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Thread: idle musing: is the market going in the wrong direction?

  1. #1
    Member simulcra's avatar
    Aug 2003

    idle musing: is the market going in the wrong direction?

    please feel free to correct any vastly incorrect assumptions i make.

    well, ok, premise 1: housing costs in downtown and similar urban areas (read: cambridge/boston, manhattan, seattle) shooting high.

    premise 2: according to several reports, residential populations are generally booming in most usa downtowns.

    yet housing costs still are terribly high and the growth within the city is not nearly as significant as the growth at the fringe of the city.

    so i'm just wondering, from what little i know about economics, high costs for such small homes/apartments in downtown and like urban ares is because there's a high demand for housing there? whether the lifestyle, the environment, the location, etc. if there's high demand there, and if people (as evidenced generally by census 2000 and fannie mae, etc.) are moving more into these downtown areas, then woudln't it be far more profitable, from a marketing standpoint, to redevelop land in or near downtown with high units to a) tap into something else other than the luxury market which seems to be tapping out b) to do this by having many units to reduce general costs and to make a dent into the demand?

    well, i suppose vast generalizations aside, the question is, why isn't more development happening within the city core when there seems to be a high demand for such development? (relatively) is it the high overhead costs? or what..?

    (non-yuppie complaning at the seemingly over-yuppiness of downtowns)

  2. #2
    Cyburbian jordanb's avatar
    May 2003
    City of Low Low Wages!
    Take a look at the city neighborhoods in cities like Chicago. That's exactly what is happening.

  3. #3
    Cyburbian Cardinal's avatar
    Aug 2001
    The Cheese State
    It is not just a function of market demand, but of countless other variables in the development game. For example, how long will it take to get approvals from those damn commie planners, and how much do you need to bribe the building inspectors? How much capital (K - I love that letter!) do you need to get started? How much risk is involved? How much technical talent is required? (It takes a lot more skill and custom work to convert an old warehouse into an apartments instead of building a balloon-frame firetrap with a twenty-year design life.) What is the return on investment? Many developers, when faced with the opportunity, would prefer a simle, relatively safe golf course subdivision in the coutryside.

  4. #4
    Cyburbian El Feo's avatar
    Mar 2002
    Outside, looking in.
    Cardinal hits the nail on the head (but geez, C, who do you know that's still balloon framing houses, guy - you need to hang out with a builder younger than 80 ). A couple of items I'd add to his list: Will I have to deal with union labor, as opposed to the non-union shops in the 'burbs? On a related note, will prevailing wages apply to my development (usually they will in larger urban developments)? Development costs related to labor alone are often so much higher in urban areas that a developer's ROI is eaten up to a point that it's just not worth it.

    In my arrogant, half-informed opinion, unions and governments distort the market so much in urban areas that combined they create the single biggest impediment to a real urban housing renaissance in this country.

  5. #5
    Why we do hear in Toronto is open a sales office and wait till 90% of the proposed building is sold out before any kind of counstruction takes place. Usally takes anywhere from a day to a year .

    It works out really well as the developers/banks are garanteed a very high rate of return return. I spoke with one developer which was expecting $20 to $25 million in profit for a 50-storey tower.

    As a result we have 150,000 units in the pipeline for the city which is expected to grow as fast as all of the surrounding suburbs combined.

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