Remember all those condominiums being built in various downtowns, and how they were supposed to herald the return of people to the cities? Not so much.
“We’re in for a fairly ugly correction,” says the president of Trammel Crow Residential. It turns out there are 5.5 million vacant homes out there, mostly purchased by speculators who expected condo and other home prices to go ever upwards.
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What seems to happen is that some developer will realize there is an untapped market for a new housing type such as condos or mixed use. The first one built will be highly successful, causing other developers to jump in. The market might be able to support, say, five condo towers, but before you know it, ten are going up and it is a race to be among the first ones done. Everyone else is in for pain and hard times.
I suspect the same thing is happening with mixed-use developments in Houston, one of the few cities that so far isn’t subsidizing such developments. The article cited above is headlined “rental apartments a bright spot in a dim housing market,” but the article notes that 10 percent of single-family rentals and 11 percent of condos are vacant, so that’s not much of a bright spot.
This is ridiculous.
This article was written specifically with regard to a conference on Multifamily housing. Its focus is multifamily housing for this reason, not because condos represent some dramatic hole in the housing market.
Randal, how many of those 5.5 Million vacant homes are condos? What’s the vacancy rate on single family homes? These are critical questions if you believe that condos represent a uniquely compromised position in the market. I contend that everything you wrote about the boom, and developers excitedly jumping in to a swollen market is true about suburban single family housing as well, not just in high density, mixed-use developments. Massive single-family developers like Toll Brothers are the strongest indicator of decline.
The only point of comparison in this article states that condos and single family housing are both expected to have 22% fewer starts in the next quarter. That would imply that they are equally weak, and that the “condo boom” is a symptom of a larger housing slump.
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Who cares? That’s the real estate development market.