Tag: toronto

• Q&A on Toronto’s condo rental market

  Earlier this week I connected with a Ryerson student doing a piece on Toronto’s condo rental market. She emailed me and asked if I would mind answering a few questions. Here are my responses.

  Generally speaking, why is Toronto continuing to see such a rapid increase in the number of condos in development? 

  A lot of what we’re seeing is policy driven. It stems from the Places to Grow Act and the continued push towards intensification. It actually mirrors a similar boom we saw in the 70s. In both cases, it was policy driven and the market responded.

  The other factor is a growing consumer preference for more walkable and urban neighborhoods. People are sick of long commutes and so we’re seeing a return to city centers and downtowns. This is happening across all demographic segments, though Millennials and Baby Boomers seem like particularly strong ones.

  Is that boom, and the consequent rush by developers to create new units for rapid sale, affecting the quality of design and accessibility in new condo developments in Toronto?

  When you have a hot market, you’re going to get lots of people rushing in and trying to make money. Whether it’s real estate, tech or some other industry, it’s to be expected. And I’m sure it impacted some projects negatively. But that market is gone in Toronto.

  And regardless of the pace of development, there will always be varying degrees of quality across builders. The unfortunate thing for consumers is that it’s not always easy to tell which is which.

  One of the things we’re trying to do (at TAS) is integrate consumer education more into our sales and marketing programs. Mechanical equipment, as one example, isn’t the most exciting thing to to talk about, but we want consumers to know what they’re buying into.

  Prices are rising (you could buy a house outside the city for the price of some of Toronto’s tiny bachelor units, if I’m not mistaken…) – So what is making condo ownership so desirable in spite of the high cost relative to space? 

  Again, it’s being driven a lot by lifestyle. People want walkable communities, they want to be close to amenities and they want to drive less. And they’re willing to give up space for that. 

  When considering and comparing the cost of a home, I think it’s important to consider some of the indirect costs, such as transportation costs, travel times, quality life and so on.

  Sure a home in the suburbs may be a lot cheaper, but what’s my total, all-in, cost? If you need to own 2 cars and you spend 2 hours commuting everyday, there’s a real cost to that. If you place a big value on your time (as I do), the cost equation isn’t so skewed all of a sudden.

  Are more people choosing to live in rental condos instead of buying, because of the inaccessible cost? If so – why are we still seeing so many new ‘rental condo units’ being built, rather than purpose-built apartment units?

  Condos are being built because, in most cases, it’s the highest-and-best use for the land. It’s the most profitable. And investors have been more than willing to step up and fill the rental needs of the market. But with the condo market now coming down from record levels, I wouldn’t be surprised if we start seeing more purpose-built apartments.

  Would you say that the majority of condo rentals on the market are owned by foreign investors who depend on building management to liaise with renters? If so, why are they choosing to buy units in Toronto?

  I have no idea. It’s even hard to tell how many units are just investor owned, let alone local versus foreign. Because there are tax implications if you don’t owner occupy a unit, buyers have an incentive not to disclose. Overall, I find it problematic that the marketplace is so opaque. I wish there was a way to bring perfect information.

  With respect to why they choose to buy in Toronto, there are a bunch of reasons. Real estate has been a phenomenal investment in Toronto over the past decade and that’s attracted a lot of investor attention. There are also segments that just want capital preservation in a safe and stable country. Even without great returns, that’s a valuable proposition for some foreigners. And of course, Toronto is a great city. Talent wants to live here and that’s important.

  Generally speaking, is there a certain LOCAL demographic (ie, boomers, post-boomers) that are investing in condos for the purposes of renting them out? What makes that investment so desirable?

  Again, there isn’t great data on this. 

  What I will add to the investor topic is that, despite the fact that investors often get a lot of flack, they do serve two important needs in the marketplace for both developers and consumers. The first one we’ve already talked about. Investors provide rental housing in Toronto at a time when few, new, purpose-built rental apartments are being constructed.

  The second one is that investors help to get projects under construction and built. I’ve heard one developer refer to them as providing a kind of short-term financing. Because consumers don’t always want to commit to a unit that might be built 4-5 years out, developers rely on investors to buy pre-sale units so that the project can get underway. Once construction is complete, these units then often get sold to end users who are now ready to commit and move in.

  2013.12.05

• More on electronic road pricing

  We recently started a Lunch & Learn program at TAS. I did the first one on electronic road pricing and followed-up with the blog post below. Let me know what you think. It’s also cross-posted here on TAS’s website.
  

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  Last week at TAS I kicked started our new Lunch & Learn program with a talk on electronic road pricing. It was based on an HBS case that I had prepared for a pricing class I took at the Rotman School.

  The case is essentially about traffic congestion in Hong Kong and a decision to either build more road (a bypass road running adjacent to the harbour: The Central-Wan Chai Bypass) or implement an Electronic Road Pricing (ERP) system, similar to what was implemented in Singapore in the 70s and in London in 2003.

  My own view is that road pricing makes a lot of sense. And I’ve written extensively about it on my own personal blog. But to quickly summarize the economics behind it all, take a look at this graph:

  

   

  What this graph plots is the marginal cost of products and services with a fixed capacity.  An example of a product or service with a fixed capacity would be a road. Roads can only handle a certain amount of drivers before it becomes unusable (gridlock). What this graph tells us is that once you reach that capacity—variable k in the graph—the marginal cost goes from zero to basically infinity.

  In laymen terms, it’s telling us that at 4am when nobody is on the road, the cost—to society, to productivity levels, and so on—of adding each one additional driver is basically zero. But, as soon as you hit capacity, at say 830am, and traffic is at a standstill, the cost shoots way, way up!

  So how do you solve this problem? Well, you price congestion. This invariably removes or forces drivers to other times of day and makes it so that demand for the road drops below the available supply. Then the road is able to function as it’s intended to. I don’t know about you, but this makes a ton of sense to me. What good are roads if they’re clogged with traffic?

  What I’d like to do now is bring the discussion back to Toronto. For those of you with an interest in transit, you’re probably aware that Metrolinx has a “Big Move” transit and infrastructure plan that’s going to cost the region $2 billion a year to implement. I view this as investment in our region and so I think it’s absolutely the right move.

  However, the billion dollar question is, where is the money going to come from? Earlier this year Metrolinx proposed 4 main revenue tools. They are:

  – A 1% sales tax (estimated to raise $1.3 billion annually)
  – A business parking levy (estimated to raise $350 million annually)
  – A $0.05 fuel and gasoline tax (estimated to raise $330 million annually)
  – And a 15% increase in development charges (estimated to raise $100 million annually)

  What I would suggest is that there should be a road pricing plan in this list in addition to—or instead of—some of the items listed above. Taxes are just taxes. And they discourage consumption depending on the elasticity of the demand for those items.

  However, I would argue that a well executed road pricing model should be considered not as a tax, but instead as an incredibly accurate way to price roads according to actual usage patterns and costs incurred. Think of it like time-of-use utility billing. Do you think of high-peak utility billing as a tax or as simply the price to use the service when demand is the highest?

  The benefits of a road pricing system would be numerous:

  – We’d get a consistent revenue stream for transit investment in the region (instead of having to rely on government hand outs)
  – We’d be helping to decouple transit building from the political process (because Metrolinx would now make its own money)
  – We’d eliminate traffic congestion (yes, it can be done)
  – We’d increase productivity levels across the region (people will actually be able to get around)
  And we’d be reducing our impact on the environment by encouraging alternate forms of transportation

  This is an incredible list of benefits. However, I think one of the challenges with implementing electronic road pricing is that it’s often misunderstood. People just view it as a tax. Hopefully by looking at the economics behind it all, it has become clearer that it’s actually a bit more nuanced than that.

  2013.12.02

• The 2013 Anholt-GfK City Brands Index

  When most people think of brands, I suspect that they think of companies, products and services. But what about the brand of your city? As cities continue to compete for talent in the global economy, brand is becoming a hugely important differentiator.

  I just stumbled upon the Anholt-GfK City Brands Index and here’s their 2013 ranking:

  1. London
  2. Sydney
  3. Paris
  4. New York
  5. Rome
  6. Washington D.C.
  7. Los Angeles
  8. Toronto
  9. Vienna
  10. Melbourne

  The study looks at 6 key dimensions: presence, place, pre-requisites, people, pulse and potential.

  What do you think of the above list?

  Here’s a bit more information on how the index was prepared:

  “The Anholt-GfK Roper City Brands Index measures the image of 50 cities based on more than 50 questions related to perceptions of their Presence, Place, Pre-requisite, People, Pulse and Potential.  For the 2013 study, a total of 5,144 interviews were conducted in Australia, Brazil, China, France, Germany, India, Russia, South Korea, the United Kingdom and the United States.  Adults age 18 or over who are online are interviewed in each country.  Using the most up-to-date online population parameters, the achieved sample in each country has been weighted to reflect key demographic characteristics including age, gender, and education of the online population in that country.  Fieldwork was conducted from May 8th to May 23rd, 2013.”

  2013.11.30

• Are condo rents really declining?

  Yesterday the Globe and Mail published an article titled, “Weakening rental picture latest condo market worry.” At first glance, this title seems worrisome. Particularly since Toronto’s condo rental market was supposed to be so robust, with vacancy rates hovering around historic lows.

  But as I read the article, I was reminded, once again, about how opaque the real estate marketplace is. To make this prediction, the research group quoted in the article mined craigslist postings. Granted, craigslist is probably the largest source for condo rental listings (even more so than MLS), but I don’t think it necessarily makes it a reliable source.

  Craigslist is a messy marketplace. You have expired listings; brokers posting listings in the owner section; brokers posting fake listings for the purpose of lead generation; and so on. It seems to me that there could be a huge margin of error if you tried to rely on this data. So I’m not so sure I would put a lot of weight on a supposed 1.6% rental rate decline.

  But what does worry me is how imperfect the real estate marketplace is. It’s incredibly hard to get good data and I think that this is bad for everybody involved in real estate. But network effects are a hard thing to overcome, which is why a messy and ugly marketplace such as craigslist can remain so dominant.

  2013.11.29

• Thoughts on the OMB

  Last night I watched CBC’s the Condo Game documentary. This is what it’s about:

  “The Condo Game examines the forces at play behind the fastest moving condo market in North America – Toronto – and discovers that the glittering glass hides a sea of troubles.”

  If you haven’t seen it, you can watch it here at CBC’s Doc Zone. It’s about 45 minutes long.

  Generally, I found the piece to be overly sensationalized. (If you watched it and it left you worried about condos, contact me. I’d love to hear from you.) However, that’s not to say that the documentary doesn’t raise some important points. One that I absolutely think is worth discussing is the Ontario Municipal Board (OMB).

  Many developers like “the board” because it provides recourse. If the city fails to take action on a development application within 180 days, developers have the right to appeal to the board.

  While I do think it’s critical to have some sort of mechanism to unlock a gridlocked planning process, I also think that it’s fundamentally problematic to give the province ultimate decision making power over municipal planning decisions.

  Real estate development is very much a local business and these decisions should be happening at the local level. However, with the OMB looming overhead, it has left municipalities disempowered. “We’ll deal with it at the board” always remains an option. 

  But what if there wasn’t a board? What if municipalities and developers had to figure out a solution between the two of them? We’d certainly end up with less wasted money (on expensive lawyers), but I think we’d also end up with better design and planning outcomes.

  To do this though, the city needs to get their act together with respect to zoning. Almost nothing is zoned for what developers end up building. But I think this largely has to do with the fact that the city knows any dissenting decision will just get appealed. Again, they’re disempowered.

  So I think it’s time we empowered cities. This may seem scary to some developers at first, but there’s a lot to be gained.

  2013.11.29

• Pier 27 and transparency in the real estate industry

  One of my favorite development projects going up in Toronto right now is the Pier 27 complex at the base of Yonge Street.

  What I love about it is that it’s trying something different. The two sky bridges that sit atop the two phases—currently under construction—are going to create a remarkable new focal point along the waterfront. It’s not just another condo.

  And as I watch the buildings go up, I’ve also been impressed by the materials used on the project. In particular the curtain wall (glazing) system used on the eastern most buildings. It’s a clear glass installation with white accent pieces. It’s beautiful. Here are a few photos.

  But as much as I love this project, it’s been slow moving. This project, like many others in the city, has been subject to a number of delays. They went to market in 2006-2007 and occupancy isn’t expected until next year—a good 7 years later.

  But more than the issue of time, my real concern is the lack of transparency. Why was it delayed? Were sales slow? Were there dewatering issues being on reclaimed land along the waterfront? Was the soil contaminated? As a consumer, it’s frustrating being in the dark.

  I do, however, acknowledge that this is a larger issue facing the real estate industry. We’re certainly not known for radical transparency. We’re a closed and insular industry. But over time I do believe that will change. It’s inevitable. And the best thing you can do today—as an organization or as an individual—is to embrace it.
  

  Full disclosure: I have a vested interest in this project and I’m currently having a fight with the developer over a small amendment I would like to make to the agreement of purchase and sale. They have been unwilling to cooperate.

  2013.11.27

• The Toronto font

  Susan Kare was the screen graphics and font designer for the original Apple Macintosh computer in the 1980s. Being from Philadelphia’s affluent Main Line, she initially proposed that the various fonts be named after the railroad stops along it.

  However, when Steve Jobs asked where the names had came from, he contested that, if the fonts were to be named after cities, they should be named after “world-class cities”, rather than small ones that nobody had ever heard of.

  

  And since that’s what Jobs wanted, that’s what Jobs got. The fonts were renamed: Venice, London, Athens, Toronto, Chicago, New York and Geneva. Some of these font names you’ll probably still recognize but some, including Toronto, were eventually abandoned. 

  The Toronto font was removed from System 6 onwards. So from 1988 onwards.

  2013.11.26

• The return of the city-state

  I’ve written before on how Toronto needs more autonomy and how I think there’s a huge opportunity to create a Third Coast Megaregion spanning from Chicago all the way to Quebec City—a region that could compete with the rising urban agglomerations of Asia and elsewhere.

  The central theme around these arguments is that there’s clear evidence in support of a return to city-states.

  Today, the 388 metro areas in the United States make up 84 percent of the nation’s population and an astonishing 91 percent of gross domestic product. The top 100 metro areas alone total two-thirds of the U.S. population and three-quarters of GDP.

  And the reason why I say “return” is because, if you think about it, this is largely how the world used to operate before the shift towards nation-states. 

  Ironically, given the nature of our high-tech, super-connected age, the future will look more and more like the city-states that ruled the world for millennia, from the days of Athens, Sparta, Carthage, and Rome, and that were last dominant 500 years ago, in such places as Venice and Florence, before the formation of most modern nation-states. Today, the shining example is Singapore, the city-state of 5.2 million people that, all by itself, has become an Asian tiger. The city-state of the future will not be sovereign, of course, but instead will act largely independently. “What we are experiencing is a metro-centered driving force of change. This is the center of the economic universe,” says James Brooks, program director of the National League of Cities. “The United States is not one national economy but a series of smaller metropolitan economies.”

  If you’re interested in this topic, here’s the article by Michael Hirsh from which the above excerpts are taken. It’s called, “The Nations’s Future Depends on Its Cities, Not on Washington.”

  2013.11.24

• A Third Coast Megaregion

  The distance between Chicago and Quebec City is roughly 1,000 miles (or 1,609 km). There are 6 major cities and a population of over 25 million people. You have the 4th and 5th largest cities in North America (Chicago and Toronto); the largest city in Canada; the capital of Canada; 2 different languages; 2 different countries; and 5 different states/provinces.

  

  Now imagine if all of these 6 cities—Chicago, Detroit, Toronto, Ottawa, Montreal and Quebec City—were effortlessly connected through a high speed rail network, allowing you to travel from one end to the other in just over 5 hours. How would that impact the movement of people, goods and services across the region? How would it change our economies if you could wake up in Detroit and, without any lead time, travel 1 hour and 15 minutes to Toronto for a meeting?

  2013.11.20

• Renderings that scare

  This morning I was reading about an anti-development activist group in Vancouver that’s trying to fight the Bjarke Ingels designed Beach and Howe Tower.

  Here’s a “rendering” of the project that the group is using to galvanize the community:

  

  And here’s an official rendering of the project:

  

  I’ve seen this tactic used before here in Toronto for the Minto Midtown towers at Yonge & Eglinton. These were highly controversial towers and someone in the community created a depiction showing 2 large monolithic black towers (meant to represent the TD Towers downtown).

  Now, I’ll be the first to say that renderings are abused from both sides of the table. Developers obviously want to represent their projects in the best possible light and upset communities try and do the exact opposite. But where I do become concerned is when communities start to form opinions and make decisions based on rumours and rhetoric, rather than fact. 

  We should be having intelligent conversations about the future of our neighbourhoods and communities. And I think the best way to do that—as well as to counteract potentially unnecessary NIBYMism—is to ensure that the correct information is out there and that it’s widely accessible. Transparency is king. This often scares developers, but I believe that the benefits of openness greatly outweigh the negatives. 

  Full disclosure: I’m a big fan of architect Bjarke Ingels. I’m openly jealous that Vancouver could be getting one of his designs before Toronto does.

  2013.11.18