Brandon Donnelly — Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly. — Page 372

I recently asked this on Twitter:

You live in an apartment/condominium. If you could pick one ideal use/tenant for the ground floor of your building, what would it be?

And a number of people responded .

But I suppose I should also answer my own question.

I lean more towards utility. My ideal use -- assuming an urban storefront -- is not a fancy restaurant or a super cool coffee shop. It would be some sort of quality bodega that:

• Sells essential grocery needs (milk, eggs, toilet paper, etc.)

• Sells wine & beer

• Has a deli/food counter where you can buy a breakfast bagel, a sandwich for lunch, or a quick dinner when you're in a pinch

• And, yes, has pretty good coffee

It would also need to be open early and late: 7am to 12am, please.

What would you want?

Below are two interesting excerpts from this recent Globe and Mail interview with Tiff Macklem (the current governor of the Bank of Canada of the former dean of the Rotman School).

The first has to do with where he believes the "neutral rate" will be in the foreseeable future. He believes it will be higher than where it has been in the past:

We have different models we use to estimate the neutral rate [the central bank’s estimate of where its policy rate would settle if the bank were neither trying to stimulate nor restraining the economy]. … Those models, based on the data we have, still suggest a neutral rate in the range of 2 to 3 per cent.

When we look forward, and we look at a number of the forces, it seems more likely that the neutral rate is going to be higher than that … [rather] than lower than that. We don’t have that data yet. But there are a number of factors.

More people are retiring. The labour market looks like it could be sort of structurally tighter going forward. Globalization has at least stalled, if not reversed. That could create more cost pressures. We’re going to need a lot of new investment in cleaner technologies if we’re going to meet our emissions-reduction targets. When I say ‘we,’ it’s the world – so that’s going to affect global real interest rates.

So when you look forward, it seems more likely that the neutral rate is higher, not lower. And the message is that households, businesses, governments, the financial system, they need to be prepared for that possibility.

The second is about his view on Canadian housing:

The fundamental issue in the housing market, and this has been an issue in Canada for 10 years, at least, is structurally the demand for housing is growing faster than the supply. And so yes, interest rates go up, the housing market will slow. But it’s only going to slow so much because there is a sort of structural shortage of supply relative to demand.

I think what you’re seeing is that with supply growing less than demand, the housing market has started to tick back up, housing prices have started to tick back up. That’s something we need to take into account in monetary policy. But we’re not targeting the housing market. We have one target: CPI inflation.

These two forces are opposing ones. Higher rates create downward pressure on home prices. But, as we all know, a structural housing supply problem does the opposite. Where these two forces balance out is anybody's guess. But as Tiff mentions above, his concern is not home prices; it is inflation.

I am not an economist, but my view is that the broader real estate market is still going through its reset. There will be more pain and less housing supply overall in the short-term. Risk and leverage are still being unwound and that takes time. It also sucks.

Because of this, I think if you ask most people today, they will likely tell you to wait: "We haven't yet hit the bottom of the market." This is likely true. But I have zero ability to time the bottom of a market. And at the same time, the future does feel a lot more knowable compared to a year ago.

My philosophy is more akin to what I blogged about earlier in the week : If it's cheap, if the thesis is sound, and if you have the ability to think long-term, then these downturns are when you want to buy. And that is how I'm starting to feel about things right now. This includes everything from real estate to NFTs.

Disclaimer: This is not investment advice.

There is a common narrative that, when it comes time to start a family and have kids, you should probably consider moving to the suburbs. Sure, you'll have a painful commute, but you'll get more space for your money, and maybe you'll end up with better kids.

I don't know, obviously not everyone agrees with this. I certainly don't .

But it is something that commonly happens and, in many cities, it is now happening more often. Here is a map from the Centre for London showing the change in the proportion of households with at least one dependent child from 2001 to 2021:

A darker borough means that it lost households with at least one child. And a lighter borough means that it gained more kids. Why this is concerning is that it means the trendline is toward more, and not less, childless cities. Here's an excerpt from a recent FT article :

A future with dwindling numbers of children is one many cities, including San Francisco, Seattle and Washington DC, are grappling with. In Hong Kong, for every adult over 65 there are, to put it crudely, 0.7 children, and in Tokyo it is even fewer (0.5).

Of course, this is not a new phenomenon. And we know the main drivers :

Randal Cremer is one of several planned primary school closures and mergers in inner London triggered by low birth rates, families moving away because of expensive childcare, Brexit, and parents re-evaluating their lives during the pandemic. The biggest factor, says Riley, is that “housing is just becoming unaffordable”. Philip Glanville, mayor of Hackney, calls it “the acute affordability crisis”.

So how do we start to solve this? Here are a few ideas that we recently talked about on the blog, but it is by no means an exhaustive list. In my opinion, this is a problematic trend that deserves a lot more attention. Because cities are at their best when they work for everyone -- from the young to the old.