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.
This recent article by Brookings is a good reminder of the all too important link between land use policies/patterns and GHG emissions. Because electric vehicles are cool and all, but they’re still not as efficient as just walking around and/or taking transit.
As has been argued before on this blog, we need to not only electrify our transport network, but we also need to change how we get around. And probably the best way to encourage a modal shift, is to plan and build our cities differently. Something that is simple, but not easy.
It also turns out that people who live in multi-family buildings tend to consume less energy (on a per capita basis) than those in single-family houses. So there are numerous benefits to encouraging denser housing on top of transit and within mixed-used communities.
With all of this in mind, here are some interesting charts from the above Brookings article.
This first one shows new housing permits in the metro areas of Atlanta, Chicago, and Washington DC, according to their urban, suburban, or exurban status. Here, Chicago is an outlier, with the “urban core” (defined as Cook County) now making up about half of all new housing.
If you look at the entire study period, the number is less. The urban core accounted for about one-third of new housing permits in Chicago, and only 15% of permits in Atlanta and DC. But in all cases, housing permits in the urban core have been increasing since the 2008 financial crisis.
But here’s the other thing. Looking at these next two charts, there appears to be a clear trendline toward more urban housing typologies. The first of these next two is showing single-family housing permits as a percentage of all new housing. And the second is structure type over time.
Atlanta is still building mostly single-family housing, but less of it. And based on these charts, Chicago has already passed its inflection point. DC is not far off. Every city region is of course going to be different, but it does look like there is some kind of broader housing shift underway.
On January 1st of this year, I wrote a post called, “My 2021 predictions.” It was part of a new practice that I have adopted where I try to forecast the year (I will be wrong) and then evaluate how I did at the end of it (the focus of today’s post). This year was, of course, a tricky year with lots of uncertainty. But here’s where my head was at in January and here’s what ultimately happened.
Life will feel a lot more normal by spring/summer.
This more or less happened. Cases, at least here in Ontario, were way down by the summer. Those who wanted to be fully vaccinated had the option to be. Cities reopened and summer felt pretty good after a long winter of lockdowns. As soon as it was possible to do so, we reopened our office and many/most people came back. I ended up being in the office this year more than I wasn’t. Of course, I had no idea that Omicron was going to be a thing back in January.
Working from home/the office.
I think the jury remains out on this one. It’s still too early to draw conclusions. I have been in the office full-time for most of this year, but I recognize that that hasn’t been the case for everyone. I know from the super scientific “Jimmy the Greek Reopening Index” that I developed that office utilization rates are not yet back. When I wrote about this topic back in October, the US average was thought to be just below 40%. Still, I remain bullish on office.
An explosion of global travel.
Well, Airbnb’s stock isn’t maybe as sky high as I suggested in my predictions post. But it is still up over 19% YTD:
Marriott is also up nearly 27% YTD:
The reality is that travel was/is rebounding. I managed to take two weeks off at the end of the summer, which is something I hadn’t done in at least several years. But Omicron has certainly impacted the recovery:
Urban/downtown real estate will strongly rebound.
I would argue that we saw this play out in the residential sector. Here in Toronto, Q3-2021 saw condo rents in the core increase 11.4% quarter-over-quarter. This was a fairly significant snapback. It was the largest increase in the region, outpacing both the inner suburbs and the outer suburbs. On the for-sale side, we saw evidence of the condo market returning as early as Q1. We were also able to successfully launch One Delisle and are now preparing to start construction.
Trends accelerating.
In some cases, what we saw was a reaction to short-term dislocation. Peloton’s stock is down about 73% YTD at the time of writing this. In other cases, what we saw was just a “pulling forward.” (Link to post by Fred Wilson.) The pandemic led to greater consumption of certain products and services, but now those companies could be headed for a period of slower growth. At the same time, there’s evidence that certain things, like buying more groceries online, may actually be sticking.
Return of restaurants.
What seems pretty clear is that people are quicker to return to bars & restaurants than they are to return to the office. As we know, getting together in person is fundamental to urban life. Here’s a chart from OpenTable:
However, this is not to say that many restaurants didn’t have a tough go during this uncertain time.
Public transit ridership will return to pre-pandemic levels by the fall.
I was dead wrong and way too optimistic about this one. Office utilization rates remain lower than expected and so people aren’t commuting in nearly the same way. Those who are, seem to be driving more. As of August, Canada’s urban transit networks were operating, on average, at just over 40% of where they were pre-pandemic (August 2019). This is obviously a serious problem for operating shortfalls.
Migration from high tax states to (warmer) low tax states.
This is an established trend in the US and so it was certainly not a bold prediction. There are many other factors at play here beyond simply the pandemic. However, as I mentioned in my original post, what is perhaps more interesting right now is the heightened tension between centralization (urbanity) and decentralization. I’ll see what data I can uncover in the coming weeks, but we likely need to get to the other side of this pandemic before drawing any firm conclusions.
In reviewing this year’s predictions it is clear that I was perhaps overly optimistic (which is far better than being overly pessimistic) and that missed a lot of important stuff. Some of it was unknowable, such as a new variant, and some of it I just missed, which is bound to happen. I could also be more precise and bolder in my predictions, and so I will endeavor to do that in my upcoming predictions for 2022. Stay tuned.
If you’re not already an email subscriber to this blog, consider making that happen over here. And for those of you who have been reading all year, thank you. I truly appreciate it.
Since the beginning of this year, the London School of Economics has been running a debate series called, Cities in the 2020s: How are cities responding to profound global change? The next event is about localizing transport and it’s scheduled for May 20, 2021. If you’d like to attend, click here. It’s free and open to all. The one thing I would add is that I am getting the strong sense right now — as cities, other than Toronto, begin to reopen — that people are starting to remember just how much more fruitful in-person interactions are compared to being on screen. There’s no comparison. In fact, earlier today I had in-person work interaction that resulted in a positive outcome that I am certain would not have happened otherwise. And as an ENTJ (business school made me take these personality tests), I find that I derive a lot of my energy from being around other people. As long as these sorts of things remain true, I believe that we will stay tethered to our cities and reliant on things like mass transit.
Benjamin Dachis and Rhys Godin of the C.D. Howe Institute have a new report out talking about the effect of COVID-19 on the future of public transit in Canadian cities. In it, they make the argument that public transit is a key enabler of the agglomeration economies that make cities so valuable. And right now, most people aren’t using it (see above).
Why are agglomeration economies so important?
According to some studies, doubling the population of an urban area has tended to increase mean incomes by between 3-8%. In the Canadian context, similar research has found that people living in more populated regions (cities) tend to have incomes that are between 3-5% higher than those living in more rural areas. So when it comes to average incomes, bigger cities tend to be better. (Does Zoom change this? I’m not convinced.)
Of course, to make bigger cities function properly, you generally need public transit. And when you do have fast and reliable transit, that, they argue, is going to help drive the agglomeration economies which ultimately help to increase incomes. Because of this important relationship, Dachis and Godin argue that Canadian governments have a habit of systematically undervaluing the importance of transit investment.
If you’re interested in reading the full report, click here.
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.
I received an email this week from a senior real estate executive who was sharing the fact that, in response to COVID, he had decided to give up driving completely. He was now cycling everywhere — whether for work or for personal errands. And it was doing wonders for his health and his overall well-being.
Indeed, this feels like some sort of golden era for urban cycling. Back in May I wrote about how Toronto City Council had just approved the largest ever one-year expansion of bike lanes. Some 40 km. When have we ever moved this quickly and without months (okay, years) of painful debate? Probably never.
Of course, it’s not just Toronto. This is happening all over the world. Here are some of the numbers (taken from this recent Journal article):
Paris added 400 miles of pop-up bike lanes across the region — all of which didn’t exist before the pandemic – some of the streets being tracked have seen a doubling in usage
Oakland closed almost 10% of its streets to cars
Montreal is adding an additional 70 miles of pedestrian and cycle paths
Bogota is the midst of planning for 47 miles of temporary bike lanes
The UK has fast tracked over $315 million in capital spending for bike infrastructure — referring to this as a “once-in-a-generation” opportunity
New York’s bike share service (Citi Bike) saw year-over-year usage surge 67% in the first 10 days of March alone — before any shelter-in-place rules were even imposed
There are obvious reasons for this rush to build out cycling infrastructure. We’re in the midst of a global health crisis and people are staying away from public transit in big numbers. But I think it’s also important to keep in mind that in many / most cases, there is really no other viable mobility solution. You cannot take all the people that used to ride the tube in London and plop them into cars. There isn’t enough space.
So cities all around the world are doing the sensible thing and acting fast to make sure that it’s safer for people to move about on bikes. But as we all know, humans tend to have a bias toward the status quo. And so when this is all said and done, I suspect that many of these pop-ups will end up sticking around. And that will be a good thing for cities.
On Monday it was reported — by the Wall Street Journal, Tech Crunch, and others — that Uber will be laying off another 3,000 employees and closing 45 of its offices around the world. Here is a quote from TechCrunch:
“I knew that I had to make a hard decision, not because we are a public company, or to protect or stock price, or to please our Board or investors,” Uber CEO Dara Khosrowshahi wrote to employees today in a memo, viewed by TechCrunch. “I had to make this decision because our very future as an essential service for the cities of the world — our being there for millions of people and businesses who rely on us — demands it. We must establish ourselves as a self-sustaining enterprise that no longer relies on new capital or investors to keep growing, expanding, and innovating.”
According to this SEC filing, the company expects to pay approximately $110 million to $140 million in severance and other termination benefits, and somewhere between $65 million to $80 million in costs related to closing its offices.
All of this is, of course, being driven by a steep decline in ride bookings, which is about 70% of the company’s revenue. Ride bookings were down 80% in April from a year earlier. For Q1 2020, they were down about 5% compared to 2019.
Uber Eats has seen a spike in demand with people staying at home. Bookings were up 52% in Q1 2020 from a year earlier. The problem is that, unlike its rides business, their food delivery business is far from profitable. That’s the point of the possible merger with Grubhub.
The company has said that they are seeing some signs of a recovery in markets that have begun to reopen. But it’s too early to predict what that will really look like. The hole is pretty deep.
Either way, the company is making some really tough decisions right now. But it seems to be doing what it needs to do in order to get to the other side of this and become a self-sustaining and profitable business. Full disclosure: I own some $UBER.
Elon Musk recently posted this Twitter survey asking if we, the people, would like “super safe, Earthquake-proof tunnels under [our] cities to solve traffic.” It was leading in that the “no” response was, “No, I like traffic.” And it was initially vague in that it wasn’t clear how these tunnels would be used. Though, most of us could probably guess. Elon later added in the thread that these road tunnels would be for zero emission vehicles only and they would be limited to EVs (from all auto companies, not just Tesla). Finally, Elon stated that these tunnels are not intended to replace other solutions, such as light rail, rather to supplement them.
At the time of writing this post, nearly 1.5 million people had responded to the survey and about 67% of them said “definitely” to Earthquake-proof tunnels. Elon’s reaction: “Stop whining, subway Stalinists, the people have spoken.” Notwithstanding the majority, this is a divisive topic and the reactions are mixed. City planner Brent Toderian responded by saying that this “solution” would merely result in more cars, more driving, and more emissions. Steve Jurvetson, on the other hand, argued that this would be the cheapest way to add lanes and prepare for the inevitable EV-only future. (Steve sits on Tesla’s board and recently launched a venture fund that, among other things, invests in sustainable mobility.)
The crux of this divide is a view about how cities should work. And it often becomes like dogma. Is it optimal for us to all be driving around in individual vehicles — EV or not? Will autonomous vehicles actually help solve the traffic problem? Or is building on the backbone of mass transit the only way to properly design a big and efficient city? Whether it’s lip service or not, Elon seems to acknowledge that both cars and transit are important, and that both can work together to supplement each other.
What is clear to me is that cities, at the scale of say Tokyo, wouldn’t function nearly as efficiently if it weren’t for their extensive fixed rail networks. At the same time, there are many cities (or portions of cities) that do not have the prerequisite population and employment densities to support this same level of transit investment. And that has created a strong pull away from transit (and active transport such as cycling) toward private vehicles. Sprawling cities signal to people that they should probably be driving. This is one of the reasons why land use should never be separated from mobility discussions.
How autonomous vehicles change all of this remains to be seen. Though I do think it will make cars less private and more public transit-like. Studies show that most of us are pretty good at coming up with incremental improvements to the things we already know and understand. i.e. This is how I would make this car better. But we’re far worse at coming up with and predicting tectonic shifts in the landscape. And autonomy is probably one of those shifts. But as long as our built form remains heterogeneous, I am inclined to believe that a mixture of mobility solutions will be needed. Maybe that means car tunnels. Or maybe it doesn’t.
I was on two panel discussions over the last week and, as is the case with all real estate panels, the topic of parking invariably came up, as did the impact of autonomous vehicles.
There seems to be a general consensus that the advent of driverless cars will result in less demand for parking. Every developer I know is trying to build as little parking as possible and is thinking about how – when the time comes – they might convert their parking into something more productive. I have yet to speak to anyone who is building excess parking in order to prepare for autonomy.
Where there’s a split, however, is whether autonomous vehicles will represent a decentralizing or a centralizing force for our cities. Historically, new technologies have lowered transportation costs and encouraged decentralization. Before the advent of rail, the US population hugged the coasts, because it was cheaper to navigate across the Atlantic than it was to move inland.
A similar phenomenon also played out with our streetcar suburbs and with our car-oriented suburbs. These new technologies made it possible for people to travel further distances in order to get to work and other places. So it is not at all surprising that many people today are inferring that autonomous vehicles will produce this same outcome.
But there is a counterargument.
We know that the demand for transportation services is highly elastic. Uber and other ride sharing apps have demonstrated this to us. Lower fares translate into dramatic increases in demand. So the opposing argument is that as the cost per kilometer drops – autonomous electric vehicles are going to be much more cost effective to operate – we’re going to see boatloads of induced demand.
This induced demand will then force us to look toward road pricing and other demand management tools in order to cope, which then begs the question: How much cheaper and more convenient will autonomous vehicles really be?
At the same time, it is important to acknowledge that autonomous vehicles should correct many of the inefficiencies currently caused by humans acting like humans. There is also the opportunity to operate these autonomous vehicles more like public transit than as personal vehicles. And that will have a profound impact on urban mobility.
Still, it is not yet clear, at least for me, that autonomous vehicles will be the decentralizing force that many assume they will be.
Earlier this month, the Metropolitan Transportation Authority (MTA) and the Partnership for New York City launched a new vertical accelerator dedicated to public transit. The mission is to make the city a global leader in this space.
Applications are open until November 30, 2018 and they are looking for early and growth stage companies that address one or both of the following challenges:
How can we better predict subway incident impacts and serve customers?
How can we make buses faster and more efficient?
Selected companies will go through an 8-week accelerator and, at the end of it, the most promising companies will partner with the MTA on a 12-month pilot. So it is an opportunity to potentially test your product(s) on the largest transit authority in the US.
