Brandon Donnelly — Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly. — Page 120

At the risk of sounding obvious, pricing is fundamental to the functioning of markets. It determines profitability, it allocates resources, and it influences customer behavior, among other things. Take the example of electricity pricing.

In Ontario, we use something called time-of-use (TOU) pricing. What that means is that electricity rates vary according to the time of the day and the time of the year. In the summer, the expensive peak usage period is the afternoon (because of air conditioning) and in the winter it's the morning and early evening (because of heating and lighting when people are generally not at work).

What this pricing strategy does is incentivize customers to change their consumption behaviours. Instead of doing laundry during a peak period, maybe you set a timer and have it run during a low-peak period. In other words, it helps to flatten the demand curve. This is valuable for utility providers because peak periods are more expensive to supply and they also create the risk of brownouts and blackouts. So you worry about peak demand.

With this in mind, let's now switch and talk about highway congestion. The parallels are almost identical, and yet, most highways are free to use, which means we do absolutely nothing to manage peak demand. Instead, we encourage the equivalent of brownouts where demand greatly exceeds supply, traffic crawls, and roads become practically unusable. Why is that? Why should highways be viewed any differently?

In the case of highways, there are even alternatives such as transit (thought not always, of course). But if you need electricity from a monopolistic utility provider, you're paying whatever rates they charge. As you might expect, the answer is not technical or economic. We know with 100% certainty that pricing congestion will reduce it. The reason we don't do it is political. Free roads are preferred to functioning roads.

Cover photo by Hooman R. on Unsplash

What I have learned from this recent New York Times article is that if you have a company with "AI" in the name — such as OpenAI, ScaleAI, Adept AI, Hayden AI, or Harvey AI — then you probably need to lease office space in an area of San Francisco (around the Mission District) that is now being called The Arena. Here's a map from the article:

The struggles of San Francisco's office market have been well publicized. At the beginning of this year, San Francisco had the highest office vacancy in the US at approximately 27.8% . But beneath this headline, AI firms have leased more than 5 million square feet in the city since 2020. And CBRE is forecasting that AI-related companies will lease another 16 million square feet between now and 2030. So here comes the boom following the bust — which is the bipolar way in which San Francisco generally likes to operate.

But what is also interesting is that, even in this brave new world of AI, blockchains, and remote work, agglomeration economies are alive and well. AI companies are choosing to physically cluster in The Arena because there are economic benefits to doing so. There are mountains of research to support the fact that it will make these firms more innovative and more productive due to knowledge spillovers. You don't want to be isolated from your competitors — you want to be cheek by jowl. Physical proximity matters and, therefore, cities matter.

So much so that the New York Times is now asking: What if San Francisco is the new Silicon Valley? In other words, could its center of gravity be right now moving from the suburbs to the city? That makes perfect sense to me.

Cover photo by Josh Hild on Unsplash ; map from the New York Times

Most of the major streets in the older parts of Toronto look something like this:

That is, the right-of-way width is 20 meters. The built form lining the street is retrograde. There are 4 lanes for driving cars (sometimes streetcars run in the two inner-most lanes). And 50% of the entire road is allocated to on-street parking. Now to be fair, on-street parking is usually prohibited during "rush hour." So no stopping and parking during periods like 7-9am and 4-6pm.

But I think this approach to traffic management has become far less relevant today. It made more sense when everyone was driving to an office for 9am and then leaving for the suburbs at 5pm. But today, people want to work from home so they can go to the gym at 11am, go grocery shopping at 1pm, and then get a perm at 3pm.

What I find curious about these decisions is that bike lanes seem to get most of the blame for traffic congestion. We say things like, "nobody really bikes in Toronto except for the 2 weeks of the year when it's nice. So we shouldn't allocate valuable road space to them!" But very rarely do people seem to direct their frustrations toward the parked cars that sit on our roads for, what, ~83% of every day?

One approach allows people to go places and the other is dedicated to storage and immobility. This also says nothing about the relative benefits of people biking: it's objectively a more efficient way to move people, it can improve overall traffic flows by taking people out of cars, and it improves health outcomes (saving taxpayers money).

This is not to say that bike lanes don't also impact vehicle road capacity. But it's a question of what's most optimal for moving the greatest number of people. And I would bet you that on-street parking is far more disruptive to overall traffic flows than bike lanes. Parked cars, it turns out, aren't very good at moving people across a city.