Brandon Donnelly — Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly. — Page 1058

The Ryerson City Building Institute and Urbanation recently published a terrific report called: Bedrooms in the Sky. Is Toronto Building the Right Condo Supply?  

Here is a quick synopsis: The 35-44 year old age bracket in this city will see significant growth over the next decade; single family homes are really expensive; and we’re not building enough family-friendly condo units.

When Urbanation looked at the data for all condo units currently under construction they found that the unit mixes still skewed toward 1-bedroom units, but that the number of 3-bedroom units is starting to trend upward. That feels right.

The report also talks about the affordability gap between condos and houses. The average condo in the Greater Toronto Area costs about $511,000, while the average detached house costs $1,134,000.

However, this isn’t exactly an accurate comparison because the average condo is smaller in size than the average house. I think a better metric is to look at price per square foot.

Also, houses give you the flexibility of a secondary suite. Right now that usually means a basement apartment, but pretty soon it’ll likely include a laneway suite . That creates an additional income stream and helps with overall affordability.

In any event, up until maybe recently, houses generally looked cheaper on a per square foot basis. And my view – which I have written about extensively on this blog – was that as soon as houses become “more expensive”, we’ll see an uptick in larger family-oriented condos.

A few weeks ago I went to an open house in a desirable area of Toronto. It was for a 1,300 sf semi-detached house with good bones, but in need of a full gut. Basement was low, only suitable for humans around 5′ tall. It sold for $1 million.

Let’s say that house needs $300,000 to bring it up to the level of a new condo. If that doesn’t include some sort of extension, now you’re in for $1.3 million or about $1,000 per square foot. You can still find a condo for less than that.

Which is one of the reasons why I think we’re now starting to see an uptick in larger/family units. (We are trying to do it at  Junction House .) 

But like all things in real estate, these things move slowly. The condos under construction today were designed years ago. Changes take time to work themselves through the system.

Richard Florida, Charlotta Mellander, and Karen M. King have a new working paper out called Winner-Take-All Cities .

It is about the phenomenon of “winner-take-all urbanism” and how a select number of alpha cities seem to overrepresent when it comes to talent, economic activity, innovation, and wealth creation.

In this study they look at economic output, innovation (venture capital-backed startups), and billionaire wealth in each city. They then compare these factors to the distribution of the population.

Here are the Alpha cities they looked at:

In some cases the above concentrations were multiples of what the city’s population would lead you to predict. Their conclusion: “We find clear evidence of a winner-take-all urbanism across the global economy and the world’s cities.”

Carlota Perez is a professor that specializes in the social and economic impact of technological change. In 2002, she published an influential book called  Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages .

One of her arguments is that economic growth since the Industrial Revolution has occurred through a series of cycles and surges, ultimately culminating in a fifth great surge centered around information and telecommunications. This is our current economic environment.

Perez was recently interviewed by strategy + business and they published this diagram (if it’s too small, click through to the article ):

The five surges of capital and technology since 1771 are:

1. Industrial Revolution
   

2. Steam and Railways
   

3. Steel, Electricity, and Heavy Engineering
   

4. Oil, Automobiles, and Mass Production 
   

5. Information and Telecommunications
   

Number 4 – oil, automobiles, and mass production – is what produced widespread suburbanization, a middle class filled with homeowners, and new forms of retail employment. And I am sure that most of you would agree that it’s not quite over yet.

According to Perez, each cycle has two phases: an installation phase and a deployment phase. This latter phase is a “golden age.” But in between these two phases is a turning point that is typically characterized by some sort of crisis and recession. 

Her belief is that we are in this turning point right now. You see it with Brexit. The demagogues being elected. And more. If you buy this, the key question naturally becomes: How do we cross this chasm and enter our next golden age?

What’s also important to keep in mind about this theory is that it means that what we are seeing today, socio-economically, is not in fact new. We’ve been through this before. I’ll end with this quote from the interview with Perez:

In the 1920s, wealth distribution looked the same as it does today. The top 1 percent received 25 percent of society’s total income. By the 1950s it was down to 10 percent. Every installation period brings inequality until the state comes back actively to reverse it and relieve social unrest.

So what’s happening today may be temporary and it may be history repeating itself. If you’re interested in this topic, you can read the full interview here .