[brockm]

To your last point, you are wrong. Land speculation is what drives up prices. Add to that, once a specific area of the city is assessed on the basis of a large number of multi-storey towers and high land prices, the tax pressure on the historical mid or low-rise structures in untenable. It's at that point that the owners of these buildings are left with no other choice but to sell for development because the price of the land has been driven up on the market.

I happen to know a lot about real estate. In turns out that I have a background in real estate capital markets and, as it turns out, in economics. And in fact, in <a href="#post628272">this post</a>, I make specific mention of the nature of speculation driving real estate prices.

But anyways: there is ample evidence from around the world that historical protectionism has a direct effect on prices. It has been observed by many economists -- for instance, Edward Glaeser who I've already mentioned -- for a very long time.

Rent prices are a far better indicator of desirability to live in an area than sales prices, however. Any economist knows this. Rent prices do not have much speculation in their signal, and tend to be bound by wage levels. Unlike sale prices, which are bound by debt availability. In fact, Toronto's rental prices have been relatively stable since 2007, slightly lagging inflation, while sale prices have continued to out-pace wage growth.

I've been collecting MLS data for a few years in a spreadsheet to create a sample. Here's a slice:

18 Yonge St. One Bedroom + Den + Parking Space (median of spread)
Jun 2007: $1580
Jun 2008: $1578
Jun 2009: $1600
Jun 2010: $1600
Jun 2011: $1620
Jun 2012: $1634

4.4% rental price growth in 5 years! I don't need to compare this to the sale price.

Anyways, so we've agreed that desirability of living downtown isn't the prime factor driving prices.

But I think we can agree that the very small inflation in rental prices on that building over 5 years is indicative of supply keeping up with demand. And as long as that continues to happen, the rental prices will continue to grow slowly. At or below the underlying inflation trend.

When we look at other cities like Paris or London, who take a far more "careful" approach to allowing any new development in their city centers, we see that rental prices are out of control. The rental prices in Toronto are suppressed because we keep adding supply. And the rental prices are inflated in Paris and London because of suppressed supply. And the supply is not suppressed for any other reason, at least in central London and central Paris, than the strict restrictions on building up. This is irrefutable.

Real estate speculation aside, if London and Paris were to start allowing vertical construction like Toronto is now experiencing in their city centers, rental rates would fall as supply would expand to exceed demand at those affordability levels.

This an absolutely simple and demonstrably true economic axiom.

The problem exists in Manhattan, too. Where I believe (my memory is fuzzy) about 1/3 or more buildings are under historical protection. The effect of this has been greatly studied by economists, and once again, the consensus among those who have is that the historical protectionism in NYC is inflating rental prices in Manhattan.

Space is a limited commodity. When the productive potential of space is retarded by any force: be it business or the government, it represents a negative externality on its surroundings.

To argue that protecting historical buildings to stop the construction of new high rises has no effect on affordability is just plain bullshit. Especially when we take sale prices off the table and just look at rent -- which as I've already explained, is actually the more important measure. It is saying you can have one's cake and eat it too. You can't. All distortions of the market, no matter what their intention have externalities.

 

[adma]

Well, if I may be a little forensic here...I can see how the block might have escaped notice by the appropriate preservation bodies: by the standards of the 70s, it was probably deemed too "messy" and "despoiled" (with the Albany Club and its loft-y E neighbour being unfashionably early-c20 to boot) and incompletely gentrified to draw special notice. The Victoria Row's Lost Toronto citation might have set some second-look initiative...but in the end, it didn't. And neither did any make-up-date political string-pulling. Thus the familiar situation of a block which, by its survival, many people probably casually took for granted as having some kind of "official" heritage status, even if it be mere listing...and it wasn't the case.

So...Ed Glaeser be darned, let's prepare for the 81 Wellesley-esque outcry here.

 

[adma]

historical protectionism

The word "protectionism" in lieu of "preservation", "conservation", etc is the heritage equivalent of grumbling about a "feminist agenda".

 

[flonicky]

One of the renders for this one seems to show the existing streetscape remaining and the condo wrapping around on the Church side.

 

[neubilder]

brockm, Your arguments are completely flawed at their most basic level.

Why don't you suggest to Vancouver that they fill in the Burrard inlet and English Bay. It's all that pesky beauty that makes the city so expensive, and takes up valuable space that could be built upon.

You talk about "true economic axioms" but your arguments are devoid of wisdom and completely miss the point.

 

[neubilder]

You know it's going to be rich when a post starts with statements like:

I happen to know a lot about real estate. In turns out that I have a background in real estate capital markets and, as it turns out, in economics.

 

[neubilder]

Why don't we go on a rampage and smash every high-rent district in every city to pieces. We can wage a 'civic-war' against high-rent elitist enclaves. Any time a district gets to big for it's britches we'll just tear it down and put up a massive, ugly towers. The uglier, and bigger, the better. They're cheaper to build and they have an enduring tendency to repel - so they are bound to stay cheap.

Is this starting to sound familiar?

 

[thecharioteer]

I've been collecting MLS data for a few years in a spreadsheet to create a sample. Here's a slice:

18 Yonge St. One Bedroom + Den + Parking Space (median of spread)
Jun 2007: $1580
Jun 2008: $1578
Jun 2009: $1600
Jun 2010: $1600
Jun 2011: $1620
Jun 2012: $1634

4.4% rental price growth in 5 years! I don't need to compare this to the sale price.

Anyways, so we've agreed that desirability of living downtown isn't the prime factor driving prices.

Among the many flawed arguments in this post is the selective use of rental rates at 18 Yonge to support the premise of a flat rental market in downtown Toronto. 18 Yonge? Better to use 18 Yorkville to support the opposite premise: that a well-designed building, surrounded by a dense urban fabric (including historic buildings) in a desirable neighbourhood, now commands (according to Urbanation) the highest condominium rental rates in downtown Toronto. It's not just about supply and demand. Unique buildings in interesting neighbourhoods will always generate higher rents than generic ones in, shall we say, less-interesting ones.

 

[adma]

You know it's going to be rich when a post starts with statements like:

I happen to know a lot about real estate. In turns out that I have a background in real estate capital markets and, as it turns out, in economics.

 

[brockm]

You know it's going to be rich when a post starts with statements like:

Well, at least I'm making an argument. People like yourself have merely dismissed my arguments out of hand, suggested I'm "misguided', and "misled".

Wait, look! You're doing the same thing right now.

I know, I know, my argument is so "out there" that it doesn't even dignify a proper response, right?

You guys are all shooting me down as if the falsity of my arguments are self-evident. Which, to me, is nothing more than classic elitism.

 

[brockm]

brockm, Your arguments are completely flawed at their most basic level.

Why don't you suggest to Vancouver that they fill in the Burrard inlet and English Bay. It's all that pesky beauty that makes the city so expensive, and takes up valuable space that could be built upon.

You talk about "true economic axioms" but your arguments are devoid of wisdom and completely miss the point.

What basic level is that? You people keep making broad, dismissive, statements without any actual deconstruction of what you think is fundamentally wrong in my logic. Oh, and you threw up a straw man argument to boot! Good show!

I have no problem with people disagreeing with me: "hey brockm, I think you're wrong and here is why..." -- but that's not what you're doing. No. What you're doing is "hey brockm, you're wrong. Period."

 

[brockm]

Among the many flawed arguments in this post is the selective use of rental rates at 18 Yonge to support the premise of a flat rental market in downtown Toronto. 18 Yonge? Better to use 18 Yorkville to support the opposite premise: that a well-designed building, surrounded by a dense urban fabric (including historic buildings) in a desirable neighbourhood, now commands (according to Urbanation) the highest condominium rental rates in downtown Toronto. It's not just about supply and demand. Unique buildings in interesting neighbourhoods will always generate higher rents than generic ones in, shall we say, less-interesting ones.

No. Actually, picking a condo in one of the most expensive neighborhoods of downtown is exactly what I should not do. Condos filled with middle-income earners are exactly where I should be looking to get an idea of affordability since they make up the vast majority of the market.

 

[RC8]

brockm, the question you seem to be ignoring altogether is: Why is there such a high demand to live in those places in the first place?

Historical preservation has A LOT to do with that very high desirability.

As it happens, you can rent a place in downtown Toronto very cheaply - if you are fine with living in St. James Town. Now, do you want to? Would you prefer to?

Whether downtown prices are very expensive or not is irrelevant. What we should be focusing on is in building beautiful human-scaled neighbourhoods for all citizens. The protection of historical buildings is key to this.

 

[brockm]

The protection of historical buildings is key to this.

Why?

 

[Oliver Tweed]

Rent prices are a far better indicator of desirability to live in an area than sales prices, however. Any economist knows this. Rent prices do not have much speculation in their signal, and tend to be bound by wage levels. Unlike sale prices, which are bound by debt availability. In fact, Toronto's rental prices have been relatively stable since 2007, slightly lagging inflation, while sale prices have continued to out-pace wage growth.

Isn't rent regulated, though? i.e. it can only go up so much per year? And in that case, wouldn't sale prices actually reflect the market value more accurately than rent prices?