Brandon Donnelly — Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly. — Page 1545

Almost 70% of commutes in New York City are done by walking, biking or taking transit. That’s the highest of any American city according to Atlantic Cities :

Probably the biggest driver of this is urban density. That’s because walking, biking and taking transit becomes impractical when you live in a sprawling city. If you want to get people out of their cars, pay attention to the urban fabric of your city.

As someone who used to drive to work (out of necessity), but now relies predominately on public transit, I see one of the big advantages as time. If you’re like me, you probably feel time poor. Taking transit gives me a block of time in which to respond to emails, catch up on reading and generally just think.

In fact, this blog post was written on the subway.

Some buildings should be torn down. And others should not be. The challenge, sometimes, is figuring out which is which. But when a great building is torn down, I get upset. 

I get upset because good architecture should represent the place and era in which it was built. This means that, in a lot of cases, it’ll never be replicated. When it’s gone, it’s gone.

Take for example the old Penn Station in New York City . Designed by renowned architectural firm McKim, Mead, and White , the station opened in 1910 and was an iconic Beaux-Arts structure. Here’s an historic photo :

In 1963 the building was demolished. It was eventually replaced with a building that, I think most people today would agree, is quite awful. And while it did teach New York City a lesson about historic preservation , the loss still sucks.

Ultimately I think that preservation is about balance. I’m obviously pro-development but, at the same time, I don’t believe in erasing our history.

I just read an interesting chapter from Tim Smith’s book, "Pricing Strategy: Setting Price Levels, Managing Price Discounts and Establishing Price Structures." It’s Chapter 5: Psychological Influences on Price Sensitivity.

The chapter covers a number of pricing phenomenons, such as why prices ending in .99 tend to convey a discount and why whole prices ending in 0 tend to speak more to quality. It’s for this reason that art work is typically priced using simple round numbers.

But one of most interesting theories from the chapter is that of Prospect Theory . Not only because of its impact on pricing strategies, but because, I think, it also applies to the real estate development business.

Prospect Theory essentially describes the way people make decisions in the face of uncertainty. The two big takeaways for me are (1) that potential losses carry more weight than potential gains and (2) that both losses and gains experience diminishing returns.

What this effectively means is that people, when faced with risk, tend to focus more on the negatives, and the potential losses, than on the positives. This means that the gains just can’t match the losses, they have to be significantly greater if you’re going to inspire action (a purchasing decision, a change in behaviour, or whatever).

The second point basically means that these gains and losses become muted after a certain point. If you hit someone with enough of either, eventually they reach a point where they become desensitized in a way. Each additional amount of gain or loss produces less and less impact.

Besides the obvious point of making sure that your product or service results in lots of gain for your customer, there are a couple of other things you can do to respond to this theory.

The first is to “bundle losses” and “unbundle gains”. In other words, hit people with all the losses at once and then spread out the gains. What this does is maximize the psychological perception of gains and minimize the perception of losses because, remember, after a while people start to discount the losses.

The other thing you can do is transfer losses, which is often just the cost itself, from direct to indirect. Big box stores, as an example, are great at this. They offer low prices (a direct cost) in exchange for greater indirect costs: higher transportation costs to the user, greater environmental impact, and so on. Studies show that people feel direct costs much more than indirect costs.

There are a bunch of things you can do based on this theory, but again, one of the most fascinating things for me was how it also applies to the real estate industry. There’s a well known acronym in the industry called NIMBY . It stands for N ot I n M y B ack Y ard, and it’s used pejoratively to refer to people who oppose development in their community.

However, if you look at NIMBY’ism through the lens of Prospect Theory, you realize that it’s almost an innate human reaction. Development and construction is disruptive and the end result is change in somebody’s community. And I suspect that most residents view it as a risky and uncertain situation. Therefore, it’s no wonder that they’re first reaction is opposition. They’re weighing the potential losses more than the potential gains.

So maybe we developers just need to apply a little Prospect Theory. We need to get better at producing and communicating gains.