Brandon Donnelly — Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly. — Page 1372

If you ask most people, they’ll tell you that real estate agents will never ever disappear. 

Despite the internet, mobile phones, social networks, and companies (here in Canada) such as comFree and PropertyGuys , the bulk of the market still employs an agent when it comes time to buy and/or sell a home. This is true both in Canada and the United States. And it may always be true.

But there are lots of entrepreneurs and people in the real estate community experimenting with different models. OpenDoor and Open Listings are two new startups out of the US that I’ve been following closely.

At the same time, there is a certain fraction of the market that is willing to go at it alone. By some estimates this number could be as high as 25% in Canada . Of course, this is a hard number to measure accurately since there isn’t just one method of selling a home privately and many transactions likely go untracked.

But one thing that I’ve been wondering for awhile now is why the percentage of private home sales is seemingly so much higher in the province of Quebec. According to Wikipedia, this number might be greater than 50% . And a quick search on comFree (duProprio in Quebec) seems to suggest that this may indeed be the case.

Here are the comFree search results for downtown Toronto. There are 62 properties.

And here are the duProprio search results for downtown Montreal (notice I tried to maintain the same zoom level). There are 2,746 properties.

If anyone has any insights on this phenomenon, I would love to hear from you in the comment section below. I don’t know why this is the way it is.

London street of early 20th century Edwardian terraced houses by Bombaert Patrick on 500px

Over the weekend The Economist published an interesting article called, Space and the city: Poor land use in the world’s greatest cities carries a huge cost.  The argument is that land isn’t scarce. It’s the land use policies we have created that are artificially limiting supply and driving up real estate values.

In fact, land is not really scarce: the entire population of America could fit into Texas with more than an acre for each household to enjoy. What drives prices skyward is a collision between rampant demand and limited supply in the great metropolises like London, Mumbai and New York. In the past ten years real prices in Hong Kong have risen by 150%. Residential property in Mayfair, in central London, can go for as much as £55,000 ($82,000) per square metre. A square mile of Manhattan residential property costs $16.5 billion.

And part of the reason this has become so prevalent is because of the shifts we’ve seen in our economy and the great return back to cities.

In the 20th century, tumbling transport costs weakened the gravitational pull of the city; in the 21st, the digital revolution has restored it. Knowledge-intensive industries such as technology and finance thrive on the clustering of workers who share ideas and expertise. The economies and populations of metropolises like London, New York and San Francisco have rebounded as a result.

So how do we get better at meeting real estate demand in our cities? The Economist has two suggestions.

One:

First, they should ensure that city-planning decisions are made from the top down. When decisions are taken at local level, land-use rules tend to be stricter. Individual districts receive fewer of the benefits of a larger metropolitan population (jobs and taxes) than their costs (blocked views and congested streets). Moving housing-supply decisions to city level should mean that due weight is put on the benefits of growth. Any restrictions on building won by one district should be offset by increases elsewhere, so the city as a whole keeps to its development budget.

Two:

Second, governments should impose higher taxes on the value of land. In most rich countries, land-value taxes account for a small share of total revenues. Land taxes are efficient. They are difficult to dodge; you cannot stuff land into a bank-vault in Luxembourg. Whereas a high tax on property can discourage investment, a high tax on land creates an incentive to develop unused sites. Land-value taxes can also help cater for newcomers. New infrastructure raises the value of nearby land, automatically feeding through into revenues—which helps to pay for the improvements.

These recommendations will probably be unsettling for a number of people. 

I would imagine that many communities would prefer to have planning and growth decisions happen bottom up, as opposed to top down. But I think there’s some truth to this recommendation and I don’t think it has to mean completely excluding bottom up feedback. Communities and individuals are naturally going to look out for their own self-interests. And so I think many would agree that there’s value in having a holistic urban strategy in place.

Recommendation number two pertaining to  land value taxes  is a loaded one. So I’m going to save my specific comments for a dedicated post on LVTs. 

But I will say that I don’t think trying to squeeze landowners into development via taxes is the most efficient and immediate way to address supply shortages. In advance of this, we should be examining the current barriers to development. Because we’re talking about hyper competitive global cities with perpetual supply deficits. And I don’t believe the problem is incentive-based. The problem is finding sites. The problem is finding ways to build.

What do you all think? This is an interesting topic of discussion.

After yesterday’s post about speed, price, and quality , a friend of mine from Rotman emailed me and said: but what about integrative thinking?

When I was doing my MBA at Rotman and Roger Martin was the dean, integrative thinking was a significant part of the curriculum and the messaging for the school. 

Here’s how Roger explains it :

Over the past six years, I have interviewed more than 50 such leaders, some for as long as eight hours, and found that most of them share a somewhat unusual trait: They have the predisposition and the capacity to hold in their heads two opposing ideas at once. And then, without panicking or simply settling for one alternative or the other, they’re able to creatively resolve the tension between those two ideas by generating a new one that contains elements of the others but is superior to both. This process of consideration and synthesis can be termed integrative thinking. It is this discipline—not superior strategy or faultless execution—that is a defining characteristic of most exceptional businesses and the people who run them.

So what my friend was getting at is why – when it comes to speed, price, and quality – do you only get to “pick any two?” Doesn’t that go against the rules of integrative thinking? Isn’t that a failure to look for a more holistic and integrated solution?

It’s a great point. And it’s a thought that crossed my mind while I was writing yesterday’s post. The fact that “something had to give” made me second guess myself.

In general, I’m a believer in integrative thinking. I think there are lots of opportunities to create new hybrid solutions and models that are superior to what might exist today.

But what I was getting at yesterday was perhaps a bit more low level in thinking.

Let’s say for instance you’re a developer constructing a new building and you and your construction manager are in the process of tendering for curtain wall . You receive 3 bids back and 2 of them are roughly the same, but one them is $5 million cheaper.

My immediate thoughts would be: Why is that one bid so much lower? Did they bid on the same scope? Are they missing something? Will the curtain wall arrive on-site on time? And if it does, is it going to leak like a sieve?

I’ll be the first to admit that the construction process is fraught with inefficiencies and ready for integrated solutions. I’m certain that the trade-offs between speed, price, and quality could be better managed.

But more often than not, a rock bottom price usually means that something did in fact give. After all, great integrative thinking is a pretty rare trait.