Brandon Donnelly — Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly. — Page 248

This is an important chart from a recent study commissioned by Greater Wellington, New Zealand. The study looks at the cost benefits of urban intensification and the above chart shows the relationship been density and infrastructure costs. For this study, they specifically looked at the costs that local governments face in providing road, public bus transport, and "three-waters infrastructure." I hadn't heard this latter term before, but it refers to drinking water, wastewater, and stormwater.

What they obviously found was that there are real economies to higher densities. More density lowers the per dwelling cost of delivering infrastructure. In the case of three-waters infrastructure, it doesn't even really matter if you're proximate to reservoirs or treatment plants. The bulk of the cost lies in the local connection pipes. So what matters most is how many dwellings you can service off of the main lines -- even if these lines need to be upsized.

The goal of this study is to enable more support for smart growth within the Wellington region:

Regional councillor Thomas Nash says the report should give councils confidence to press on with plans that support compact mixed-use development in and around city centres and connected by high quality public transport. 

“Regional growth needs to be smart growth. This report clearly shows that the best bang for our buck is to focus on upgrading existing water, public transport and local roading infrastructure so that we can build better quality, compact residential form, with improved amenities within our cities and towns,” Cr Nash says.

Of course, this doesn't just apply to Wellington. Every city should read the study .

Urbanation just released its Q2-2024 condominium market survey for the Greater Toronto & Hamilton Area (GTHA), and we should probably talk about some of the data:

• The new condominium market reported 1,688 sales in the quarter. Outside of Q2-2020 (the pandemic), this is the lowest in the past 20 years. Note: This number is self-reported by developers.

• Of the 3,625 homes launched for pre-sale during the quarter, only about 17% got absorbed/sold. That's about ~616 homes, which isn't very much when you spread it out across the region's projects.

• Unsold inventory increased to 25,893 homes. Urbanation equates this to 34 months of supply, versus a more "balanced level" of 10-12 months. This number breaks down to 15,157 homes in pre-construction projects, 9,788 homes in projects under construction, and 948 homes in recently completed buildings.

• This is higher than Urbanation's 20-year average, but the way I see it is that the ~15k homes in pre-construction projects could very quickly evaporate. If those projects don't get to construction (and most probably won't in the short term), then that inventory will disappear from the market. On the other hand, the ~11k homes under construction or recently completed is a hard number. These homes exist, or will soon exist, and they'll need to get absorbed at some point.

• There are also going to be homes that are currently sold, but where buyers ultimately say "yeah, I'm not going to be able to close." So there will be some non-zero percentage of homes that will need to be reabsorbed. I don't know what this percentage will be, but if it's something like 5%, that's not nothing. (See below for the number of condominiums under construction right now.)

• Not surprisingly, average asking prices for unsold homes only declined about 2.6% over the past year. Prices have remained markably sticky. And this is how you know that development happens on the margin . Because developers are infinitely better off selling homes and starting construction, compared to holding lots of unsold inventory and starting construction, whenever. The fact that developers aren't dropping prices to sell more homes demonstrates that they can't. They're hitting the floor of financial feasibility.

• Finally, last quarter saw 727 new condominium homes start construction. In theory, this could have been a single tall building, though that probably wasn't the case. As new starts fall, the number of condominiums under construction will naturally also fall. The current number is 87,508 homes, which is almost 19,000 less than a year ago. I expect this number to keep coming down.

One way to describe cities is to call them labor markets. Historically, people have chosen to live in cities because they have provided economic opportunities (among, of course, many other things). That's why the data is very clear: wages are higher in larger cities .

But what we have also seen over the last few years -- and what is causing a lot of dislocation in real estate markets -- is an untethering of work. More people are working from home and from locations that offer greater lifestyle benefits (or greater tax benefits).

We spoke recently about what this divide between in-person and remote work might mean, but regardless of this outcome, I think there's an important truth here: Lots of people would like to live somewhere else. (In my case, my daydreams take me to Paris.)

And for the first time ever, really, it is possible for more people to do this and stay connected to work somewhere else. Earlier innovations, such as the streetcar or car, also compressed geographies and empowered people to travel greater distances. But now the catchment area has seemingly expanded to the world.

I'm not saying anything particularly novel here, but I do think it's important to point out that this desire exists in many of us. Because this tension between "I do work here" but "I really want to live over there" seems like it's only increasing.