The media coverage of price trends in Toronto’s residential housing market has been confusing. Most people look at recent reports and conclude that past trends have stopped or, at least, paused. Some people point to examples where old patterns of behaviour (i.e. paying more than list price or selling in a couple of days) reappear and reach a different conclusion. These conflicting stories illustrate how difficult it can be to analyse market conditions when there is no simple trend.
Turning points are challenging because a different logic of analysis is needed. I teach classes on the simple analytics of trends. Since there is general agreement on the direction, that analysis focuses on measurement and estimating precisely.
At a turning point, the general agreement falls apart. Illiquidity in real estate markets means Continue reading
Many stories tell of the tension between developers and the current residents of the neighbourhood. The story usually focuses on developers making money and on the residents who want to protect the quality of life. In the end, the Ontario Municipal Board makes a decision. The villain in the story depends on who is telling it.
This tension leads all sides to distrust others and is very expensive. People who oppose all development are fighting against the inevitability of population growth. Developers who start by treatnig all residents as CAVE Dwellers, may be creating the problem that they complain about: by turning potential YIMBYists into NIMBYists. Sometimes, collaboration and actively searching for allies is a great way to add more value to a property.
Therefore, I was pleased to see a good news story in the Globe and Mail over the weekend. It talks about a prominent developer (Diamond Corp.), a big property in downtown Toronto and some details on how more than two years of discussion led to useful changes. That may sound costly but the alternative is also costly. Especially for that reason, this example should be instructive.
When home prices go up, it seems that most people think that they can only continue to rise. When they stop rising, the critics of the previous view are listened to: maybe, today is the day that the crash starts. If only market analysis were that simple.
A long time ago, Paul Krugman said that there were three types of economics. With “airport economics”, things will either go up or down. The future will either be everlasting happiness or pain and devastation. These simplistic claims are not taught in a classroom because insight comes from a deeper awareness of nuances. Continue reading
It seems like everybody has agreed that there is a price bubble in the Toronto residential real estate market. And all bubbles end (eventually). So, the next question should be: how to put your money where your mouth is? How to profit from this knowledge? The answers reveal a lot about real estate markets. Continue reading
Last Friday, the REHSA and Jeff Miller of Oxford Properties organized a tour though Milton, Mississauga and area showing off what is special about industrial properties. This property type attracts less attention than residential or office, which is either a mistake or an opportunity for somebody.
For example, did you know that the GTA is Continue reading
A couple of weeks ago, some of our students organized a competition for students across Canada. As much as I would like to think that everything educational happens only in a classroom, much learning happens outside of a classroom. Future leaders take advantage of the opportunities offered to them and show what they are capable of.
The Undergraduate Real Estate Case Competition (URECC) invited teams from universities across Canada to study a property for more than a month and pitch their ideas to a panel of judges drawn from the most senior level of the industry. The organizers, led by Sam Ives, Dan Adams, Sarah Reeve and Jill Brown, talked friends in the industry, such as the title sponsor Allied REIT, and raised about $40,000 to host the event at the Ritz Carleton in downtown Toronto. Continue reading
Last week, lots of media stories mentioned “sales” of residential properties as though they was a sign of some important change: e.g.
- “record-breaking February due to incredible sales volume”
- “Calgary home sales slide to decade low”
- “Toronto housing sales far outpace new listings”
followed by anecdotes and interviews with happy buyers and sellers. To most people, this news is something to talk about which means surprisingly little. Continue reading
The Ontario government has proposed to study the effects of converting some HOV lanes into HOT lanes, to reduce the costs of traffic congestion. Traffic congestion is an important issue for people interested in real estate because those costs affect both the market value of a property and its advantage relative to a competitor. It is a pity that the comments which followed were so predictable.
The immediate and loud response confirmed a basic rule of tax policy. It is never surprising to hear people complain about any “tax grab”: the basic rule states that a successful tax policy is not the one which “makes everybody happy” but is able to “pluck a live chicken while suffering as few bites as possible”.
With that perspective, most of the commentary was boring. Continue reading
Much of the value in land is based on its location and, in agricultural societies, that meant fertility. Now, places that are easy to get to and from are more valuable because it lowers costs or, more recently, because it encourages the flow of ideas. Usually, that means good roads or good public transit. It can also mean taxis.
Therefore, it is instructive to listen to the debate about how Uber (and others) is forcing the taxi industry to change. Mostly, the media focus on the convenience but that perspective is very short term and is not appropriate for an industry which thinks in terms of decades.
A recent article in the Globe and Mail reveals some lessons about the general problem of government regulation. The article invokes many ideas which are hard to recognize if you think too narrowly. For example,
• “Rent-seeking”: the pursuit of profit is generally a good thing, but not when the business tactics emphasize profit-by-redistribution;
• There are also interesting discussions of how to extend monopoly power to extract excess profits (a.k.a. “rents”) from related but seemingly competitive markets and the lengths to which people will go to hide the nature of their involvement;
• The licenses which allow somebody to operate a taxi are expensive to buy but, in an analysis of the social costs and benefit and especially when the policy applies broadly, economics costs such as the cost of time or gas should be treated differently than financial costs which vary with policy. As a simple question, one wonders why the government is not getting the financial benefit by selling more licenses.
The taxi industry has long been discussed as an example of the costs of restrictive government policy:     or from a pre-Uber time . The article asks whether applying a similar system to something else, such as corner stores would create value. If not then what makes the taxi industry different?
The article does not discuss the original intent of the policy, whether the policy has achieved that goal and whether new technology changes what the goal should be. For taxi licensing, the original goal is some assurance of quality or to ensure the uninformed visitors are not ripped off or to guarantee a minimum profit so that drivers will not economize on quality. Most of the Uber debate focuses on the current administration of the policy as a goal for its own sake.
Transportation is more costly than necessary (in downtown Toronto) which affects people’s behaviour. The inconvenience of using taxis encourages people to drive themselves, which may be good for the owners of parking lots but not a lot of other people.
(Uber’s policy of adapting to excess demand is not without its critics, but is a sign of market forces at work. There is also a new concern about whether consumers using Uber benefit from HST tax avoidance.)
This article may have two broader lessons. It may be a cautionary tale about the unintended consequences of interfering with market forces, especially after a technological change. Or, it may reinforce Deep Throat’s advice about trying to expose a mystery involving government: follow the money.