An article in Forbes magazine by Joel Kotkin on August 31st titled “U.S. Cities Have A Glut Of High-Rises And Still Lack Affordable Housing,” Mr. Kotkin tells us how urban high rise condos in many cities are completely unaffordable to the middle class. He talks about objective metrics showing the Millennials and others prefer buying single-family homes in the suburbs.
This makes perfect sense, as these are better environments for families, and the affordability can be far better. As always, we recommend buying homes in suburbs of large metropolitan areas and use them as rental properties, preferably being financed with 30-year fixed rate loans, which are not pegged to inflation.
We will discuss these issues plus much more in our ICG quarterly 1-Day Expo near SFO THIS SATURDAY 9/9. There will be market teams from all over the US, as well as expert speakers on issues critical to all investors. You can attend for free with guests – just email us at email@example.com and mention this blog, or call (415) 927-7504.
I am enclosing Mr. Kotkin’s article in its entirety.
U.S. Cities Have A Glut Of High-Rises And Still Lack Affordable Housing
I cover demographic, social and economic trends around the world. Opinions expressed by Forbes Contributors are their own.
A view of new residential buildings under construction in the Hudson Yards development, August 16, 2016, in New York City. (Photo by Drew Angerer/Getty Images)
Perhaps nothing thrills mayors and urban boosters like the notion of endless towers rising above their city centers. And to be sure, new high-rise residential construction has been among the hottest areas for real estate investors, particularly those from abroad, with high-end products accounting for 8o% of all new construction.
Yet this is not an entirely high-end country, and these products, particularly the luxury high-rises in cities, largely depend on a small segment of the population that can afford such digs.
No surprise, then, that we see reports of declining prices in areas as attractive as New York, Miami, and San Francisco, where a weakening tech market is beginning to erode prices, much as occurred in the 2000 tech bust, John Burns Real Estate Consulting notes. There have been big jumps in the number of expired and withdrawn condo listings, particularly at the high end; last year, San Francisco saw a 128% spike in the number of withdrawn or expired listings for condos over $1.5 million.
Several factors suggest the high-rise residential boom is over, including a growing recognition that these structures do little to relieve the housing affordability crisis facing middle-class residents, the inevitable aging of millennials and their shift to suburbs and less expensive cities, and the impending withdrawal of some major foreign investors who have come to dominate the market in many cities.
Cost And Affordability
One common refrain among housing advocates and politicians is that high-rise construction is a solution to the problem of housing affordability. The causes of the problem, however, are principally prohibitions on urban fringe development of starter homes. Critics also note that high-rises in urban neighborhoods often replace older buildings, which are generally more affordable.
One big problem: High-density housing is far more expensive to build. Gerard Mildner, the academic director of the Center for Real Estate at Portland State University, notes that development of a building of more than five stories requires rents approximately two and a half times those from the development of garden apartments. Even higher construction costs are reported in the San Francisco Bay Area, where the cost of townhouse development per square foot can double that of detached houses (excluding land costs) and units in high-rise condominium buildings can cost up to seven and a half times as much.
Almost without exception, then, the most expensive areas are precisely those that have the most high-rise buildings: New York, San Francisco, Seattle and Miami. More to the point, these buildings don’t tend to be occupied by middle-class, much less working-class, families. And in many cases, these units are not people’s actual homes; in New York, as many as 60% of new luxury units are not primary residences, leaving many unoccupied at any given time.
Even worse, a high-density strategy tends to raise the price of surrounding real estate. As Tim Redmond, a veteran San Francisco journalist, points out, luxury apartments often tend to be built in areas with older, more affordable buildings. The notion that simply building more of an expensive product helps keep prices down elsewhere misses the distinction between markets; the high-rises in Washington, DC, are not the affordable units that the vast majority of city residents need.
It is common in retro-urbanist circles to maintain that more Americans, particularly younger ones, will opt to remain customers for ever-greater density, a preference that could sustain an ever-growing market for high-rises. Yet that notion may be past its sell-by date, with demographic evidence suggesting that most Americans, including younger ones, are looking less for an apartment in the sky than for a house with a little backyard.
Suburbs, consigned to the dustbin of history by many urban boosters, are back. Demographer Jed Kolko, analyzing the most recent Census Bureau numbers, suggests that population growth in most big cities now lags that of their suburbs, which have accounted for more than 80% of metropolitan growth since 2011. Even where the urban core renaissance has been most prominent, there are ominous signs. The population growth rate for Brooklyn and Manhattan fell nearly 90% from 2010-11 to 2015-16.
The real trend in migration is to sprawling, heavily suburbanized areas, particularly in the Sun Belt. To be sure, there are high-rises in most of these markets – quite a gusher of them in Austin, for instance – but the growth in all these regions is overwhelmingly suburban.
The most critical factor over time may be the aging of millennials. Among those under 35 who do buy homes, four-fifths choose single-family detached houses, a form found most often in suburbs. Surveys consistently find that most millennials see suburbs as the ideal place to live in the long run. According to a recent National Homebuilders Association report, more than 66%, including those living in cities, would actually prefer a house in the suburbs.
The largely anecdotal media accounts of millennial lifestyles conflict with reality, Kolko notes. Although younger Millennials have tended toward core cities more than previous generations, the website FiveThirtyEight notes that those ages 30-44 are actually moving to suburban locales more than in the past.
The China Syndrome
Given the limits of the domestic market, the luxury high-rise sector depends heavily on foreign investors. Already, harder times for some traditional investors – Russians and Brazilians, for example – have hurt the Miami market, long attractive to overseas buyers. There is now three years’ worth of inventory of luxury high-rises there, with areas such as Edgewater, Midtown and the A&E District suffering an incredibly high inventory of seven and a half years. Miami Beach is faring a bit better but is still a buyer’s market at a little over two years of inventory.
Still, the greatest threat to the luxury high-rise market may come from the Far East, the region of the world with the most surplus capital and, given the rapidly aging society, often the fewest profitable places to put it. Korea and Japan have lots of money sitting around looking for a home. Japan and its companies, according to World Bank data, are hoarding more than $2 trillion in unused liquid assets.
But now the Chinese government has placed strong controls on these investments, which could leave some places vulnerable. In Downtown Los Angeles, according to local brokers, many of the new high-rise towers are marketed primarily in China. (LA claims to have the second-highest number of cranes, behind only Seattle.)
These expensive units are far out of reach for the younger people who tend to inhabit the neighborhood, instead of serving as what one executive called “vertical safe deposit boxes” for people trying to get their money out of China. If the new crackdown on such investments is strongly enforced, this could leave a lot of expensive units without buyers. Prices have already softened, and with several new luxury buildings coming up, Downtown is likely to experience a glut.
Even in Manhattan, another market long dependent on foreign investment, projects are now stalled, including some once-hot properties in Midtown that are delaying their sales launches. Overall sales of condos over $4 million dropped 18% last year from the high levels of the previous three years. The ultra-premium market for condos over $10 million saw a 5% sales decrease in 2016.
The current slowdown, and perhaps longer-term stabilization, could lead to lower rates of migration out of the expensive cores. Yet this trend is not likely to reverse the movement of younger people to less dense areas. Luxury high-rise units were not built for families, and they are often located in areas with poor schools and limited open space. They may simply become high-priced rentals, attractive no doubt to childless professionals but not to middle- and working-class families.
In the end, the real need is not for more luxury towers. What is needed, particularly in America’s cities, from the urban core to the urban fringe, is the kind of housing middle- and working-class families can afford.
In an article in the Wall Street Journal from May 7th, 2016 by Chris Kirkham, we learn how builders of new homes have to focus more on the second-tier and higher product. The reason is that land costs (including local fees) have increased, as well as building costs. Builders have a harder time squeezing a profit from the lower-priced new homes.
This is becoming an issue with families seeking to buy new affordable homes.
As investors, this points to a certain window in time in which we can get brand new homes at reasonable prices. We are still buying new homes for $130K-$170K, mostly in the middle of this range. Rentals are strong (partly because some would-be-owners become tenant due to lack of affordable homes to buy), and needless to say, if the more affordable homes will become scarce, it is likely to bode well for their appreciation, as the higher priced home in a subdivision will provide comparable values which will help the appreciation of the more affordable homes. This is how it happened historically.
The ability we still have as investors to buy the more affordable (yet quality) product, coupled with the still-low mortgage interest rates, creates a sweet spot in time to add to our real estate investment portfolio.
The WSJ article by Chris Kirkham can be found here.
We will discuss this, as well as a host of other relevant and important issues, at our quarterly ICG 1-Day Expo near the San Francisco Airport THIS SATURDAY – May 21st. For details, see www.icgre.com/events. Anyone mentioning this blog can attend free – just email us at firstname.lastname@example.org and write in the subject line, “Read your blog on construction homes getting scarce.” We will have experts about complete insurance and umbrella coverage nationwide, 1031 exchanges, property management, and lending, among others. Looking forward.
The year is off to a decent start–the fears many investors had that mortgage rates will go up very quickly due to the Fed’s raising the short-term rates recently have not only not materialized, but actually, mortgage rates have gone down twice. I will address it in a separate blog entry but as you can see there is no immediate correlation. Needless to say, mortgage interest rates WILL go up at some point which in part serves to frame the most important aspect of 2016.
During 2016 mortgage interest rates are likely to remain quite low for the entire (or most of the ) year. As single-family homes investors, those of you with decent credit and not a huge portfolio can still qualify and get these coveted 30-year fixed rate loans that you can only get on Single Family Homes (technically 1-4 residential units).
This is the year to focus and be effective in buying solid homes financed by these 30-year fixed rate loans at these incredible interest rates and lock them forever. You will feel like a genius later on after rates have climbed and here you are with an under-5% loan fixed forever, and never changing with the cost of inflation. In a continuous manner, inflation erodes your fixed loan, and the tenant is paying it off one little month at a time.
Do this in 2016. Do this several times. You will be setting up your financial future.
As far as markets, there may not be large appreciation swings in most markets during 2016. In a funny way, the ever-solid Texas is appreciating decently now, but people have some questions about its overall economy.
Oklahoma City with brand-new homes (under 50% of the property tax bite of Texas; it is poised to provide better cash flow on similar rents and home prices – which it has) is a very serious candidate for solid investments.
Jacksonville, Florida is the market least appreciated in the state so far and carries the best appreciation potential. Also in 2016, the Panama Canal project is slated to be finished, potentially generating major large-ship traffic into the Jacksonville port. Will they finish this gargantuan project on time? Will it drift over to 2017? Regardless, it is a dominant event.
Get those good single-family homes and finance them with low 30-year fixed-rate loans. Rinse and repeat. You will very likely be quite happy in the future when you look back at what you have done. We will be discussing this in detail, along with market teams and incredible experts, during our next quarterly 1-Day Expo near SFO on Saturday, March 5th. Everyone citing this blog can attend for free with guests. Just email us at email@example.com or call us at 415-927-7504.
Happy New Year!:
Media headlines have been a pretty good gauge on the overall mood and trends in the real estate industry. During the big boom of 2005 and 2006, the headlines were screaming, “When is the bubble going to burst?” (A sage point to ponder as it turned out.) During the dark ages of 2008 – 2010, the media headlines took pains to emphasize just how much prices were down in so many markets – a good tip for the savvy buyer.
What does it look like these days?
Within the past couple of months here are a few headlines: October 20th in the Wall Street Journal, the headline to an article by Jeffrey Sparshott says, “Builder Optimism Hits 10-Year High.” I believe you can guess what the article is about. In any case due to the blessed internet – you can just look it up. Another headline, again from the Wall Street Journal, by Anna Louise Sussman and Laura Kusisto, says, “Home Sales Head for Best Year Since 2007.” Again pretty self-explanatory.
The above two articles convey good optimism and strong home sales. For real estate investors this may not always be the best news, as naturally, they hunt for bargains. Nevertheless having a strong real estate market in many cities lends itself to strong occupancy, builder (built) homes (always an attractive investor buy due to builder incentives, and new homes bode well for a long hold with minimal potential repairs, and usually the best financing). Having solid real estate markets is a strong backdrop for our tried-and-true-buy-and-hold-with-a-30-year-fixed-mortgage strategy. Add this to low rates still existing today and you have some very good opportunities to expand your portfolio, lock in super low rates forever and change your financial future.
And about those rates – isn’t the Fed just about to raise rates? Let’s look at this headline from November 24, 2015, San Francisco Chronicle article by Kathleen Pender, “Rate Hike Won’t Hit Too Hard – At First.” I concur—rate hikes will most likely begin by ¼ of a point for short term debt. In addition, this anticipation may already be baked in the current mortgage rates. It will most likely be a while before the needle moves on mortgage rates in a significant manner.
With that being said the Fed’s intention highlight yet again that we operate within a “golden window” of super-low mortgage rates. For new investors, this seems like the norm. For veteran investors, we recognize these rates as the lowest in decades. If anyone has the ability to fix these rates forever in a loan that never keeps up with inflation – now may be the time.
During our quarterly 1-Day Expo THIS SATURDAY – December 5, 2015, we will have a sophisticated asset protection attorney—back by popular demand—Brett Lytle, who will speak on asset protection. Brett always has the most cutting-edge information on protecting our assets and the pros and cons of the type of entities we form. Ron Stempek, MS-Tax, CPA, will speak on optimizing your taxes for reporting 2015—important must-know information for optimizing tax dollars, and actions to take going into the new year. Christopher Orr, Director of Institutional Products at PENSCO will be speaking on retirement savings goals by using self-directed IRAs, buying properties from a self-directed IRA, and using this vehicle to further your wealth. As always, we have cutting edge market teams, lenders, networking and lots of Q&A time.
Anyone contacting us and mentioning this blog can attend free (email to firstname.lastname@example.org or call us at 415-927-7504). If you email us, put in the subject “I read your blog on Blogger” and give us your name and phone number so we can confirm with you.
Looking forward to seeing you, and Happy Holidays!
JOIN US! MARCH 2016 IS FILLING FAST THIS YEAR AS SO MUCH IS CHANGING; PLEASE DO NOT MISS OUT ON THIS EXPO!
WHEN:March 5, 2016, from 10:00 am to 6:30 pm
WHERE:South San Francisco Conference Center, 255 South Airport Blvd., S. San Francisco, CA 94080 – conveniently located near SFO Airport
Everything is MOVING AND CHANGING IN 2016 – THIS IS A MUST ATTEND! As always, new markets and updates on all markets. Special deals. Extensive Q&A. Roaming experts. Incredible cash-flow opportunities, and speakers that change lives. Read on!
LECTURES FROM OUR GUEST SPEAKERS
Mark McKay, Principal at Equity Portfolio Funding, LLC – on Special Loan Programs for The Real Estate Investor: Blanket loans on groups of properties, stock-based loans at extremely attractive rates. Other flexible loans.
Dustin Ma, of LampPost Planning – on correct and complete Financial Planning for any investor. Use insurance, diversification and leverage tools to create stability and effectiveness in your portfolio. Avoid common mistakes.
Gary Sipos, MBA, AIF, Founder of College Cash Solutions – on Optimizing Paying for College for Your Kids Using Investments Funds: How to maximize the amount of financial aid you are eligible to receive even if your family is not eligible for need-based aid. How to get ahead by developing a customized plan to meet all the college costs you will incur as a family.
GREAT loans for investors. New markets and updates on all markets. Special Deals. Extensive Q&A. Roaming Experts. Incredible Cash-flow Opportunities!
NETWORKING AND Q & A:
We always dedicate a generous amount of time for networking and an interactive Q & A with our roaming team of experts, speakers, and other like-minded investors. Don’t miss out on your chance to participate in this critical expo. It sells out every quarter we offer it! The event is a fantastic opportunity for learning from other like-minded investors.
Teams from the most interesting and relevant markets will be present with real estate deals ready to move, and updates and forecasts will be discussed. One-on-one discussions will be available on individual interests and needs.
Price: $20/person or $35/couple
Lunch is not included.
Plenty of free parking available.
Up until the beginning of 2012 there were some states that lead the way as far as investor interest: California, Nevada, Arizona and Florida. That interest on the part of investors was justified, as these four states were the most clearly noticeable examples of recession housing prices. These four states were the “poster children” for extreme housing price collapse.
During 2012 and 2013 all four states exhibited strong housing price appreciation. Phoenix led everyone with a 70% jump. Las Vegas wasn’t far behind and California process improved rapidly. Florida prices went up but the uptick was tempered by far slower judicial foreclosure processes in Florida, as opposed to the quick and efficient trustee sale in the other three states.
Now, in the middle of 2014, Florida prices have improved quite a bit and yet, due to the slow foreclosure process, which creates a steady trickle of supply into the marketplace, Florida is still a place where investors look to buy. However buying in Arizona, Nevada and California has slowed significantly for now.Other states, which have not experienced such extreme price swings, are now becoming attractive investor destinations.
A prime example is Oklahoma City, with low unemployment and the benefit of the oil & gas industries. Rents are high and property taxes are low. Similarly, other “middle of the country” markets in states like Kansas and Missouri are starting to attract more buyers, as is the state of Texas (with a strong economy, high rents, but also very high property taxes and insurance rates) and states like Ohio.Overall it is possible that soon the effects of the recession will no longer be dominant and marketplace demand by investor will revert to parameters before 2008.
Some of these new markets will be present at our Real Estate 1-Day Expo this Saturday near the San Francisco Airport (see details at www.icgre.com). Call us (415-927-7504) or email us (email@example.com) and mention this blog entry and receive my book, for free, with registration at www.icgre.com.
Exploring this and other avenues for finding financial real estate success during our 1-Day Expo.
As many of you know, we are holding our 1-Day Expo on Saturday, June 14th from 10:00-6:30 p.m. Even though we have been holding these events for over 20 years, I am always excited before we hold them. I know I will learn so much from the expert lecturers, the market teams who bring information straight “from the trenches” and from all of YOU who attend.
Just the Q&A sessions are so informative, I have yet to partake in one of our events and not learn a tremendous amount of valuable information during these sessions.
The networking is also so valuable, bringing new connections and new synergy.
This time we have three expert lecturers:
Attorney Brett Lytle on Asset Preservation & Protection. Brett always sees the smallest details, which stay hidden from most observers. He has led countless people to create a safer, more secure way to hold assets and will teach all of us how to do this.
Lucian Ioja uses his vast experience and knowledge to show us how we can create multiple streams of income and plan our financial life in a proactive, fruitful way. He also teaches us to utilize many different avenues to create these income streams; from using insurance in a sophisticated manner to real estate and other vehicles that we will explore.
Roger St. Pierre will teach us about getting non-recourse mortgages to buy real estate, with financing, from our IRA accounts. A lot goes into this and that is why we invited Roger to instruct us.
There will be lenders with new types of investor (and homeowners) loans to tell us about.
We are bringing in three new markets with exciting deals at attractive price points, including brand new homes, as well as low-cost turn-key homes with tenants AND easy special financing even to investors who had been spurned by the banks.
Updates from the existing markets are always so fascinating. The work and preparation that goes into these refresher points from the markets always amaze me. There is so much to learn and so much to feel the pulse of what goes on nationally.
I’ve been asked to do something special for the blog readers, and we will give everyone who registers and mentions this blog, a free copy of my book Remote Controlled Real Estate Investing which goes into the details of buying properties far from home. So, register today to secure your spot and as an added bonus receive my book. For free.
I am excited and very much looking forward to seeing you at our event. The 1-Day Expo will take place near the San Francisco Airport, at the South San Francisco Conference Center. We set the Expo time so people can fly in and fly out on the same day if they are not from the San Francisco Bay Area – the day starts at 10:00 AM and ends at 6:30 PM, providing attendees from Los Angeles, San Diego, Portland, Seattle, Phoenix and wherever it is that you call home to arrive and leave on the same day.
Of course, for Bay Area residents it is an easy drive and everyone appreciates the ample free parking at the conference center.
We are excited! ICG Real Estate Investments (International Capital Group) are going up to Seattle to put on a mini-version of our quarterly Real Estate 1-Day Expo that is usually held near SFO in South San Francisco. As most of you know, we have been doing these expos for 20 years and there is always so much information. I personally return home more knowledgeable every time, as everything in real estate and real estate investing changes weekly, if not daily it seems. I am putting information about his event in a blog, as I want to share it with many new people as possible, and I know I will be connecting with many new folks on LinkedIn as well.
I have not spoken in the area for about six years, and it is going to be great to re-connect with so many that I used to connect with on a continual basis. Building relationships is what we are about and the excitement is mounting! It will be like a family reunion. (Hopefully, that is a pleasant thought to most of you!) Based on demand we are looking forward to two evenings, which will allow folks to attend twice or pick a day that works best for their schedule.
These two evenings will not be easily forgotten, and we are available to talk before or after and even during the events, as well as meeting over the phone, well after the event. The Mini Real Estate Expo (s) is a great way to start out the new year with hard-hitting information you can use to be a better investor. This action-packed event will be held from 6-9:30 pm on two nights, Wednesday, February 5th and Thursday, February 6th. This way, busy Seattleites have two options to work the event into their schedule. Many of you requested that I have the event in two different locations for added convenience, so we have provided that. You can also come to both nights if you desire!
Patricia Wangsness and Adiel Gorel will be the expert presenters, and you will hear from expert loan sources and learn from market teams across the country that will be flying in to tell you about the hottest markets and the proven methods to use for success. Here is a taste of what you can expect:
How to identify the best markets for investments
How to invest when you are “too busy to invest” (step-by-step)
Learn how your properties can be rented and managed well from afar
Pay for your children’s college education using real estate (or for your own education)
Secure a powerful retirement using real estate
How to benefit from recession prices in 2014, and where to do it
Learn how to acquire loans you did not know you could get
How to benefit from special market situations few people know about and how to use it to your advantage
There are ways to successfully own multiple properties and manage them–we will show you how
There will be extensive Q & A time. There will also be teams there in person to meet with you one-on-one; they will also be speaking about the hottest markets in the U.S.
This will be one of the premier networking events in 2014 so far!
Any additional questions about the venues or if you have trouble on the day of the event, please call our public relations pro, Lynette Hoy on her cell (415) 694-3004 or at her office in the Seattle area (206) 455-9366. Lynette will be at both events, so please call her cell phone between 4-9: 30 pm on those nights if you need assistance.
Look forward to seeing you there. I can’t wait!
I encounter many investors still tempted to get some flavor of an adjustable loan when using their available investment loans. There are extremely low-interest rates being offered on many shades of variable interest loans such as 1/1, 5/30 and so on.
Given that there is a virtual consensus among economists that we are headed to a high inflation period, it would not be the wisest move. When inflation is looming the need for fixed rate loans becomes even greater than it usually is. Fixed-rates are still very low, not far from the lowest rates in over 50 years. At this point, and before inflation rears its ugly head, it is definitely the time to lock in a rate forever.
Once you have locked in your 30-year fixed rate loan, inflation actually becomes your ally. It erodes the real monetary value of your loan, which never changes with inflation because it’s, well… FIXED! In a way, the very process of inflation will hasten the real-life pay down of your loan balance.
Many of you are eligible for a lot more investment loans than you might think. We will talk about this in detail, and also share strategies to increase the number of investment loans you can get at our incredible Real Estate 1 Day Expo on Saturday, December 7, 2013, near San Francisco Airport. More details can be found on our website www.icgre.com. We have been producing these events for over 20 years, and we always have the most useful experts to assist you.
This time there will also be a discussion of the new Affordable Care Act (Obamacare) and strategies on what to do, credit enhancement and repair (to be able to get all these loans), and an amazing lawyer battling the banks in court to share his insights and wisdom. In addition, market teams from the most relevant markets in the US will be there. Looking forward to seeing you!
ICG uses single-family home investments, bought in advantageous locations and the best U.S. markets. We enable you to enjoy the clout that comes from purchasing a multitude of houses, even if you only buy one.
165 N. Redwood Dr. Suite #150 San Rafael, CA, 94903