The Housing Bubble

A weekend topic on market distortions starting with Washington City Paper. “It seems like there’s nothing real estate developers haven’t figured out a way to glossy-up. The new generation of group houses popping up around D.C. and the DMV, called ‘co-living’ apartments, are like the Everlane of the housing world—a comfortable, tasteful basic that’s inoffensive enough to appeal to a broad range of palates and sensibilities. ”

“One such company, OSLO, has leaned all the way in to the Zeitgeist: ‘You might hit the snooze button a few too many times,’ an orange-and-grey card on its website flashes, before showing, inexplicably, a glossy photograph of a white woman’s legs sticking out of her leopard-print coat. Other missives include ‘you might not be using your liberal arts degree;’ ‘you might cuff your jeans too many times;’ and ‘you might not be saving 10 percent of your paycheck.’ It’s a nod to the fact that young adults tend to have negative savings, and then a wink and a shrug: Life’s hard, it seems to say, so why not pay a premium to live with like-minded people?”

“OSLO is one of several companies cashing in on the fascination some young adults have with living alongside a pack of lovable screw-ups à la New Girl, reinforcing the stereotype that millennials are pretty and misguided, cashless and pathless. All told, OSLO is more like an apartment building where your landlord just happens to pick your roommates for you.”

“Across town, on Richardson Place NW, Common operates an apartment building that has vexed neighbors since the beginning of its development in 2016. A septuagenarian neighbor complained at the time that Common is ‘basically a glorified rooming house’ and ‘too big for the immediate context.’ The fully furnished two-story, six-person apartments will run each tenant between $1,425 and $1,700 per month, a fee that includes weekly cleanings (yes, the housekeeper will wash your dishes), all utilities and furniture, and basic supplies like salt, pepper, olive oil, and garbage bags.”

“In addition to another location in Chinatown, Common also operates buildings in Seattle, Chicago, San Francisco, and New York City. On its website, Common boasts a savings of $500 on average in D.C. for its memberships compared to a traditional studio rental. A closer look at the company’s savings breakdown shows that this ad is predicated on the assumption that someone living in a D.C. studio apartment will pay $1,795 for the apartment, plus $240 a month for a housekeeper and $110 for utilities, among other costs (none of which are even close to true for this reporter, even during the summer’s sweatiest months when the air conditioning is on full-blast). The same is true for its calculation of what it costs to share a Craigslist apartment with friends, which it estimates will run a tenant $1,610 per month in D.C.”

From The Takeout. “It’s an apartment so small, you wouldn’t be blamed if you thought it was in the heart of Manhattan. But this 200-square-foot residence actually exists in a pricey area of St. Louis, and is so compact that the kitchen has to bunk up with the bathroom: The toilet, bathtub, oven, and sink are all in one room.”

“This tiny splendor was advertised at $525 a month, and is now rented. The AP reports that Harold Karabell of S.F. Shannon Real Estate Management says the new tenant loves it: ‘Toilet/kitchen combo aside, Karabell says the apartment has a lot to like, including refinished hardwood floors and new windows.’ Spoken like a true real estate agent.”

The Jacksonville Daily Record. “The Indianapolis-based developer with three luxury apartment communities in Jacksonville this week purchased property to construct another multifamily neighborhood. Becovic Management Group purchased 16.75 acres of undeveloped land on Gate Parkway for $2.7 million. Becovic President Muhamed Becovic said the company plans to build about 230 ‘high-end’ units in four- or five-story buildings.”

“Amenities include a saltwater pool, dog park, walking trails and a 24-hour fitness center. The community hasn’t been named, but Becovic said they are considering something with the words ‘banyan wood.’ He said that other metropolitan cities in Florida, such as Orlando and Miami, are oversaturated, but that Jacksonville still has room for growth.”

The The E’ville Eye. “Zumper published their latest monthly rental report for the Bay Area that covers 30 cities in our region. Emeryville dropped from fifth to the sixth highest rents in our region. The price of one bedroom units also fell, dropping 3.7% to a median of $2,890. Two bedrooms dropped 4.2% to a median of $3,670.”

The Yorkshire Post. “There was nothing luxurious about student accommodation but over the last decade the scene has shifted and for many students, the days of sharing a bathroom with four others are long gone. With fees over a three-year degree course approaching £30,000, it appears that students are no longer prepared to accept poor quality accommodation. According to property agent GVA, the latest generation of student accommodation typically includes fast broadband and wi-fi, shared study areas, plus flexible communal facilities in a secure environment.”

“However, there is also a growing appetite for the top of the market with buildings featuring fitness suites, gaming pods and even private cinema rooms. Most new student accommodation is now provided by the private sector as universities focus on funding the core areas of educating and research. Figures by JLL show that the number of student beds in Yorkshire has risen by 48 per cent, from 45,000 to almost 67,000 in the last five years, despite the number of full-time students only rising by one per cent during the same period.”

“‘We consider the market to be balanced with little scope for further new schemes unless exceptionally well located,’ said GVA directors Roger Lown and Dai Powell. Meanwhile, in Sheffield, which is home to two universities, there is a significant pipeline of accommodation in the city. There are approximately 21,000 existing student beds with a pipeline of a further 9,000 beds, according to GVA.”

“Mr Lown and Mr Powell added: ‘If all of these are built there is a significant risk of an oversupply. However it is by no means certain that all of the schemes with planning permission will be built.’ So is the student housing bubble about to burst?”

From Newshub. “A massive haul of nail guns, drop saws and other power tools went up for auction in Christchurch on Thursday as part of the liquidation of Maven Interiors. It’s just the latest building company to go under in the city as earthquake work dries up, leaving tradies without work. All that’s left of Maven Interiors is its tools, lined up at the auction house at a bargain price for those still gainfully employed.”

“‘A lot of people got really comfortable with the way it was and how busy it was, and how good the money was and that sort of stuff - and now, obviously, it’s changed,’ explained Joe De Leijer from Competitive Painters. Builder Chris Sinclair is one of those who had to downsize to survive, reducing his staff number from 36 to just a dozen. He got by, picking up other work - but others are not so lucky. ‘The worst thing to do is when people start dropping their prices because they’ve not got the work, but those prices aren’t accurate,’ he says.”

From Standard Media. “Stanlib Income-Real Estate Investments Trust might have pinned its hopes too high when it sank the first cash it raised into Greenspan Mall. The allure of shopping malls that has taken hold in the country for a while now is quickly fading, leaving the South African-based financial provider along hundreds of other investors in a discomfiting financial position.”

“‘Rental income has come slightly under pressure due to a temporary increase in vacancies coupled with some tenants bargaining for reduced rentals upon renewal of leases,’ Stanlib said in a statement.”

“Most investors were lured into setting up malls by the gospel of an expanding middle class. Property consultancy Knight Frank in a report extolled the manner in which ‘the retail property sector has been a major focus for development activity within Africa over the last decade, causing the shopping mall concept to take root in increasingly wide range of major African cities.’ It noted that this growth has been driven by, among other factors, the explosion of the continent’s ‘consumer markets.’”

“However, it appears like the middle-class hype was just that, a hype; the mall bubble has finally burst. Kenya’s floating middle class noted AfDB, is at 44.9 per cent and without them, the country’s middle class would be at a low 16.8 per cent. The middle class that investors have tumbled over each other for includes this consumer group that is closer to poverty than riches.”

“Today, of the 10 biggest malls in sub-Saharan Africa, three are in Nairobi. Two Rivers Mall, Garden City Mall and The Hub are ranked second, third and fourth largest malls respectively behind South Africa’s Mall of Africa which is the largest in Africa, straddling 131,000 square feet. Experts have described the shopping mall craze as a ‘ticking bomb.’ Returns on these investments have been on the decline as too many malls scramble for a few moneyed shoppers.”

“British magazine The Economist, in a special report titled ‘Business in Africa,’ declared: ‘This is the Africa of business magazines and bank ads: A continent that is rising at a prodigious pace and creating profitable new markets for multinational firms.’ The magazine noted that there were 1.2 billion opportunities in Africa. Nairobi, specifically, was described as ‘a city of malls and highways’ by the magazine. And Garden City, which had just been opened, was celebrated as ‘the latest temple to consumerism.’”

“Today, Garden City is easily another ghost mall with an embarrassing sight of empty floors and deserted parking lots.”