#20

Thoughts and life updates

I write this newsletter to share some of the things I’m working on and thinking about. A little about me:

I own and manage a digital agency in Toronto called August, where we design and build websites and apps. We spend about 80% of our time on client work and the balance on internal projects. Most recently, we’ve been working on a directory of real estate development vendors called Buildstack (think: Builtwith for buildings). I also invest in and develop real estate with my two brothers.

some thoughts

This might be the year that we legalize the development of new missing middle housing in Toronto. Here’s what’s been done in the last year.

• The Province has increased the threshold past which point a development project needs to go through a site plan control process from 5 units to 11 units. This is very good on its own, as site plan control is a very expensive and time-consuming process, but especially great when you consider that CMHC takeout financing—the best available—can only be accessed for projects of 5 or more units. So you can now tip over into that territory while still avoiding site plan control. Great.

• The Province has eliminated the ability for a third party to appeal a Committee of Adjustment (COA) decision. Long-time readers of this newsletter will know that we had to request a handful of minor variances from the COA for our FH1 project. Our variances were all approved in a four-to-one vote and decision, but that decision was subsequently appealed by a neighbour—a third party. It took us many months and a five-figure sum to deal with that appeal in a process that could be fairly described as extortion. Had we started our project a year later, and received that same favourable decision from the COA, no third party would have been able to appeal it. That’s the new normal.

• The City has exempted developers from paying Development Charges on up to four units in a building that has up to four units. This represents a major cost saving for projects of this size. I will nitpick this move as being very poorly thought through as it introduces a significant-enough benefit cliff past that four-unit mark that developers now have a strong incentive to shave a proposed fiveplex or sixplex project down by a unit or two. Smart policy design would have seen the exemption apply to the first four units in any project of any scale—like how tax policy treats the first $18,000 or whatever it is of personal income. Hopefully, we’ll see an update to this policy along those lines.

There’s been some other small stuff done, but those are, I think, the important points. You’ll note that none of these address zoning constraints. Yes, the Province has required that municipalities legalize buildings with up to three units on any residential lot, but a) a three-unit building barely qualifies as missing middle in my view, and b) the Province hasn’t required that municipalities do anything to update their maximum height, maximum depth, floor space index (FSI), and other limits to building bigger buildings.

Action on that last point is what we’ll need to see this year. And I think we might. Here are the major zoning constraints that need to be addressed.

Maximum height - Toronto should have no maximum height set in the Zoning Bylaw that is less than 12 meters, which would accommodate four storeys.

Maximum depth - For some reason, a detached house can be built to a 17-meter depth in Toronto, but a multiunit building can only be built to a 15-meter depth. At minimum, the multiunit building depth permission should be extended to match that of a detached house. And it should probably go much further.

FSI - For those unfamiliar, an FSI limit is a limit applied to the permitted Gross Floor Area (GFA) as a fraction of the lot land area. So, for example, you’d only be allowed to build a building with a GFA of 1,200 square feet on a 20’ by 100’ lot with a 0.6 FSI. This constraint should be killed altogether. The Zoning Bylaw already sets limits to building height, depth, and, indirectly via side setback requirements, width. There’s no need for an extra layer of density-killing regulation.

And the biggest: the zone itself.

Toronto has five residential zones that make up the Neighbourhoods land use designation. These are RD, RS, RT, RM, and R.

In the RD zone, the largest by far, you’re only allowed to build detached houses. In the RS zone, you’re allowed to build detached and semi-detached houses. In the RT zone, you’re allowed to build detached houses, semi-detached houses, and townhouses. In the RM zone, you’re allowed to build detached houses, semi-detached houses, duplexes, triplexes, fourplexes, and small apartment buildings—but for some reason, not townhouses. Finally, in the R zone, you’re allowed to build all of that and townhouses.

Naturally, all residential land within the Neighbourhoods land use designation should be rezoned to R.

I think we might see some small moves in that direction this year. Here are three reasons why.

1. John Tory has publicly committed to liberalizing Toronto’s land use rules so that the Provincial target of 285,000 new units built over the next 10 years is achievable, and has suggested that the missing middle housing types should play a big role in achieving that target. For context, we saw something like 150,000 units built over the last 10 years.

2. John Tory has new strong mayor powers that make it much easier for him to make that happen, with or without the support of Council’s nimbyer factions.

3. John Tory has made it clear that this will be his last term. He has no re-election ambition to constrain him politically.

We haven’t had a properly aligned, empowered, and unconstrained mayor in my lifetime. Nor has the problem of housing scarcity and unaffordability been so acute. I think that the stars might be lining up here for some real action.

What do you think? Am I being too optimistic?

business stuff

• August: I came across the term "asset-based consulting” for the first time this past month. It basically refers to consulting firms adding software products to their service offerings. McKinsey Solutions, BCG Platinion, and Deloitte Catalyst are three sub-practices with associated portfolios of tools engaging in this sort of thing. It makes a tonne of sense. A traditional consulting firm or agency model bills for resources (people) by the hour. This generates a requirement to increase headcount along with revenue. A saas business, in contrast, charges by the month or year for access to its software. The headcount-revenue correlation is significantly reduced. Unlike an hour of someone’s labour, you can build software once and sell it—or access to it—twice. This is of course very appealing. As an asset-based agency, you could have your cake (get paid to build stuff) and eat it too (charge again and again for the stuff you’ve built).
  
  I think I’ll have some news to share along these lines soon. WIP.

• Buildstack: I presented Builstack to a small group of investors and builders at a local real estate meetup. You can see a recording of that presentation here.
  
  In terms of the product itself, we’re about to push a big design update and some new features—hopefully next week. You’ll like it.

real estate stuff

• FH1*: This month’s update is a rendering. Check it out, and let me know what you think.

  

  I’m coming around to the idea that I’d like to build much more of these, despite the high brain-damage-to-scale ratio. As mentioned above, I hope that we see the required changes to our land use rules in the coming months that would make that possible.

• MR1**: Not much to report here. We’re still waiting for the City’s first round of comments on our Official Plan Amendment (OPA) and Zoning Bylaw Amendment (ZBA) applications. In the meantime, my partners and I have had to deal with more property management headaches than we—or I—anticipated. It makes sense that this would be the case with an assembly featuring small, run-down buildings full of small, run-down rental units. Headaches are however also learning opportunities, and we’re certainly learning a lot about Ontario’s Residential Tenancies Act, among other things. So we can count that as somewhat of a win.

*Forever Hold 1. A proposed four-storey multiunit rental building in Toronto’s west end that we plan on holding forever.

**Midrise 1. A proposed nine-to-twelve-storey multiunit residential building (tenure to be determined)

stuff I’ve enjoyed

This is some of the content I’ve come across over the past month that’s worth sharing.

• Article: Ezra Klein reviewed J. Storrs Hall’s Where Is My Flying Car? (WIMFC?). I like 60-70% of what Ezra writes and I loved WIMFC?, so I really enjoyed most of this piece. I think that Exra underrates J. Storr Hall’s sociopolitical framing of the causes of our Great Stagnation but he really nails this summary of the book’s central thesis: “The future exists in our politics mainly to give voice to our fears or urgency to our agenda. We’ve lost sight of the world that abundant, clean energy could make possible.”

• Book: I read Nolan Gray’s preface to Land Use Without Zoning this month. (It’s been a busy month.) So this is not a book review or recommendation per se, but it provided a fascinating glimpse at what I’m sure is to come in the book itself. My big takeaway from Alain Bertaud’s excellent Order Without Design, and from being interested and involved in housing policy debates in Toronto, is that the urban planning profession could use a lot more Hayek in its thinking. I think this book will provide some of that.

• Podcast: I’ve been getting into the Founders podcast lately. It’s like How to Take Over the World but with many more episodes. The host reads biographies of famous or infamous entrepreneurs and summarizes their life for the listener over an hour or two. This episode covering Jay Gould’s life is a recent favourite.

• Video: I went down an Emad Mostaque rabbit hole this past month. He’s the founder and CEO of Stability AI, the company behind Stable Diffusion. This interview with Peter Diamandis was maybe the best one I came across. Emad predicts: “In the next five years, I think that Ready Player One OASIS world, minus the microtransactions and whiny teenagers, will be here”.

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And that’s all for now. Here’s to a good and productive February.

Feel free to reply to this email with any comments or questions. I love chatting about everything mentioned above.