The Housing Bubble

A report from the Press-Telegram in California. “Apartment buildings are a hot commodity in Southern California these days, with transactions tripling since the recession and sale prices steadily climbing. With higher prices come lower returns. To offset that, investors are looking for buildings with a significant upside — called a ‘value add’ in industry parlance. Josh Butler has been hearing from more and more renters in Long Beach in the same bind: A new owner has purchased their apartment complex with plans to renovate — and raise the rent. ‘We’ve seen advertisements that say, buy this property in Long Beach, you can raise the rent 75 to 90 percent,’ said Butler, executive director of Housing Long Beach, a tenants’ advocacy nonprofit.”

From The Coloradoan. “The wave of apartments under construction in Fort Collins belies the torrent that is about to come. Of the 5,200 units, 1,250 are student-oriented projects with bedrooms for about 5,500 students — a big number given Colorado State University is adding only a few hundred students per year. ‘There are plenty of units that are attainable to a lot of people here,’ said CSU regional economist Martin Shields. ‘If people are going to move into higher-end spots, they’ll hopefully leave places that other people can afford. More supply should lower prices.’”

“And, if it knocks down the prices of rental houses, which it should, Shields said, then that puts downward pressure on housing prices, too. Kit Brown, an associate in CBRE’s Northern Colorado office said that assumes all the projects in the pipeline get built. If they do, those with the best locations — Old Town, near campus and Harmony Road — and the best amenities will do well. ‘Those in more tertiary locations could take a hit in vacancies and that’s where discounted rents will hit,’ he said.”

The Boston Globe in Massachusetts. “The developer behind one of the biggest rental buildings under construction in Boston aims to modify its plans and put for-sale signs on about one-quarter of the units. HYM Investments recently told the Boston Planning & Development Agency that it’s decided to convert 118 apartments planned for a 45-story tower it is building atop the Government Center Garage into 55 condominiums. The shift comes amid signs of softening rents at the high end of Boston’s housing market as a string of new luxury apartment buildings compete for tenants.”

“That has some developers rethinking their apartment plans. National Development, for instance, converted a portion of its Ink Block project from rentals to condos.”

The Miami Herald in Florida. “Ron Shuffield, CEO of EWM Realty International, understands the perception of Miami Beach as being overvalued, but also thinks it’s somewhat misplaced. ‘People are thinking about expensive condos that have been recently built and are now selling for significantly less than people paid a couple of years ago,’ said Shuffield. ‘There’s an oversupply of brand new luxury condos that have dropped up to 25 percent in value. But those sales are not reflective of the overall Miami Beach market of single-family homes under the $2 million price range, which remains strong.’”

“‘Typically, if there’s less than six months of supply in the market, the seller has the advantage because there’s not that much to choose from. But Miami is definitely higher than six months. We have 34,000 condos in the pipeline in Miami-Dade County alone. There’s a ton of new condos being built at a time when the amount of existing condos on the market is already too high,’ said Peter Zalewski, a principal at the real estate consultancy Condo Vultures. ‘If you think of a teeter-totter, the buyers are up in the air on one side and sellers are weighing it down on the other side — and they’re eating Twinkies and Ho Hos, so they’re only going to get heavier.’”

The Houston Chronicle in Texas. “The explosion of multifamily construction that turned Houston into a renters’ market has fallen off dramatically and experts are predicting the generous concessions could cease in 2018 as the market methodically absorbs the tens of thousands of units developers have built in recent years. ‘Inside the Loop, you can find certain properties with three months free rent,’ Mark Taylor, senior managing director for the Houston office of CBRE said. But, he added, ‘Can you get that in a year? No way.’”

“In February, Paul Cummings moved into a one-bedroom apartment in a new complex in the Heights. ‘When I first started looking, they all offered a version of the same deal, which started at six weeks free,’ he said. ‘As they became a little more desperate, they said, ‘It’s two months now.’”

The Upstate Business Journal in North Carolina. “A survey taken in May by Real Data, a Charlotte, N.C.-based firm that tracks Southeastern apartment markets, found developers were building, or had proposed to build, another 1,373 apartments downtown, an increase of nearly 80 percent in the existing supply of 1,746. Real Data also found that an additional 168 downtown apartments were rented out between November of last year and May. At that rate, it would take four years for the downtown market to absorb all of the apartments under construction or planned.”

“Russ Davis, a Greenville apartment developer, said it’s not yet clear whether developers are building too many apartments downtown. But if they are, it wouldn’t be the first time developers had overbuilt an apartment market, he said. ‘As an industry, we don’t have the greatest discipline,’ said Davis, who developed two apartment complexes downtown and was a top executive for Trammell Crow Residential Services when it was the nation’s largest apartment developer. ‘We tend to build until the music stops and one or more people can’t find a chair.’”

“One group that apparently isn’t worried about a market collapse are the four out-of-state companies that together paid more than $155 million for four downtown Greenville apartment complexes over the past two years. The investors from Atlanta, Philadelphia, and Southern California acquired 752 units in separate deals between summer 2015 and fall 2016, according to transaction data from NAI Earle Furman, the commercial real estate brokerage.”

“Tony Bonitati, a broker in NAI Earle Furman’s multifamily division, said his firm expects more trading in apartment complexes at even higher per-unit prices, though it also anticipates a softening in rent growth as more apartments come on the market.”

From The Stranger in Washington. “Seattle Times’ breakdown of the current construction boom is depressing. We are building apartments like never before, but almost exclusively for the luxury class—9,000 apartments are set to open this year alone in Seattle, and none of them are for people who earn working-class and even middle-class wages. The average rent of an apartment is currently $2,400, and so you need ‘to make $96,000 a year’ not to be rent burdened.”

“Meaning, if you earn nearly $100,000 a year, 30 percent of your income will go to your apartment. Many who earn that kind of money are young and in the tech sector, and so also have college debt. After taxes, they are not sitting as pretty as you might think.”

“And then there are the reports and posts by market urbanists that promise we will be rewarded in the future when the weight of all of this construction finally breaks the back of high prices. These class of urbanists wittingly or unwittingly (I bet on the former) see the situation in neo-classical terms of pricing and complete markets. In this view, housing prices can be trusted. They represent the real world because ‘market prices are good indicators of rationally evaluated economic value’ (Robert Skidelsky, Keynes: The Return of the Master).”

“Market urbanists are not alone. The press is with them almost all of the time. In a recent story, ‘Downtown Seattle’s construction boom surges to new record, with no end in sight,’ Seattle Times business reporter Mike Rosenberg writes: ‘What is everybody building, and why? The short answer: [luxury] apartments, because so many people are moving here and want to live downtown.’ Prices, prices, prices. We might say it is the only answer that is ever provided. And we will keep giving this answer until it’s too late.”