4: The Coming AI Shockwave and What it Means for Real Estate with Thomasfield Homes' Tom McLaughlin

Introduction

Welcome to the Canadian Private Real Estate Podcast, hosted by Hawkeye Wealth President Justin Smith. Hawkeye Wealth is an exempt market dealer focused on finding and vetting private real estate investments for Canadian accredited investors and family offices. It is registered in BC, Alberta, Saskatchewan, Manitoba, and Ontario. This podcast is for informational purposes only and should not be considered legal, tax, investment, or financial advice. Now let's get to it.

Justin Smith: Hello and welcome to the Canadian Private Real Estate Podcast. Thank you for joining us. This is your host, Justin Smith. Today, I'm excited to have Tom McLaughlin here with me to talk about the impact AI is already having on real estate and where we might be headed with this one in the future. Tom is the VP of Finance with Thomasfield Homes in Ontario. He actually came onto my radar about a year ago when he authored a brilliant article on the Real Estate News Exchange titled "Construction's Productivity Illusion and the Robot-Filled Future That Might Just Fix It," which hit on two of my favorite things, real estate and robots. I actually forwarded your article to my team telling everyone they should read it. So I'm thrilled to have you here to walk us through your view of what's already here with AI and what's coming. Thanks for joining me.

Tom McLaughlin: Thank you, Justin.

Justin Smith: Tom, get us started here. Can you tell us a little bit about Thomasfield Homes and the path that led you here?

Meet Tom McLaughlin and Thomasfield Homes

Tom McLaughlin: Yeah, of course. So as you stated, I'm the VP at Thomasfield Homes. So I wear many hats. My official title is VP of Finance, but being a small family business, you know, I do HR, project management, construction management. So everything falls on top of all of us on the executive to get everything done. We're a family owned and operated builder and developer in Guelph. Roughly, if you drew kind of an hour's drive around Guelph, that's kind of our trade area, because we really do believe visibility is key in our industry, being on site, understanding what's happening on the ground. So we build in Grand Valley, Kitchener-Waterloo area, Erin, which is just north of Georgetown, Milton, Mississauga complex, and some other smaller communities around Ontario. The company was started by my father-in-law about 50 years ago, and today the management team is still very family-oriented. It's myself, my wife, my brother-in-law, and a staff of about 25 people. Ultimately, we're a fairly flat organization.

Family business — I would say family businesses are funny because some days it feels somewhere between succession and arrested development, and I just hope I'm not going to turn into Tom Wambsgans or Tobias Funke. But honestly, I really truly do love it. Family businesses are truthfully hard, but there's really something meaningful about building communities over generations instead of quarter to quarter. So, as we were discussing kind of in the preamble, in a typical year, we build between 100 and 150 homes when things are going well. And if we're doing condos, that number could be close to 250 units. Personally, my path to the industry wasn't exactly linear. I moved around a lot when I was growing up. I lived in Midtown Toronto, then the country, then condos. So I experienced pretty much every type of housing density firsthand. In terms of what kind of brought me to this industry, you know, as a kid, I've always been interested in STEM projects and building things. So I used to build rockets, old school phone taps, highly questionable potato cannons, you know, future insurance claims probably waiting to happen. But that brought me to urban planning at the University of Waterloo, because it combined a lot of things that I liked, you know, geography, economics, infrastructure, systems thinking. And then I did a master's in urban design at U of T and later an MBA. And I worked in urban planning for about five years before joining Thomasfield, or the dark side as I like to call it. And I've been here for about 16 years now. Outside of the company, I was the past president of the Guelph Home Builders Association, and I've been on the OHBA board since 2018. OHBA is the Ontario Home Builders Association, and I'm currently the first vice chair, soon to be chair. So it's really given me a front row seat to see a lot of the housing policy issues that we're dealing with across Ontario.

Ontario's HST and Development-Charge Wins

Tom McLaughlin: We've had two very big wins over the last month. HST has been removed off of all new homes, for home buyers and for investors. So that's really important. And Minister Carney also made an announcement with Premier Doug Ford that they want to see development charges reduced by 50% across the board over the next three years. So very, very positive kind of policy things. And it's great to see all of our hard advocacy and our advocacy organization bring that to align. And I really do give credit to the province, the provincial leaders and Ontario Home Builders, because they're the ones who really got this advocacy across the line.

Justin Smith: That's fantastic. You know, for the last few years it's obviously been a slower real estate market, both in Toronto and here in the Lower Mainland as well, and usually when we started feeling bad for ourselves, you know, we could say at least we're not Ontario. And, you know, now you guys have gotten this HST and the development fees getting reduced, and we're over here saying, when's it our turn? So glad to hear that that's working for you. Hopefully we have some good news coming our way that way as well. So you've become a bit of an AI champion. You mentioned the STEM stuff you did as a kid. I imagine that you're kind of the AI guy in your company and maybe even in the industry. You know, I certainly found you through your thought leadership in the RENX article. What's one specific workflow where AI has already changed how your team operates day to day? Just talking about the difference that it's making currently for you guys at Thomasfield.

How AI Already Changes the Workflow

Tom McLaughlin: Yeah, of course. So, I mean, big picture, I use — and kind of the younger executive uses — AI constantly now. The LLMs, the large language models, are exceptional at doing the first cut of almost anything, whether it's policy research, reviewing legal documents, generating financial performance. And that generation alone takes days off my workload. But again, you have to be very cautious with this because you have to understand what the data that's going in is, and the expertise around it, and, you know, it's garbage in, garbage out. The other thing I would say about AI right now is the knowledge compression that it provides. A huge amount of real estate development, you know this, Justin, is just reading — whether it's planning reports, legal agreements, engineering memos, environmental studies, zoning documents, council agendas, warranty claims, legislation. AI allows you to turn it all into decisions fast, which kind of makes my day so much easier. It reduces the friction. So instead of spending two hours digging through a 300-page subdivision agreement, which is the master document that allows us to create homes, I can interrogate it conversationally in minutes, and that changes my executive decision speed. The other thing that really helps me out is drafting iteration. You know, whether it's opposition letters, customer service responses, board briefing notes, development analysis, AI essentially gives the first draft instantly. And your human work shifts from a blank page generation — you remember just sitting down trying to bang out a letter, and it took half an hour, 45 minutes to even get the structure, and then you're spending another hour working on the input — your human work shifts from the blank page to judgment and refinement, and that's just a better use of my time and everyone else's time.

AI Experiments That Flopped

Justin Smith: You're trying to save your time. Have you tried any AI experiments at Thomasfield that flopped, that you thought was going to work for something and it didn't go the way you thought? And if so, what did you learn?

Tom McLaughlin: Yeah, so I've been careful, and we've been careful enough to catch any failures before they became really expensive. One of the areas that we've been really pushing for but is not going well is just rendering plans based off of floor plans and site plans. Even now, after kind of three years of playing with it, the AI-generated visual outputs of architectural drawings are close, but they're just not there. And same thing with the iterative changes to the actual site plans and the actual architectural drawings. It's close, but not there yet, and can really create a real liability. So our architectural designers are still hand-drawing everything. The other thing is, you know, I've seen instances where AIs hallucinated zoning provisions and incorrect building codes. So it's so important to reference what it's producing, so the interpretation isn't embarrassing, because ultimately this can cost real money. The other thing I would say is, a year and a half ago, we tried to adopt AI in some of our workflows where the underlying data was frankly messy. Ultimately, construction companies, we have fragmented data across spreadsheets, PDFs, handwriting, and legacy systems. And so ultimately, AI magnifies the quality of your data infrastructure. So if your systems are chaotic, the outputs will be chaotic. Ultimately, it comes down to what I just said, garbage in, garbage out, and AI just makes it faster.

The Pre-Assembly-Line Moment

Tom McLaughlin: When I think about this question, it kind of really puts me back to the 1900s automotive industry. You know, in the early 1900s, all the parts existed — the internal combustion engine, vulcanized rubber tires, chain drives, bike gears — but no one quite knew how to assemble them into something that worked at scale. Kind of a prime example is this: Henry Ford tried, I think, three times before he perfected the automated production assembly. Cadillac was actually founded in 1902 from the remnants of Henry Ford's second failed business. And it took Ford to invent the assembly line, a revolution in the whole industry. And I think we're in that pre-assembly-line moment right now with AI. We're very early pioneers. And ultimately, there's a saying that pioneers get the arrows and settlers get the land, and I'd rather be a fast follower who implements well than an early adopter who gets burned on this factor. So again, we're very cautious. We know the capabilities, but we also know its capabilities to hallucinate. And the other thing I would say is there's a lot of AI vaporware out there. You know, just look at Apple Siri — it promised a revolution almost a decade ago, and then, yeah. And Microsoft Copilot, while it looks really cool, the demos look great, often the utility of it is very modest. I'm kind of a skeptical evaluator, not just a consumer of the marketing of all these things. So I'm also skeptical at the same time while trying to adopt it in the most parts of our business.

What the Industry Gets Wrong: Embodied AI

Justin Smith: In a similar vein, what's one thing that you think most people in the industry are getting wrong right now with AI?

Tom McLaughlin: So this is kind of an interesting question. I think people are simultaneously overestimating and underestimating AI. They overestimate short-term hype. They think a chatbot can solve their construction issues by next quarter. At the same hand, they're also massively underestimating the long-term implications of combining AI, robotics, automated vehicles, computer vision, and just advanced manufacturing. Right now, most people think AI is a software — you know, chatbots, servers, writing tools — but I think there's a real breakthrough in embodied AI. That's what my article was about, intelligence connected to physical machines.

Construction's Productivity Illusion

Justin Smith: So I talked about in the intro that you'd written this brilliant article, "Construction's Productivity Illusion and the Robot-Filled Future That Might Fix It." I wanted to get into this first by understanding what you meant by construction's productivity illusion. What does that mean? And then on top of that, of course, in what way do you think the embodied robots might change things?

Tom McLaughlin: So I'll borrow the image that I used in the article. I said, if you dropped a framer from 1955 onto a job site today, they may be confused for two minutes, but once they figured out what a battery nailer was, they'd go right back to work, framing walls, laying joists, climbing scaffolds, exactly the same as ever. That's the productivity illusion. For the past 50 years, the output per construction worker in the US — and you can kind of assume that it's the same for Canada — has remained essentially flat despite rising costs, better tools, more software. Meanwhile, you look at other industries like agriculture that have seen massive explosive gains from automation and better chemicals and better production manufacturing assemblies. So that's what I was kind of talking about. Ultimately, are we building better homes now? Yes, we are. But you'd expect to see a lot more production. It makes sense why the productivity numbers look so flat. First off, we didn't capture all the added complexity that went into homes over the last 50 years. And ultimately, construction still relies on very fragmented, on-site manual labor to do it. Manufacturing solved their production problem through standardization, automation, and robotics. Construction largely didn't. Ultimately, when I was talking about robotics, I want to be clear, I'm not predicting that humanoid robots will be strutting around job sites in the next year. But I think what's more realistic and more transformative is highly specialized task robots integrated into industrialized construction workflows. We're just starting to see that in terms of robotic layout systems.

Task Robots and Humanoids on Site

Justin Smith: When you say that, is it like modular, like where you have repeatable actions? What do you mean by that?

Tom McLaughlin: Yeah, so the first example I kind of draw to is there's robotic layout systems, so it's essentially like one of those little Star Wars robots with an inkjet printer on the bottom, and it will lay out your floor on that floor perfectly, show all the joists and the trusses and where the electrical outlets go and whatnot. It pretty much does the whole layout that used to be a site superintendent's or site foreman's job. So that's coming. The other thing you know we're seeing right now is drywall finishing robots. So essentially, once the drywall goes up and all the tape and mudding's gone up, they go through and do a high-quality sand, which is probably one of the worst jobs in home building. And so we're just starting to see that robotized. The other thing I think is just around the corner — someone has to invent this — is AI-powered quality control cameras that go inside on the supers, and you know, they walk through the job sites much the way a body cam on a police officer does, and this would be dumped up to the cloud. And through that you can get a bunch of information, like the state of finish, if anything's missing, if there's any hazards, if there's any critical kind of things that need to be fixed. I think these are kind of the key things, and I think they exist today at various stages of commercial deployment. But what I was talking about was the Tesla kind of Optimus program — ultimately a bipedal robot that can pick up objects, navigate uneven surfaces, you know, adapt to new tasks using AI. Imagine that combined with construction-specific tools, AI tools and site planning tools. That's what I think is really coming. And I think it's coming a lot sooner than everyone expects.

Timelines: Tesla Optimus

Justin Smith: So it's not a year, but sooner than everybody expects. Do you care to share what your current view is on potential timelines to be seeing some of these robots on the construction site?

Tom McLaughlin: In reality, I think it's however quickly Tesla releases the Tesla Optimus robot. I think we're going to have to enter that tinkerer stage where people lay out the 40,000 American dollars to buy one and then see what it does. And last I checked, I think it was end of this year, early next year that he wanted to ramp up production for the Optimus. That keeps moving back. The other thing that really excites me about that human-form AI robot is that you don't have to build a world around the robot. The entire world is already designed around the human form, which the Tesla robot is. So in theory, it can climb stairs, ladders. It can hold tools. It can walk up scaffolding. It can walk down hallways. It can open door handles on construction sites. And the really cool thing about that is the bipedal robot doesn't need us to redesign the built environment so it can operate. It can operate in the world that's already designed for humans. So that's a massive shift. And as I said, people think this is decades away, but I think, you know, we're going to see it over the next five years, and it's going to accelerate unbelievably fast. And it's going to have a huge impact on the labor market and a huge impact on the economy.

Justin Smith: Can you elaborate on that a little bit? The impact part?

Tom McLaughlin: What we're going to find is that even if it can do basic tasks like cleaning, if you have a crew of 10, you can move it down to seven or six. You're going to see productivity gains there because the labor costs have come down significantly. And that will make a difference on the bottom line for the company. So that's what I'm kind of thinking in terms of its impact. I could talk about the economic impact, but that's kind of a darker view.

Robots, Costs, and the Inflation Hedge

Justin Smith: And it's coming for your jobs. Yeah, we'll save that one for another time. But I find oftentimes in the industry, when I get into the two-legged humanoid robots, that I start to lose some people. I'm curious to hear what some of the most common objections are that you hear from peers about AI, and specifically the robots in construction, and how you respond to them.

Tom McLaughlin: I think they think it's further away than it is, but I think it's closer. Ultimately, real estate, while very proactive — there's a lot of history there and it takes a long time. So a lot of people are set in their ways. So I just don't think they understand the depth and how quickly this is going to evolve. You look at how quickly the chatbots have evolved over the last three years or four years of inputs. And I think once we see this embodied into the physical form, I think people will be kind of very surprised. Ultimately, I'm saying this is feeling less like a cycle and more like electrification or the internet. It's a platform shift. It's software finally escaping the screen. It's going to enter the physical world. And I think that's where Optimus is coming. The big thing is we have to see the first movers, and that's going to be Tesla and their Optimus robot, and the people able to tinker with the robot and play with it and see what its capabilities are. But I think it'll be very, very quick moving, and people will understand how close it will happen.

Justin Smith: That's exciting. My understanding is sometime this summer, we're supposed to see the latest version three iteration of that robot — the first that's scheduled to go into mainstream production — which, from I believe the last meeting for Tesla shareholders, was projected to be sometime in August out of their factory in Fremont. And I believe that factory is designed to output up to 1 million robots per year. And in Austin, where they have their gigafactory, they are starting construction on their factory that is designed to produce 10 million robots per year. So the robots are coming. It's going to be an exciting future, which leads us into the next question, because this one's on my mind a lot, and I'm curious to see how you're viewing it. Because real estate is a hard asset, and because it's a hard asset, it's generally viewed as an inflation hedge. Yet we have the robots that come in, and you talk about this crew of 10 going down to a crew of six, that lowers the cost. Does that lower the prices? Does it not? Do you view these changes as something that changes your view on whether real estate is still going to serve well as an inflation hedge, and if so, how?

Tom McLaughlin: I'm going to give you a very nuanced answer. So I'm going to say potentially yes. This is a very interesting question for investors. You and I know that historically real estate has always worked as an inflation hedge, partly because the replacement costs keep rising, and labor got more expensive and materials got more expensive, and red tape and regulation added costs, and the land was always constrained, especially in the BC kind of interior and the Ontario kind of Golden Horseshoe.

Justin Smith: I come at this a little differently than a pure investor, but I don't think the investor's view and my view are actually that different.

Tom McLaughlin: We need both the same thing. Investors need appreciating assets and stable returns, and I need families who can afford to buy homes and build lives in the communities that we build. Both of those things require a growing, healthy middle class. And without that, the businesses don't work and the investors' investments don't perform. And so when I think about robotics and construction costs, the question isn't just what it'll do to cap rates. It's whether we can actually build enough housing for the people who need it. And Canada has a serious housing supply problem and we're not building enough. That's just the fact, full stop. And the other thing I want to talk about is inflation, because I think that's the elephant in the room and not enough people are addressing it. Honestly, I look at the US and Canadian debt levels being run right now. Historically, there's really only two ways to get out of this debt problem. Governments can either inflate their way out or they can tax their way out. And my personal view, we're pretty close to being taxed out. So I think inflation isn't coming, it's here. And this actually reinforces the real estate inflation hedge argument for at least the right assets. Historically, part of what supported real estate values was rising replacement cost, labor, materials, as I said. But if robotics materially reduces labor costs, some of that force softens, particularly for those commodity-style housing in areas with abundant land. So the improvement value portion may compress a bit, but the land becomes even more important. So prime locations, good schools, infrastructure access, waterfront homes, lifestyle amenities — ultimately that scarcity doesn't get automated away. Robotics may make the structure cheaper to build while making the land underneath it more valuable. And the other piece I'd just talk about in terms of inflation hedge is energy infrastructure, which I think BC, Ontario, Quebec are very well positioned for. You know, AI and robotics are going to consume a huge amount of power, and real estate adjacent to reliable energy infrastructure, like in Ontario next to our nuclear power plants, that becomes increasingly strategic in ways I don't think the market has really fully priced yet.

Justin Smith: You make a great point on scarcity. For us, that's really the big question: what is scarce in this new world? The other two thoughts I have often in my head with inflation is I do believe that AI, especially like you say, when it gets embodied, is quite deflationary. And if you just left the market to itself, prices would come down. But you also are having to bet against the government and their ability to print money. I just don't think that's a bet I want to take either. So I find, depending on which side of the bed I wake up on in the morning, I oscillate between two different views.

Tom McLaughlin: So I like reading history. I always look back at previous high inflation environments. So you look at the Weimar Republic right after World War I. I actually have it on my credenza here — I have a $50 billion Weimar Deutschmark, and it's essentially not even worth the paper it's written on. But you got to remember there's big corporations that borrowed, and they borrowed a lot during that period, and they were one of the biggest beneficiaries. You know, like Siemens was still around back then, Bayer, a bunch of large German conglomerates survived through this. And they had good infrastructure and they had good assets. So there is a way to survive through it. And I think real estate is part of that.

Autonomous Vehicles and Urban Form

Justin Smith: That's a great point. How closely are you following autonomous cars right now? And what impact do you see them having on real estate, if any?

Tom McLaughlin: I'm following very closely. Ultimately, I think autonomous cars could reshape how cities are and how people value real estate. I'm an urban planner. I would say transportation has always determined urban form. Streetcars, suburbs, the interstate highway, commuter rail — each technology kind of created a different development pattern. And transportation technology always changes cities. You know, streetcars created streetcar suburbs. Highways created modern suburbs. And rail shaped industrial cities like Chicago, St. Louis, Hamilton. And this actually connects to something I read. If you're looking for a really good book, there's a book done by Randall O'Toole, and it's called "Romance of the Rails" — it's got a longer title. But essentially, O'Toole is a very big rail enthusiast. He's owned vintage passenger trains, he's helped restore steam locomotives, but he's also an economist. And he had the intellectual honesty to separate what he loves from what the actual data shows. And his core argument, as a builder and someone who loves history, just stopped me cold. He said streetcars were never really about moving people. They were about selling real estate. And the entrepreneurs who built the great streetcar lines — Henry Huntington, which is in Los Angeles, Huntington Beach is named after him; Francis Newlands in Washington — were primarily land speculators. There's been a long history of real estate and transportation linking up. So they would go out and buy cheap land on the outskirts, build a streetcar line to it, and watch the land values explode, and sell lots. The streetcar was just a marketing vehicle, and the land was the actual product. And that would explain a lot of why streetcars fell out of fashion as soon as the automobile and highways came into fruition. And there's another detail he points out, which I always found interesting, was that in the early 1900s, when they were building out the streetcar suburbs, the streetcar fare was a nickel, and the average unskilled worker in the United States earned roughly a dollar a day. So you think about it, if they actually took the streetcar, 10% of their day's wages would go to transportation. So the streetcar was never about mass transit. For the working poor, it was just a premium service back then. Municipalities always have this idea that streetcars are democratic transportation for the common man. It's largely a myth that was kind of built in retrospect. So most ordinary people didn't take streetcars. And it's a long tangent, but it just — it brings me back to economics, because one of the things they do in Vancouver and they do here is politicians try to sell us LRTs and SkyTrain, and they're crazily expensive. You know, the SkyTrain was roughly 500 million per kilometer. The Eglinton LRT in Toronto was like 685. You know, ultimately it's very, very expensive, and it's not a great kind of spend of our money. And municipalities and governments are betting on a product like streetcars and LRT that will most likely be outclassed by autonomous vehicles. That was the point I wanted to kind of loop back to.

Justin Smith: Yeah, it's a point I've made too, because you have all of this densification around these transit nodes, right? You talk about the value of real estate going up — anybody that was near these nodes has basically won the lottery, right? And robotaxis, if it's low-cost transportation, there is no node. And so is the idea that perhaps these land value premiums that we've come to expect around these nodes may not be there as much in the future?

Tom McLaughlin: Yeah, I mean, it goes back to my love of history, because this pattern repeats constantly. We built canals right before railways made them obsolete. We built railways right before the automobile reshaped everything. And now we're spending enormous sums on fixed rail transit at the exact moment automated vehicles are going to make the whole model obsolete. That is a real estate and urban planning problem as much as a transportation one. Decisions being made today will shape the land values and the community patterns for the next 50 years.

Justin Smith: Yeah, I bought a Blu-ray player right before I started streaming, and literally I probably bought like 10 Blu-rays in my life.

Tom McLaughlin: Yeah, autonomous vehicles will potentially reshape parking demand, commuting tolerance, logistics — really every form. So if your commute becomes more productive or genuinely restful, like you can take a sleep, people will comfortably tolerate longer travel. So people will go distances for the things they want, whether it's lakefront property, you know, walkable communities with a real downtown — I'm not talking about a fabricated commercial downtown. This is what's going to change. And I think people will become mega-commuters because they can have a coffee and read a book while their car delivers them to their new home.

Justin Smith: Maybe not having a drink yet.

Tom McLaughlin: Yeah, I don't want to condone that. But I think it's going to make a huge impact on commuting distances and what people are actually demanding.

Justin Smith: I think it's already here partially. I mean, I live about an hour out of downtown Vancouver, and I've got the Tesla full self-driving, and I go and I push a button and it drives me all the way downtown, you know, 45 minutes to an hour, with more times than not zero input. I don't touch the throttle, I don't move the steering wheel, it takes me A to B. It drives 99.4% of my kilometers. Now I have to supervise it. And so this is just a stepping stone on the way to full autonomy, where, like you say, you can take a nap. But even today, it makes a huge difference in my willingness to go and make that drive. It's a much more relaxing experience. So I think for people that are experiencing this, we're already seeing a little bit more willingness. That 45 minute to an hour drive is not an issue for me.

Where to Own Real Estate in This New World

Justin Smith: I guess this is one of the big ones for investors. So if robots are building our homes and autonomous vehicles are driving us around, what real estate would you want to own in this new world? And then conversely, if you want to touch on what real estate you may see underperforming in this new environment.

Tom McLaughlin: So if I'm thinking about where I want to own real estate in a world where robots are building homes and cars are driving themselves — the first thing I'd look for before anything else is a jurisdiction that actually respects private property rights and land title. And I just want to raise this — yeah, it's sensitive, but it's very important. There's something that most Canadians don't realize, that property rights aren't protected in our Charter of Rights and Freedoms. It was proposed in 1982 as part of constitutional negotiations, but depending on who you believe, the provinces essentially killed it. But what that means in practice in Canada is the government can regulate land, restrict your land, and dramatically reduce its value without owing compensation. Unlike the United States, which has the Fifth Amendment, which protects your property against that — no private property can be taken for public use without just compensation, that's essentially what the Fifth Amendment says. And there's a meaningful difference when you're making a 30-year investment decision. Before I'm thinking about cap rates or asset classes, I'm thinking about the legal foundation underneath the asset. We have similar problems in Ontario as in BC. Does the jurisdiction respect your title? Does the rule of law actually protect what you own? And this matters enormously and gets almost no airtime in real estate investment conversations.

The second filter I would apply is just demographics. Canada has a housing supply crisis that's not going away. Full stop, we're just not building enough homes for the people who are here, let alone the people that are coming in. And in this environment, well-located land in growing communities — places where families actually want to live, with good schools, infrastructure, and room to grow so they can bring their family with them — that's the most durable asset I can imagine. And that's literally the business I'm in. I'm generally bullish on it.

And the third filter is climate resilience. And I want to be careful how I frame this, because I'm not here to make a political statement about climate change. But I'll say this, there's a lot of people who are calling it a climate problem when it's just a common sense geography problem that we've been ignoring for decades. We built millions of homes on coastlines that flood. That's not new. Coastlines have always flooded. The Americans have built cities in the southwest on top of a desert that is fundamentally dependent on one water source, the Colorado River, and that's historically gone through drought cycles lasting up to 150 years. And these aren't surprises. There's ancient pueblos located throughout the southwest in Utah, Arizona, California that were abandoned partly because of prolonged drought. You know, we just chose to build in Phoenix, California, Los Angeles, and they're hoping the water holds. And so the insurance market is doing what markets do really well, and that's price in reality. So insurers are actually pulling coverage dramatically out of Florida, California, and parts of the southwest because of these problems. When insurance becomes unaffordable, you know, the lenders follow and eventually the asset values follow. And that's not climate ideology, that's just actuarial math. So Canada, by contrast, has the largest freshwater supply on the planet. The Great Lakes Basin holds roughly 20% of the world's surface freshwater. Southern Ontario doesn't have major hurricane exposure. We don't have serious sea level rise risk, or a single source of water sitting on top of a geological drought. These are the long-term structural advantages that I generally think global capital hasn't priced in yet, but I think it will.

And the fourth filter is tax and regulatory environment. And this is where I think Canada needs to have a very long and honest conversation with itself. You look at what's happening in the United States. The IRS migration data shows almost $2 trillion in adjusted gross income has shifted towards low-tax states over the past decade. Florida has no state income tax and has absorbed $1.4 trillion in AGI wealth. And Texas is not too far behind, they've had hundreds of billions of dollars more. And so people and capital are physically moving towards jurisdictions that are easier to operate in, easier to build in, and easier to keep what you earn. In a world where autonomous vehicles and remote work make geography more flexible, that dynamic only accelerates. People simply have more choice where to go. And now Canada can't replicate that tax model exactly, but we need to look at this honestly. We're a high-tax, high-regulation, high-development-charge environment at a time when capital has more mobility than ever. And we're already starting to see that in interprovincial migration towards Alberta, where they have lower taxes, lower cost of living, and more business-friendly regulation. The provinces and the municipalities that take this seriously are going to be the ones competing for the people and capital, not just administering, and they're going to win. So the high red tape environments are going to lose. They're going to lose their tax base, and they're going to wonder why.

The fifth filter is just energy infrastructure. As I mentioned, AI and robotics are power hungry. Canada has hydro advantages. So Quebec, British Columbia, Manitoba, Ontario with their nuclear power and our hydro generation off the Niagara River are strategic assets. Real estate, industrial, adjacent to these reliable sources will become increasingly valuable as the demands of AI and digital robotics scale up. And I think this is underappreciated in Canada. It's going to start showing up in investment flows over the next decade.

Now, towards the underperform side, I think obsolete offices — kind of the 1970s suburban office market, it's going to really hurt those B and C office buildings. High density retail — so I'm talking about shopping malls or strip malls — have already been hit by delivery, like Amazon and all those other things.

Justin Smith: I guess that could proliferate. If you've got a self-driving delivery vehicle, that'll make it faster and cheaper, and I suppose that would be a negative for your neighborhood retail, unless they could access these logistics networks, I suppose. And does it matter to them whether the person comes into the store or they hand it to a robot?

Tom McLaughlin: And I think landmark locations will always be there. So in Ontario, we have Yorkdale, Square One, those are kind of landmark shopping centers. But I think the shopping center in Guelph is probably not going to do that well, because people can get 99% of those things delivered to them in a day, and most people don't like competing over parking spots. Yeah, so again, it comes down to genuine locational desirability that is going to really win out on this. You know, walkable downtowns with great restaurants and whatnot.

Closing: "Cycles Are Temporary, Good Assets Endure"

Justin Smith: I like it. Thank you. To close us out, Tom, can you share one piece of advice you received early in your real estate investment career that has made an impact on your life and you're grateful for?

Tom McLaughlin: The one thing that stuck with me the most is: cycles are temporary, good assets endure. So, you know, and I know real estate has an emotional season. We've got booms, crashes, pessimism, euphoria. It always has and always will. But if you own high-quality assets in fundamentally strong locations, you can survive the volatility, and time becomes our ally. It's boring advice, but I think it's durable, and I think apropos for the environment that we're in today.

Justin Smith: So Tom, thank you very much for joining me, and I think we should do this again in another year or two. The first robot that's on your site, I want to hear about it, and we'll get you on again. Thank you.

Justin Smith: Thank you for listening. As a reminder, this podcast is for informational purposes only and should not be considered legal, tax, investment, or financial advice. Any forward-looking statements are based on opinion and are not guaranteed. Hawkeye Wealth has no obligation to update them. Investing in private equity is generally considered high risk, with potential for illiquidity or a loss of capital. Most of our investments are only available to accredited investors. As such, a suitability assessment is required prior to any investment through Hawkeye Wealth.