Tag Archives: economics

Moving Back to the City; The Urban Living Trend

The suburbs became the epitome of the ‘Canadian Dream’ following World War 2, as couples desired settling down,  more privacy, and raising children in safe, quite neighbourhoods. Then came the Baby Boomers; wanting to create much of the same lifestyle as their parents, the suburbs thrived through the 60’s and 70’s as large homes and modern cars became status symbols. Today things are starting to change, with raising gas prices, long commute times and a growing awareness of environmental issues, people are saying no to suburbia and are moving back to the city.

Echo Boomers, Generation Y, Millennials, or whatever you like to call them; the children of the Baby Boomers have historically tried to separate themselves from their parents and their new lifestyle choice is no different. Moving to the cities Echo Boomers are a major contributor to this migration trend and are helping create this new lifestyle norm. Growing up in the suburbs this generation is opting to live close to work, restaurants and entertainment; abandoning the car and saving on time and gas costs. This urban lifestyle is about walking, biking and public transit (they aren’t call Echo Boomers for nothing). This generation doesn’t see the need for large half empty homes, lawns that need constant maintenance, or having to drive to the corner store, instead the desire is to be centrally located. According to Statistics Canada the density in large Canadian cities grew an average of 126.26 people per square kilometer from 2006 to 2011, topping the charts where Vancouver who’s density increased by 210 people per square kilometer and Toronto, increasing by 177.1 people p/ sq.km. It’s all about location and the most sought after are becoming those within the city.

Despite Generation Y’s quest to separate themselves from their parents, Baby Boomers are following the initiative of their children and making the move  themselves. As Baby Boomers approach retirement they are realizing their large, empty homes require too much maintenance, and the family vehicle continues to cost more and more to drive. Many Baby Boomers are seeking homes that better suite their lifestyle; hunting for smaller home which require little or no maintenance, are in close proximity to all amenities, contain a sense of community and can easily be locked up when traveling. Downtown condos are becoming a popular choice, offering Baby Boomers the lifestyle they are looking for. With so many people now competing for the same properties, prices are on the raise.

Together these two large groups are creating quite a lifestyle tend, raising property values in cities and increasing the number of high rise condos being building. According to the Canadian Mortgage and Housing annual report; a record of 27,504 new condo unites where under construction in the city of Toronto at the end of 2011, increasing the city’s total number of condo units to 199,000. Will this urban living trend redefine the ‘Canadian Dream’? What does this mean for our cities, suburbs, transportation modes, property values, and environment? Change is inevitable and it seems we are about to whiteness the next big lifestyle shift; what the outcome will be, only time will tell.

Future Toronto Condo sites. Photo from condo-living-west.com

Architecture and Externalities: Our Achilles’ Heel

I’ve been thinking lately about the relationship of our profession, architecture, with other disciplines and working methods that address themselves to solutions, recommendations, and decision-making. Specifically, I’m thinking about our profession’s attitude to “externalities” in the solutions we propose for our clients.

In earlier posts on this blog we’ve discussed the architect’s working method as one of balancing and juggling priorities. This accent on the balance of things, on relationships, distinguishes our profession from many activities, and distinguishes architecture from building. Here’s a link to that discussion, called “What is Design“, that we posted last September. We believe that our complex world needs these skills, and seek to apply them to our projects and for the benefit of both clients and the public.

There’s a fundamental flaw in our profession’s approach, however. It has to do with our attitude to issues and priorities that other participants in the project process see as outside the decision-making box, where we think they’re inside. This attitude sets us apart from many other participants in the project process, and often leads to our lack of involvement in the first place. It’s hard to hire and pay for someone who isn’t concentrating on your priorities to the exclusion of all else. That’s only fair, in a world of customer expectation.

Let’s look for a minute at this concept of “externalities“. In short, an externality is a consequence or effect that sits outside the box, not taken into account in the design of a decision, or product, or process. Classic economic examples relate to the imposition of public costs through private action, such as the air pollution caused by our decisions to commute long distances and separate land uses across our cities. The air pollution is an externality in our decision equation. Its consequences are borne by all of us, separate from my cost of commuting.

Architecture is a profession that notionally includes a role for ideas of public good and public benefit in the designs and decisions we create. We are allowed to practice as a self-regulating profession precisely because we are tasked with bringing these issues to the table in our work. Other project participants (the investor, the builder, the building inspector, the engineer for a particular piece of the building) advocate for one or two issues, and see everything else as external (and thus not taken into account in their recommendations or requirements). Architects are trained for a larger view, and mandated by law to include many issues of public good (even only if at the level of minimum standards of fire safety, energy conservation, and accessibility). Adding to this burden is our concern for the effect of our projects and decisions on the quality of our communities.

How many disciplines  allow so few “externalities” in their work? This is one of the reasons that architects are recruited for so little work in our communities. Too much baggage!

Here are some examples, even from within the public professions themselves.

The medical doctor designs solutions for a patient’s health without regard to cost. That is an externality to the public health system. The doctor doesn’t take into account that spending a public dollar on this treatment may mean that someone else gets no treatment at all. The health system is designed to make this someone else’s problem, not the doctor’s.

The lawyer advocates for her client’s point of view whether it’s a good one or not, and sometimes regardless of fact and truth. Someone else needs to argue the other point of view. If it never gets presented (think OJ Simpson), too bad. The other point of view is someone else’s responsibility. That’s the legal system. Lots of externalities there.

For building projects, investors focus on their return, often using very short term thinking. If the project is being sold immediately to others (such as a condo or flipped development project) then long term issues such as quality of construction and concern for building operating costs are treated as external to the decision-making process.

Building projects, especially private investment projects, involve a pile of external consequences:

for users, the public, for subsequent owners,

and for the sustainability of our society and planet as a whole.

Our problem as architects is that we somehow can’t stop looking at these issues, and trying to juggle them in the design solution. This is often in direct contrast to others in the decision-making team, who want the solution focused more narrowly. That’s why they don’t hire us unless they are required by law to do so.

This is the fundamental tension in our profession. We spend large amounts of time and resource to juggle issues in design solutions that others, including our paying customers, see as externalities. Our fundamental flaw (the Achilles’ Heel of the profession) is that our advocacy for integrated, quality, balanced solutions means we pay attention to things that others do not see as important to the task at hand. Given this approach, and the largely capital-investment-driven world we live in today, why would we be hired at all?

As we move forward in building our communities using private investment initiative, this dilemma isn’t going away. It’s likely to get worse. My only consolation is that the architect’s method of integrated, holistic thinking, and our ability to juggle lots of often contradictory externalities, is going to be needed at some point. I hope we get there before a system based on isolated solutions collapses under the weight of its external effects. Wish us all luck.

We’d like to know your thoughts on this subject. It applies to many circumstances and projects, in all kinds of sectors. I’m sure we’re not alone in balancing and thinking about these challenges.

Professional Value, Fun with Math

Our lives intersect with professionals. They plan for us, design for us, operate on us, and give us their advice. Our communities are strongly influenced by their ideas:

of legality, of health, of our future.

The fundamental role of the professional is quite simple, although not easy.

To profess.

To affirm openly; declare or claim;

To teach, to claim knowledge of;

To enunciate through recommendations in a consistent and unbiased way certain principles and beliefs upon which we should act. It is a role of leadership within our community, and that is why accountants, architects, engineers, doctors, and lawyers, among other professions, must submit to extensive training and adhere to public standards in return for permission to offer services in these fields.

The meaning of “professional” moves about somewhat. Its contrast with “amateur” (as seen through the 5 lenses of the Olympic looking glass) has turned the professional into “someone paid for it” rather than one who works from purer motives. It is also viewed synonymously with “expert”. “Trust the professional!”

Without in any way denigrating the professional athlete, or any skilled tradesman, the professional has a distinct calling: one who advises action upon principles that she “professes”; and who takes a view of the issues from the public and client point of view, rather than a self-serving one.

Modern professionals occupy a wide variety of positions both publicly and privately, but many are organised into firms of private consultancies offering service for fee. It is here that livelihood and principles find a most uncomfortable intersection: “the billable hour”. Lawyers know full-well its tyranny, and clients its exasperation. The billable hour is rough justice indeed, and in some instances no justice at all.

Here’s the dilemma. Can a consultant truly be paid on the basis of the effect of recommendations, “the success of the project”, when the advice must be implemented by others in an unpredictable world? Whether acted upon or not, advice and ideas have value. This is in part the famous “$1 for showing you the spot to hit, $9,999 for knowing where it is” invoice.

But on the flipside, can a professional make a living by valuing only his or her time, each tenth or quarter of an hour generating a billing, regardless of the relation of that time to the service provided? The slower the service, the higher the bill?

How is a client’s best interest served if fees paid relate inversely to productivity?

To the latter 20th Century, many professions worked from agreed schedules of rates established for different kinds of service ($X as a reasonable fee for this task or that). This rubric of fee crumbled, however, in the face of concerns over monopoly and anti-trust legislation. Professionals turned increasingly to other yardsticks, and especially to formulae relating their remuneration to their time.

But as we often sense, there are problems with the time approach. While apprenticing many years ago at a large architectural firm, I discovered that team leaders knew very well that the firm’s senior partners must never be allowed to work on the project. Why not? Their billable rates would quickly ruin the time-based internal budget. Strange that the experience of the partners would lead to inefficiency, you say? Well, let’s take a look at the mechanics of the “billable hour”, the “hourly rate”, and how they are calculated.

Bear with me mathematically! How is an hourly rate usually calculated in the consulting world?

Working 37.5 hours a week gives 1950 potential hours of earning per year (regardless that professionals may work many more hours than that). A base salary of $75,000 plus a $50,000 overhead amount (for benefits, insurance, leadership, marketing, administration, office rent, technology, furnishings, supplies, training, and a further 20% on the subtotal for firm profit and insurance against unpaid bills) means that each hour must earn $64 to recoup the $125,000. Yes?

A mid-level professional earning that wage, working pretty much full time on billable projects for his firm, still spends some time away from that productivitiy. Perhaps 4% vacation, 3% sickness, 8% non-billable office duties and training, totaling 15% of her time. That means further that each “billable” hour (that is, an hour spent on work that will result in a productive bill to the client or project) must generate more revenue, to account for the non-billable (the 15%).

That brings us to $75.40 (64 divided by .85, ok?). From the client’s point of view so far, so good, because the bill a client receives is still linked to services that benefit his project (that is, it receives the attention of a trained, healthy and productive employee).

Now, here’s where things get interesting. In theory a rise in salary, a car allowance, other perks and items reward the more productive professional. Right? That is, the Jack earning $120,000 a year and costing $67,500 in overhead to the firm, should be accomplishing the same tasks as the aforementioned staff in less time. In fact, work that cost $125,000 from the junior should cost the same from the senior. Since the senior costs $187,500 a year, it follows that the $125,000 of work would get done in 2/3 of a year!

The client receives the same fee request for the same service. Well done. Where the greater project experience or project-smarts of senior staff identify solutions sooner, or craft better solutions, the system still works to the benefit of the client, even though the same hourly rate calculation for the senior fellow yields a billing rate of $113 per hour.

For some items that senior staff do, however, the higher productivity is so obviously not true that clients should be careful in their consulting contracts to specify that tasks best done by more junior employees should be charged at their junior rates. The senior partner likely uses the photocopier more slowly than her assistant, not more quickly.

Well we’ve done ok so far, and the money to value equation seems to be holding. Where might things start to stray?

Well, it’s that management thing. Where senior staff’s wages and overhead (the calculation of their worth to the firm) are more related to their management abilities and responsibilities, or their marketing connections, than their project-smarts, the billing rate calculation leaves reality behind.

So far, we’ve assumed that the senior professional is working on projects 85% of the time. But once in a management role, that same wage, overhead, and profit cost of the previous example ($187,500 per year) must be covered by perhaps only 50-60% of this professional’s working hours, since he is involved in many non-billable internal tasks (hiring the others, for instance). Additionally, his wage level is not related to productivity when he is working on the billable file, since his skills in the trenches may not outshine others earning less, through less use and less familiarity with the file. The client, however, is now paying $190 an hour for somewhere between $75 and $113 of productivity on the project (187,500 divided by 1950 divided by .5 for 50% billable hours).

That is why in the context of mega-consulting firms carrying large hierarchies, project managers often work to keep senior staff away from their projects and clients. They’re trying to get the job done efficiently, either on fixed budgets that can be side-swiped by the partners’ rates, or in an effort to avoid severely higher billings for the same services.

In a world of professional services where the work is often 10% inspiration and 90% perspiration, there is no doubt of the value of senior professionals at key points. Their judgement creates effective solutions for clients, saving hours and money. For these insights they are worth the high billable rate. When they involve themselves in the other 90% of the job, however, their rates do clients a grave disservice unless their productivity is 100% higher for tasks regularly performed by other staff, or unless the billing rates acknowledge the relationship between productivity and consultant billings.

Worse still, some firms have business models with billing for overhead and profit (including the cost of carrying a high-priced management hierarchy and rents in a toney part of town) at TWICE the cost of project wages, or even more. My examples above assume only once the cost (75k wage, 50k overhead, 25k to cover non-billable hours). At these higher levels of overhead, the junior professional bills about $115 an hour instead of $75. That’s a 50% higher bill for the same trained professional producing the same work!

And that more senior professional?

  • with larger responsibilities to the firm that aren’t related to your project, and
  • fewer billable hours to cover the firm’s $360,000 annual expectations?
  • producing an item of work that could efficiently be done by someone more junior?
  • $370 per hour.

At these rates one begins to wonder what priorities are being “professed”.

So next time you are presented with a proposal for time-based billing from a professional, ask him or her to break it down for you. Where does the money go? For productivity on your project? Or overhead? For trained staff to spend time efficiently creating solutions for you, or carpet in the boardroom?

We Are What We Measure

The media runs a business story every so often about how the growth in consumption of oil or some other commodity was down some enormous percentage. Yeegads! It has a graph and everything, so it must be true. It takes a while to extract some facts from the dour headline, storyline, graph, and article itself. Underlying it all is that world consumption of the item had risen once again. It just hasn’t risen as quickly as it had the year before. No mention as to whether the previous year was a historical anomaly, or what the continued growth in consumption might mean. But the tone in these articles is always glum. The news? That growth has taken a nose-dive through one statistical unit measure, one year-over-year. Why exactly would we present a story about one of our planet’s more pressing matters (consumption and resources) in this way?

The old adage: “You get what you measure!” might well apply to these “rate of change” statistics. Might the media be debasing our sense of real value, our connection to real issues? No longer content with its moniker as “dismal science”; or even to measuring a real and even-handed relation between real people, their needs and their means; economic reporting and statistics are now rife with sophisticated “moving averages” and tracks of trends. The up and down of it all no longer seems to matter. It’s whether the up is more upper! It’s not the getting from here to there, or even the speed at which we’re moving. It’s about the trend, the acceleration! Our economic attention span has shifted from planning the quality of our future to planning for speculation. The year-over-year is becoming the thing itself, because the only decision is whether to buy or sell.

There are very few places in a mature and stable system (whether an eco-system, an economy or a community) where a focus on acceleration, where a perception that moving is standing still, is a good thing. A start-up company, an emerging market, a child’s learning; sure, we can understand that zoomier is better.

But once up to speed, is it logical or even safe to continue this focus not just on growth, but on rate of growth?

When forecasts predict fewer cars on the road, That’s a “negative growth” in yesterday’s terms, and a practical free-fall on the year-over-year growth chart, if we use our handy “change in growth” graph. But do all of these statistical trends, no longer climbing so optimistically, really spell doom for our quality of life?

Grow or die!! Growth is inevitable! No growth means no jobs for our children, no increase in tax revenue. These are the mantras of planning, chanted religiously at shareholders’ and council meetings alike. But perhaps, just perhaps, these are the chants of the speculators rather than the true stakeholders.

Those who focus on year-over-year statistics; changes in car sales, housing starts, or increases in tax revenue to name a few; have an overriding interest in acceleration rather than the quality of the thing itself.

We’d all love a little 7% return on our investments. It’s a modest year-over-year increase that will keep pace with inflation and leave a little something to increase our spending power through the “magic of compounding” with which our mutual funds have made us so familiar.

Consider this rate of growth in a community context, however, and it may not seem quite so modest. 7% per year growth means roughly a doubling each 10 years. Regional population 500,000 to a million by 2015. Two million by 2025, four by 2035. Bigger certainly, but better? Shall we double our water consumption each ten years, double the footprint of the cities on our landscape? Double the services or pollution needed to support a quality of life just to the level we enjoy today? Every ten years? Our Region faces the possibility that water consumption will hit a supply wall. Ditto for converting rural to sprawl (although not anytime soon, and over quite a few dead bodies). Setting aside the question of whether we should, is it even possible?

And yet in spite of it all, growth is still our great sacred cow.

Do we make our plans for balance, stability, or maturity?

No, we worship quantifiable, compounded growth, using an ROI-al mentality. We measure it and report it and graph it ad nauseam. By doing so we embed in our decision-making a conventional belief in the power of numerical acceleration to change our lives for the better, to increase the quality of our lives.

The factual evidence for this belief, some would argue, is really quite scarce. Eben Fodor, in his 1999 American study “Better Not Bigger: How to Take Control of Urban Growth and Improve Your Community”, takes issue with whether the urban growth machine really lowers taxes for individuals, makes more or better jobs and housing available to them, or creates a better quality of life. The logical extension of the “Bigger is Better” argument is that more of things makes for better things. Where we measure some items but ignore others, the statistics are used to prop up the conventional wisdom of growth. Yes growth has impact (so the explanation goes), but to others! To us, the benefits! The costs will fall elsewhere.

This is the illusion of economics, where the “externalities” are never measured, and the qualitative ignored where it cannot fit.

In a world of finite resources, in a regional landscape of finite size needing careful balance, as we increasingly turn to issues of quality over quantity, the growth in statistics of growth will hopefully take a downturn. We will no longer be persuaded by “intensity reductions” that plan for increased pollution at, wait for it…, a slower rate each year per unit produced. We will finally start to ask “Is it better?” rather than “Is it bigger?”