Brandon Donnelly — Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly. — Page 1055

CIBC World Markets recently published this report by Benjamin Tal talking about the Toronto and Vancouver housing markets. Here is an excerpt:

“But when the fog clears it will become evident that the long-term trajectory of the market will show even tighter conditions. The supply issues facing centres such as Toronto and Vancouver will worsen and demand is routinely understated. Short of a significant change in housing policies and preferences, there is nothing in the pipeline to alleviate the pressure.”

It’s a good read. Worth your time.

One stat that stood out and directly relates to some of the topics that we frequently talk about on this blog is the shift in Toronto from low-rise to high-rise housing.

In the report there’s a chart showing the “change in [housing unit] completions” in 2016 as compared to 2000. The switch from low-rise to high-rise is almost 1:1 in Toronto. In other words, we substituted high-rise housing for low-rise housing. 

I think this speaks volumes about the fundamentals underpinning the Toronto condo/apartment market. We are continuing to build up because it is the future of housing in this city.

This is an interesting ULI case study about a 9-unit infill rental development in Washington, DC called Oslo ( click here if you can’t see the video below):

[youtube https://www.youtube.com/watch?v=G8FfT6UREuc?rel=0&w=560&h=315]

The units are a mix of 3-bedroom and 4-bedroom apartments. The target market is recent graduates and millennials who might otherwise be sharing (”group living”) in a townhouse or single-family home to save on rent.

Another notable aspect of this project is the fact that the previous building was a legal non-conforming 9-unit apartment building. In other words, the current zoning wouldn’t allow it today. So to preserve their zoning status, they had to figure out a clever workaround during construction.

A project exactly like this – where you’re replacing an existing apartment building – probably wouldn’t be possible in Toronto because of our rental housing demolition and conversion bylaw. 

But I wanted to share it because I am sure that many of you, including those outside of this city, will appreciate it as a good example of low-rise infill development.

In 1988, William Samuelson (Boston University) and Richard Zeckhauser (Harvard University) published a seminal paper called, Status Quo Bias in Decision Making .

In one of the experiments cited in the paper, two groups of people are given a hypothetical task that involves picking from a selection of different investment opportunities.

In both cases, the groups are told that they are someone who regularly reads the “financial pages”, but that up until recently hasn’t had much money to invest.

Both groups are then told that they have just inherited “a large sum of money” from their great-uncle. This is now where the groups diverge in terms of the information given.

The first group is given a neutral version. They are told they can invest in any of the following portfolios: a moderate-risk company, a high-risk company, treasury bills, or municipal bonds.

The second group is given the same selection of portfolios, but is also given a “status quo selection.” They are told that a significant portion of their great-uncle’s portfolio is currently invested in a moderate risk company. 

(They are also told that the fees associated with an investment change are insignificant and should not be a consideration for this decision.)

What do you think happened?

A number of different scenarios were tested, but as soon as one of the options was presented as the status quo, it became “ significantly more popular ”.

This status quo advantage also tended to increase as the number of investment options increased. Perhaps people just got overwhelmed by the options and went with the “safe bet”.

This phenomenon has become known as the status quo bias. 

It is one of the reasons why some political offices have term limits. The incumbent bias can make for an uneven playing field. People vote for the name they recognize on the ballot.

And it is one of the reasons why change, in general, can be so unsettling. The countless studies suggest we have an inherent bias towards the status quo irrespective of its objective merits.

P.S. This is what came to mind as soon as I heard people calling the King Street Transit Pilot a “disaster” before the first weekday of its run was even over.