Tuesday, October 02, 2007

What We Don't Need

Reno does not need more luxury condos (1800 of them, in three 20-to-30 story towers, in the $380,000-3,000,000 price range).

When I first heard of this project, I thought it would be condos of the someone-can-actually-affor-to-buy-them variety. I was in support of that, because there is a need for affordable housing. $380,000 for a loft? Not "affordable."

Instead, this is another attempt to cash in on once-soaring real estate prices. The base prices for these condos are unreasonable, especially when trying to appeal to "young" workers with an urban feel.

The housing market is facing severe strain - too many people trying to sell too many homes for too high a price. This will only reinforce that trend. I'm hereby against this project. It's within their rights to build it, if they can get everything approved - and I don' t object to that. I just think it's a terrible idea.

4 comments:

Rob Woods said...

Many people would agree with you - more luxury condos seems outrageous. But it seems as though the plans are for 5-10 years from now, to which our current housing crunch may be done with.

I personally like the idea of reducing urban sprawl. Having these condos / retail / office space would help boost the area.

-Dave said...

Even 5-10 years from now, if housing prices aren't based on income, then they will still be overvalued. I've read opinions that housing prices need to fall 25%, and since housing prices are very sticky, that takes a lot of time. The earliest numbers I have heard is for the current glut to last into 2009 (and that's assuming housing prices eventually fall). And that's just to hit bottom in Las Vegas, which is probably going to grow (and therefore recover) much faster than Reno with the new casinos coming online in 2009-2011.

The problem is that even in 10 years, $380,000 is an awful lot their lowest-end-loft. I think they need to dramatically reconsider their pricing structure.

Because the boom in housing prices like we saw 5 years ago hopefully won't return in 5 or 10 years, because it was simply unsustainable.

There's far too much "luxury" development, which is what everyone wants to do because it's more profitable. But there's a lot of people in Reno in the renter / sub $150,000 range... and there's a shortage of space in that market.

I'm happy with reducing sprawl if it's done for economical reasons. I don't think that South Meadows is the best place to do it, without massive changes to the infrastructure. Downtown Reno is marginal for it, but locating an urban center in a place that, by its remoteness is so very suburban... I'm pretty pessimistic about their prospects.

Kenny said...

If the market won't support the prices, won't those prices eventually fall until they become "affordable"?

So I guess I sort of hope to be able to pick my time, to some extent, and wait for a $380k condo to become significantly cheaper, and then buy it.

Given your free market leanings, I'm also a bit confused as to why you take issue with the plans of various developers, either those who are doing "luxury condos" or those who aren't providing "affordable housing." Doesn't your basic theory tell you that people will act rationally? So what's to criticize when they think it's in their best interest to develop one type of condo instead of another?

-Dave said...

Housing prices generally have trouble falling, for various reasons. Some developers are prohibited (so I have heard) from offering their homes at a significantly reduced rate, because doing so would harm the value of the homes they have already sold.

There is traditionally a long-run correlation between the average wage of an area, and housing prices. In the last 5 years, that trend has been torn to tiny shreds. This is unsustainable, because if you have 90% of the new homes priced to only 5% of the market, eventually the 95% get pinched.

But this doesn't keep people from building, trying to be the one to capture that 5%. It's a risk, but they're chasing profit. In a market without sticky prices, the over-supply would lead to prices falling. But in a market where price is given a cachet (this is a "high-end" development), that doesn't happen... at least, not nearly as efficiently.

Meanwhile, the market sees a significant over-supply of homes, and people are reluctant to build. The flurry of construction in the short-term drives up the price of materials and labor, pricing cheap-home-builders out of the market. In the long run, it discourages new construction.

Don't get me wrong - I'm not saying we should block the construction. They may well know better than I. Reno is expected to keep growing, after all. They may intend to turn the South Meadows into a live-near-Tahoe-without-all-the-snow palce for hid-middle income ranges to move, who are now priced out of Tahoe and (I am guessing) Truckee.

And it's personal for me - the South Reno area is where I'd like to be living, and I had hopes that a 30-story tower complex was going to be a large quantity of affordable housing in an area I'd like to live. But $380,000 prices me well out of the market - if I could afford that, I'd get a nice house. Heck, there was one in Colorado (3-4 bedroom) on an acre in beautiful mountains selling for $340,000 a couple weeks ago.

I think they are making a poor decision. In time, things will get more balanced. Over-priced homes will be rented out and people will find places to live (large numbers of renters seeking increasingly limited space drives up rental rates, which in turn makes renting more attractive to complexes).

I just have sour grapes that they're pricing me out of the market.

And my theory will say that people will try to act rationally, with the best information they have. But no one's perfect, and no one has perfect information about the future. Trying to claim that everyone's always perfectly rational is clearly indefensible. But saying that, on the whole, the crowd will behave in a predictable way is much more defensible. It's pretty easy for Disney to say that 5,000 people will choose to ride a given roller coaster in a day. But trying to say whether person X walking into the park will or will not is another matter entirely.