Brandon Donnelly — Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly. — Page 1279

Chilean architect Alejandro Aravena has just been awarded the prestigious Pritzker Prize – the highest honor in the world of architecture. 

Alex Bozikovic of the Globe and Mail has a fantastic write up about it that focuses on how choosing Aravena – an architect known for his social housing – is quite a departure from the “starchitects” of prior years. 

One of Aravena’s most famous works is known as the “half of a good house”, which I think is an incredibly clever project. The idea here was to literally provide half of a good house but then design in the flexibility for owners to expand as they have the means. 

The rationale behind this was to get around the fact that poorer Chileans would not be able to afford a full good house, unless of course they went far out of the city. But rather than physically disconnect these people from the opportunities of the city, this was deemed as a better solution. I think that makes a lot of sense.

But beyond being hyper practical, it also pushes architecture away from being a work of pure art that shouldn’t be meddled with, towards more of a housing framework that is supposed to altered and built upon. 

Many architects wouldn’t like to give up this kind of control over their capital A, Architecture. But for Alejandro Aravena, he’s clearly about something quite different. 

Congratulations on winning the Pritzker Prize!

(I apologize for not having any links or images in this post. It’s because I wrote it from my phone on a flight.)

Daniel Hertz over at City Observatory just published a post talking about why land costs are so important when it comes to home prices . More specifically though, his post is intended to refute a claim that multifamily housing is always going to be more expensive than single family housing.

The key concept here – which is critical to understanding urban real estate economics – is that home values are essentially made up of two things: the land and the improvements (i.e. the building). 

When home prices rapidly appreciate, as has been the case in cities like Vancouver (see below) and Toronto , it’s not the building, but the land that’s really driving the price up. 

And as you can see from the chart below (which Daniel shared in his post), it is possible for multifamily housing to be less expensive than single family housing. 

So why was someone arguing that multifamily housing is more expensive?

Well if you look at just construction costs, then this is generally true. Single family housing is typically wood frame construction, whereas multifamily housing is usually reinforced concrete or some other material that allows you to build up. In these latter cases, the price per square foot to build is going to be higher.

But Daniel’s argument is that when you build multifamily housing, you also begin to amortize the cost of the land over more housing units. So you begin to use land more efficiently and that offsets the higher construction costs.

However, two thoughts come to mind.

First, the value of a piece of land is entirely dependent on what you can build on it. And the more you can build on it, the more the land is worth. So as densities increase, so do land prices.

Second, a big part of why condominiums are so much more affordable is that they’re smaller. In 2014, the average condo size in Metro Vancouver was estimated to be 840 square feet . I couldn’t find the average size of a detached house in the city, but let’s assume for a second that it’s 2,500 sf. 

If that were the case, then a detached house, despite being more expensive overall, would still be cheaper on a per square foot basis . You would be paying less for every square foot of livable space. True that doesn’t make the house more affordable, but I think it’s a bit unfair to compare apples (small condo) to oranges (large house).

So what I would really like to see is a graph of all-in low-rise and high-rise per square foot prices over time and for various cities. Because I would be curious to see at what point – if ever – they intersect.

Conor Maguire introduced me to an interesting site today called Airbnb vs. Berlin . The site does a deep dive into Berlin’s Airbnb market with the hope of answering the question: Is Airbnb contributing to a shortage in affordable housing?

The site is very well done. It’s filled with lots of great market stats and diagrams such as this one here: 

Of course, the impetus for a site like this is that cities all around the world, from San Francisco to Berlin, are grappling with rising home prices. If you happen to live in a successful, growing city, that’s probably what is happening.

But when this happens, we seem to want to look for something or someone to blame. In San Francisco it’s the tech workers. They’re the ones driving up homes prices. In Vancouver, it’s the foreign Chinese buyers . And in Berlin, it’s those Airbnb users who are just out to make a profit. In all of these cases, we like to tell ourselves that if we could just get rid of “X”, everything would be much better. 

But I think sometimes we forget that this is also the result of doing many things right.

If Berlin wasn’t a brilliantly cool place to visit, then tourists wouldn’t come. And if tourists didn’t come, then Berlin wouldn’t have, by far, the largest Airbnb market in Germany. If Vancouver wasn’t one of the most enjoyable places in the world to live, you wouldn’t have the same attention from overseas buyers looking to snatch up properties. 

So in a way, we should be asking ourselves: How do we, as a city, manage our own awesomeness?

The other thing that Airbnb vs. Berlin reminded me of is the viewpoint that profits are some dirty little secret. I hear it all the time in the real estate development business. People will say: “That developer is just out to make money.” Of course she/he is! They operate a business. And like all for-profit businesses, one of the objectives – it may not be the only one – is to make money.

I say all this not as a direct response to the website. They remained fairly neutral in their analysis. Instead, I raise it as an alternate viewpoint in the seemingly universal battle against “X.”

In case you’re wondering about Berlin’s Airbnb market, the site  estimates that there are roughly 11,701 Airbnb listings in the city out of a total of about 1.9 million flats. Of these listings, it is estimated that somewhere around 30% are by “professional users” who are only out to make a profit and are not participating in the “sharing economy” in its purest sense. That equates to about 0.18% of all Berlin flats.

Based on this number, I’d say that Berlin’s cool factor probably has a lot more to do with the city’s rising rents than do the profit seeking Airbnb users.