “Opendoor has many more reasons why it might fail than Zillow or Redfin, but its potential upside is far greater as a result. First is the immediate opportunity: sellers who can’t wait. However, as Opendoor grows its seller base, especially geographically, its risk will start to decrease thanks to diversification and sheer size; that will allow it to lower its “market risk” charge which will lead to more sellers. More sellers means both less risk and an increasingly compelling product for buyers to access, first with a real estate agent and eventually directly. More buyers will mean lower marketing costs and faster sell-through, which will lower risk further and thus lower prices, pushing the cycle forward. It’s even possible to envision a future where Opendoor actually does uproot the anachronistic real estate agent system that is a relic of the pre-Internet era, and they will have done so with realtors not only not fighting them but, on the buying side, helping them.”

  I’m with Ben on this.

  2016.12.08