Brandon Donnelly — Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly. — Page 153

There is a nonpartisan, nonprofit think tank based in New York called the Citizens Budget Commission (or CBC). And this week they launched Competitive NYC . The intent is a kind of dashboard that provides insights into NYC's overall competitiveness — specifically its ability to attract and retain both residents and businesses. I won't summarize all of the findings; if you'd like to take a look, you can do that here . But I did want to point out one finding.

Here's a chart showing the top 10 states for people with incomes greater than $1 million:

The number of "millionaires" in New York state increased from 35,802 in 2010 to 69,780 in 2022, but its share of US millionaires declined the most. Previously it was 12.7%, and in 2022 it had dropped to 8.7%. On the other end of the spectrum, the state with the biggest share gain was Florida.

The tracker goes on to suggest that high taxes may be a factor for households moving out of New York City. Here's a chart showing taxes per $1,000 of personal income:

New York state is the highest and is 56% above the US average, whereas Florida is 31% below the average. Florida also has the sunshine thing going for it. This migration trend aligns with what was talked about a lot during the pandemic. Between April 2020 and July 2022, NYC lost nearly half a million residents, a chunk of which went to Palm Beach and Miami-Dade Counties.

It's a reminder not to take competitiveness for granted, especially when there's a clear trend toward places with warmer weather. People can and will vote with their feet.

Cover photo by Andre Benz on Unsplash ; charts from CBCNY

Vancouver is in the same boat as Toronto. The Globe and Mail recently reported that the number of newly completed, unsold condominium suites in the city is expected to increase to 3,493 by the end of this year, which would be a 60% increase compared to the end of last year and one of the highest levels of unsold inventory in recent times.

The profound change, as we know, is that individual investors have largely left the market. Also in the article is some commentary from Ryan Berlin, who is head economist of Rennie Intelligence . According to Rennie's data, investors made up about 50% of their buyers from 2020 to 2023. In 2024, this number dropped to around 25%. And so far this year, the number is ~7%.

At the same time, the math is not mathing for developers :

Real estate appraiser David Eger, vice-president of Western Canada for Altus Group Ltd., gave the example of an older Vancouver apartment block within the Broadway Plan that is currently on the market for $12.2-million. To achieve a profit margin of 10 per cent of total costs to redevelop the site, the developer would have to pay drastically less, around $3-million for the property. That’s based on a rent of $5.50 per square foot, or $3,300 a month for a 600 square-foot unit.

In some ways, all of this is what housing critics wanted: "Too many speculative investors are buying new homes and outbidding actual end users." But now they're not. So where are all the end users? Aren't we in a housing crisis? This is the paradox of our current market. But I think the lesson is that a housing crisis does not necessarily equal a housing shortage in all segments of the market.

Another way to think about it is that the inventory that is now accumulating has lost product-market fit . The market used to be a lot of investors, but now it's not. So either the market needs to change again or the product needs to adapt to what the market wants today. And I suspect that, even in today's market, there would be strong demand for more affordable family-oriented housing.

The challenge is that our industry and our cost structures are not currently set up to deliver this kind of product. In software, it's relatively easy to pivot in search of product-market fit. But it's not so easy in real estate. Using the above example from appraiser David Eger, you'd need a negative land value (i.e. a subsidy) in order to be able to feasibly deliver more affordable family housing. That is, larger homes at a lower per square foot rent.

But I think this is how all city builders should be thinking right now. We should be viewing this point in the cycle as an opportunity. It's an opportunity to ask ourselves: what does the housing market want and how could we actually deliver it? Then it's time to get creative and figure out how to pivot our collective product. There are, of course, lots of levers we can pull .

Cover photo by Nate Foong on Unsplash

I like thinking about new things, and so I like this recent post by Vitalik (the Ethereum crypto guy) talking about what he calls "the tree ring model of culture and politics." The basic insight of the model is the following:

How a culture treats new things is a product of the attitudes and incentives prevalent in that culture at that particular time.

How a culture treats old things is primarily driven by status quo bias.

To explain why the world seems to work like this, he uses the analogy of tree rings, which are also called annual rings or growth rings. Trees grow in diameter each year and the result is a set of successive rings.

Importantly, each tree ring is a result of the conditions that the tree experienced during its growing season. A wide ring typically suggests a favorable growing season and a narrow ring suggests a stressful growing season.

Once the growing season is over, the ring becomes set, which is why dendrochronology is a thing, and why tree rings can be used to tell us about what happened in the past.

The parallel with culture and politics is that it's far easier to shape new things during their initial growth cycle, then to try and do it later. Because once the growth cycle is over and it becomes an old thing, attitudes are then guided by the status quo. They become set.

To quote Vitalik: "What is easier is to invent new patterns of behavior that outcompete the old, and work to maximize the chance that we get good norms around those." This makes a lot of sense to me and it's a reminder to stay open to new things.

Cover photo by Aleksandar Radovanovic on Unsplash