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The difference in cost between building a $1000/mo apartment and a $3000/mo apartment is negligible to the builder. Stainless steel appliances, hardwood floors,

by imgabe 10y ago

The difference in cost between building a $1000/mo apartment and a $3000/mo apartment is negligible to the builder. Stainless steel appliances, hardwood floors, granite countertops, etc are practically free compared to the cost of the land and erecting the basic structure. If you have a chance to substantially increase your future revenue with minimal additional cost, how could you not? Add to that, most of these projects are going to be financed by debt of some sort, and lenders are not going to be keen on seeing that you could pursue a higher profit margin and choose not to.

CPLX 10y ago
There's no question about that. And it definitely is an issue that nearly everything new is luxury, or semi-quasi-luxury at least. With that said there are lower income requirements usually as part of the tax packages for these new projects, and also the glut of somewhat higher end studios and one bedrooms clearly puts downward pricing pressure on all the second-tier and older units nearby as well. As mentioned, NYC isn't perfect but it has a reasonably functioning democratically elected city government that at least tries to deal with major urban issues and occasionally succeeds. Which I've heard anecdotally at least makes it a little different from San Francisco.
aidenn0 10y ago
This is fine because a 10 year old apartment with chipped granite countertops, dingy hardwood floors, and aging appliances will rent out for cheaper. Apartments in wealthy cities are always "trickle down" more than "build cheap."
- jandrese 10y ago
  It would be pretty exceptional for a landlord to knock 2/3 off of the rent for an apartment just because its getting run down. It would have to be a real renters market for a good long while to push prices down that far.
  - aidenn0 10y ago
    My point was that an increase in supply of new luxury apartments does almost as much to generate a renters market as an oversupply of new modest apartments, and it's way easier to get builders to do the former than the latter.
- billmalarky 10y ago
  Trickle down housing actually works though because real estate gets used (in high demand areas). Developers build at the high end for the most profit. When those that can afford it move into new fancy digs their vacated units become available to others for less.
OrwellianChild 10y ago
This is fine for new construction. Building more at the high end puts downward pressure on prices in the middle, which in turn puts downward pressure on prices in the affordable housing space. This is called "filtering" and it's been shown to work. A relevant quote from City Observatory summarizing research and implications: But very little private housing in the United States was originally built for low-income people. Instead, homes built for the middle or even upper classes gradually became cheaper as they aged, as people with high purchasing power moved into trendier, more modern homes in “better” neighborhoods. As higher income households move on, the now somewhat older homes or apartments they formerly occupied are sold or rented to people with more modest incomes. This process is called “filtering.” While the evidence that filtering is a real phenomenon has been around for a long time—the core of nearly every American city contains neighborhoods with once-luxurious homes now occupied by people of modest incomes—the first study to provide a rigorous measure of how it happens was published only in 2013. In it, Stuart Rosenthal of Syracuse University uses nearly 40 years of data from the American Housing Survey to figure out the average pace of filtering across the country, and what makes housing filter more quickly in some places than others. [1] [1] http://cityobservatory.org/what-filtering-can-and-cant-do/ http://cityobservatory.org/what-filtering-can-and-cant-do/
gozur88 10y ago
>The difference in cost between building a $1000/mo apartment and a $3000/mo apartment is negligible to the builder. So you decrease the square footage from 1400 to 700. You have to have customers willing to buy your product, and there are only so many $3000/month apartments you can make before you run out of people willing to pay that much. Either large numbers of last year's luxury places are moving downmarket or you won't be able to sell the building for what you expected.

by imgabe 10y ago

CPLX 10y ago

There's no question about that. And it definitely is an issue that nearly everything new is luxury, or semi-quasi-luxury at least. With that said there are lower income requirements usually as part of the tax packages for these new projects, and also the glut of somewhat higher end studios and one bedrooms clearly puts downward pricing pressure on all the second-tier and older units nearby as well. As mentioned, NYC isn't perfect but it has a reasonably functioning democratically elected city government that at least tries to deal with major urban issues and occasionally succeeds. Which I've heard anecdotally at least makes it a little different from San Francisco.

aidenn0 10y ago

This is fine because a 10 year old apartment with chipped granite countertops, dingy hardwood floors, and aging appliances will rent out for cheaper. Apartments in wealthy cities are always "trickle down" more than "build cheap."

jandrese 10y ago
It would be pretty exceptional for a landlord to knock 2/3 off of the rent for an apartment just because its getting run down. It would have to be a real renters market for a good long while to push prices down that far.
- aidenn0 10y ago
  My point was that an increase in supply of new luxury apartments does almost as much to generate a renters market as an oversupply of new modest apartments, and it's way easier to get builders to do the former than the latter.
billmalarky 10y ago
Trickle down housing actually works though because real estate gets used (in high demand areas). Developers build at the high end for the most profit. When those that can afford it move into new fancy digs their vacated units become available to others for less.

OrwellianChild 10y ago

This is fine for new construction. Building more at the high end puts downward pressure on prices in the middle, which in turn puts downward pressure on prices in the affordable housing space. This is called "filtering" and it's been shown to work. A relevant quote from City Observatory summarizing research and implications: But very little private housing in the United States was originally built for low-income people. Instead, homes built for the middle or even upper classes gradually became cheaper as they aged, as people with high purchasing power moved into trendier, more modern homes in “better” neighborhoods. As higher income households move on, the now somewhat older homes or apartments they formerly occupied are sold or rented to people with more modest incomes. This process is called “filtering.” While the evidence that filtering is a real phenomenon has been around for a long time—the core of nearly every American city contains neighborhoods with once-luxurious homes now occupied by people of modest incomes—the first study to provide a rigorous measure of how it happens was published only in 2013. In it, Stuart Rosenthal of Syracuse University uses nearly 40 years of data from the American Housing Survey to figure out the average pace of filtering across the country, and what makes housing filter more quickly in some places than others. [1] [1] http://cityobservatory.org/what-filtering-can-and-cant-do/ http://cityobservatory.org/what-filtering-can-and-cant-do/

gozur88 10y ago

>The difference in cost between building a $1000/mo apartment and a $3000/mo apartment is negligible to the builder. So you decrease the square footage from 1400 to 700. You have to have customers willing to buy your product, and there are only so many $3000/month apartments you can make before you run out of people willing to pay that much. Either large numbers of last year's luxury places are moving downmarket or you won't be able to sell the building for what you expected.