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People building luxury apartments in Boston fret they're building too many
By adamg on Thu, 01/17/2013 - 8:06am
Well, not them, of course, but all those other developers. The Boston Business Journal explores the angst among developers about the 6,000 or so luxury apartments that could be built in Boston over the next couple of years.
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Comments
Geez, that sucks. It's too
Geez, that sucks. It's too bad there isn't demand for affordable housing anywhere in Boston proper. I guess if they can't fill the units though ... well, luxury is their only option.
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Congrats to BBJ
From the article: "The Boston Business Journal first raised the issue of too many apartments last March."
Yay for them. I've been asking this question on UHub for over a year now whenever another one of these developments would get announced while nothing more reasonable gets built for the rest of us.
Where's the Market Analysis?
I'm wondering if there are ever any market analyses that accompany these proposals? Or, do they always propose "luxury condos and apartments" because they think that will fly better with the city than "moderately priced family-friendly housing"?
In some suburbs, "luxury housing" has the derisive nickname "vasectomy housing" - meaning, it will get approval because city officials essentially rampantly discriminate against middle income people because of their kids. This is also why "Over 55" housing is massively overbuilt.
As Rents Continue To Skyrocket...
One man who benefits financially from a limited housing supply is brave enough to ask, "Should we be doing more to make sure supply stays low?" Bravo, sir!
All kidding aside, maybe there's too much luxury, but I hope this doesn't turn into an argument against new construction. Any city with rents as crazy as ours desperately needs more of it.
Just thinking out loud
Just thinking out loud here:
Sure, I'd love to see more affordable housing in the city, but it seems like there's no incentive for builders to do that, and if they weren't building these units, there'd be nothing being built in their stead? Am I wrong in that?
Personally, and this might just be my own personal aesthetic taste, I like seeing buildings being built downtown on the empty parcels, and welcome developments like the one at the Garden which are just parking lots right now. Personally, my sense of use is offended by surface parking in any form anywhere close to downtown. It seems like a waste to house cars in that space. I'd like to see buildings or parks/open space rather than a parking lot any day!
Seth, I absolutely agree that
Seth, I absolutely agree that I would rather see more people living downtown and walking/T-ing to work. However, as was mentioned above in the context of suburban "luxury" housing, once all the high-end earners who want to live downtown have condos, the remaining are either purchased as corporate housing (usually for temporary residents) or marketed to retirees/other non-workers. Nothing against retirees, of course, as I want to be one myself someday, and nothing against younger folks who can afford to not work (I also buy lottery tickets sometimes) but what would be most practical, and would help DT Boston hang on to its remaining shreds of diversity, would be to have housing affordable to people working in the downtown neighborhoods now rather than affordable sometime in the future when their days working downtown are numbered or over. My non-scientific observation is that about as many people who want to live downtown and can afford it, are here. Maybe a little more of a market exists, but not much. However, plenty of people who would like to live near where they work cannot afford a place downtown.
I don't know how much it has changed but about three years ago when looking for a condo, I checked out some of what was available in Chinatown & Bay Village, the North End, what used to be known as the Back of the Hill, and other spots near DT and except for a few teeny places and for the BRA set-aside properties, it was laughably beyond what we two adults with steady pretty good jobs could afford. Both of us work downtown; actually, Monsieur B. worked third shift downtown so a condo nearby would have been particularly nice. We're happy where we are, and actually our neighborhood has a more interesting cross-section of people & places than DTB is nowadays, but no doubt downtown would be more convenient.
At least bad, maybe worse
This could get ugly. On top of the usual problems of a real estate crash, it impacts Boston's city budget directly:
1) The city's revenue isn't growing except for taxes generated by new construction. We aren't building and don't need much office or retail and hotels aren't that big a piece of the market. If we stop building condos, essentially the city loses any ability to grow its budget and meet the raises guaranteed by current union contracts.
2) If the values of luxury units comes down, the decline will ripple through the high end market. Unlike in other parts of the country, taxes on those units doesn't disappear as their values go down. Those taxes shift to everyone else under our system. The luxury market is a LARGE piece of the roughly $650 million in residential taxes. If their taxes go down by say $40 million (I'd estimate about a 20% decline), that gets paid by everyone else - driving their taxes up by roughly 12% - on top of the usual 2-4%increases. As buyers of the city's more moderate properties have to pay more for property taxes, that's less for buyers of those properties to pay on their mortgages and will obviously indirectly impact their values as well as buyers allocate more to taxes and less to leveraging the purchase of their homes.
3) An even worse case scenario - this coincides with a significant rise in interest rates which are at unheard of lows - meaning it's probably coming. Because of the way commercial properties are valued, this will crater the commercial tax base. Forget tens of millions, that would push hundreds of millions onto residential tax ledgers (for different reasons this happened about 10 years ago and currently costs the residents about $175 million a year as I write this- over a quarter of the taxes you pay).
4) If these two things happen simultaneously, depending on some highly complex and completely unpredictable interactions of tax formulas - you could see some incredibly serious consequences for Boston real estate - far too complex to get into here. But the worst case scenario is that if values fall or even stagnate, in about 6 years the total amount of taxes Boston can collect hits a statutory maximum and it effectively brings growth of the city budget to a complete halt.
Hard to tell - but at the very least a high end market crash will almost certainly bring economic hardship to the city coffers. The armageddon scenario is actually not that far fetched. If the city's total real estate values increase at about the rate of inflation - probably no problem. If they remain level, we hit that statutory max in 6-8 years (and maybe can legislate/plan around it somehow). If we have a recession or rapidly rising interest rates coupled with a crash of the high end market - all bets are off - this probably occurs in 2-4 years.
This is not simply a matter of rich people and developers losing money - and versions of this have already occurred twice (early 90's and mid 2000's). If the high end market crashes - it will have a MAJOR impact on the city. From there a number of variables will dictate exactly how major.
Guaranteed Raises?
This is kind of off topic...
...but given that municipalities across the country, including large cities such as San Fran and NYC, are buckling so heavily due to out of control public compensation that is drowning out so many of the other budgetary needs of the city... don't you think it's time to start fixing budgetary problems like those?
I'm pretty sure that the private sector that largely pays for everything doesn't have concepts like guaranteed raises or absurd pension obligations most public sector employees are getting.
Cities are taking more through taxes than ever before, but it's not solving their infrastructure or services problems, and simply raising taxes has no shortage of fallout - largely a vicious cycle of increasing the cost of living in an area. We need to get our budget under control before we are suffering the same fate as California, DC, and New York/New Jersey.
As a taxpayer, I'd much rather the government focus on policies that encourage development of affordable housing than guaranteed kickbacks to all the special interests we over-pay for...
There's no reason that non-luxury housing can't be a profitable venture for businesses too, yet also no reason that the city should deserve taking more of our money while the quality of services delivered regularly declines.
Rental vacancy rates are
Rental vacancy rates are ridiculously low downtown right now. I believe they are somewhere in the 2 to 3 percent (or less) range. The biggest concern on the part of developers is that you are going to have a few major projects (Victor, Kensington, Kingston, Exeter) coming online at once between Sept. 2013 and March 2014. While the market needs more units, there is going to be a lot legwork to get these units filled immediately. But based on the current demand downtown, they will be filled in fairly short order.
In terms of pricing, I think the word luxury has virtually no meaning anymore. Basically it means granite countertops, some form of hardwood/laminate flooring, and stainless steel appliances. I can show you a condo building in Revere that has all of these ammenities, where 2-bedrom units were selling for less than $200,000 in 2012. The reality is there are a fair amount of people paying $1,700 to $2,600 per month rent for a studio downtown. And that's why the pricing is being set at that level.
Supply and demand
If there are too many luxury apartments, then the management companies who own them will have to lower the rents, turning them into affordable apartments.
It's like magic!
Is that how it really works?
Is that how it really works? Or do they let them sit vacant and take the write-off?