Before we experience the real fears and dreams of archnicters who work at the hard end of the economy. To clarify:
Double dipping is not a favoured behaviour of crude diners who reproach the dipping mixture with half eaten food, or daring sexual behaviour between three consenting adults (2xm & 1xf). We are taking about economics, consumer confidence, and the construction sector.
The following two sides are given from Architects who operate in the UK where our economic recovery was revealed to be at a critical stage. This following the new governments key aim of significantly reducing the national debt, quick time: Slash the public sector and associated regional services, stop capital infrastructure investment, raise tax on general goods from 17.5% to 20%.
I think that now I have been made redundant, once this economic debacle passes I am going to feel as if I was double dipped either way!
As lifted from last week’s Building Design:
DEBATE
Are we heading for a double-dip recession?
’Yes’
Maribel Mantecon, project architect, CZWG
Yes, of course we are. Not least because we, and the media in general, keep talking about it – making it a self-fulfilling prophecy. The economic system that supports our way of life relies on consumerism and faith in the system. If we believe things are going well, we go out and spend, buy houses and create jobs. If we are told that doom is upon us we lock ourselves away at home in fear.
Undoubtedly, historic confidence in the stability of the banking institution has been heavily eroded and our new government does not seem to be about to support any Keynesian “New Deal” style policies. With little public money pumped into the economy it may not be just a double dip but one followed by a scrape along the bottom of the economic graph.
Banks’ cautious lending coupled with the government’s and the media’s stance may be pushing towards a double dip in the economy, but we have the opportunity to emerge as a fairer, more sustainable and happier society.
Why, with so much unemployment, do we work the longest hours in Europe? Why is the gap between the richest and the poorest increasing with every generation? A forced reassessment of our consumerist lifestyles and dependencies could lead to a fairer distribution of work and wealth and an increased quality of life.
Of course one could doom-monger and say we may head towards a Mad Max anarchic violent state. Our choices will determine our future, but a rapid return of the economy to where it was a few years ago is hardly likely.
’No’
John Bushell, principal, Kohn Pedersen Fox Associates
A double-dip recession is not inevitable. What is most likely is a long haul of recovery to a rather different looking economy, with variable fortunes and no generalised all-encompassing trends or comfort. The recession was an implosion of a key component of the economic system, the financial sector, and until that component is fixed, not necessarily to its original state, then recovery will be slow.
The first case for optimism is evidence that lessons are being learnt. “Time to wait, watch and act as necessary,” concluded the Bank of England and Federal Reserve last week. The independence of these institutions enables a balance to be made on some of the recessive pressures of the coalition government’s deficit plans. Second is the huge amount of capital and resource available, globally, for investment. With appropriate objectives and policy conditions the UK is well positioned to benefit.
As an industry, we have an opportunity to “fix” and transform our built environment and encourage business patterns which are sustainable, adaptable and authentic.
Essentially this crisis is not the result of a lack of resources or demand but a shortage of understanding. It is complex and no one can really predict or control what happens. Experts, however, pore over every fresh statistic and theory which in turn is sensationalised by elements of our media; we should avoid talking ourselves into a double-dip recession and instead build on a more sober, higher quality and effective future.
______________________________________________________________
"Yes" - nothing has changed, besides trillions in debt. No one talks about any changes (FinReg doesn't really count, here in the US), just earnings again. Stocks rule the day, and the financial institutions have taken full control of the stock market (High frequency, etc.).
Patching a gaping wound with a solid gold bandaid. It'll fall off sooner or later, leaving us much more exposed, psychological impact will be worse than anything as everyone retreats into total saving mode, stagnating our economy.
Politics - worse than ever. Both sides are stupid and self serving. Amazing how there is total disregard for honesty or true discussion (again, on both sides). I officially hate both parties.
More of the same. No difference with Obama vs. Bush, really, from what I can see. Same players, same policies, more or less. I had high hopes, but haven't seen anything new. That, and there is NO discussion of job creation (which should have come before health care and finreg)
Wars - why are we still at war?? Anywhere? Doing nothing measurably good, costing us $12billion per month! For God's sake!!
Banks - unlike past recessions, the banks have locked their vaults. No loans = no growth = no jobs = equals death to us all (and a slow one).
Deflation - more and more talk of it being a possibility. The "lost decade" of Japan.
"No" - the world (and people) are resilient, as soon as there is one positive sign of real job growth we'll be off to the races.
Money - there is TONS of money out there, waiting for a sign. This includes re development
Cost of money - so cheap now, that when things do start in a positive direction, there will be a stampede to get the cheap money (both on the borrowing side, the consumer side, etc.).
Earnings - pretty good now
Stock prices - not too bad now, either, considering
(Naive) Optimism - this I think is too hard to tell. People will forget this quickly, if we come out screaming. There is no 'correct' approach, so no one can promise a better future (we can't have a 'better' future, if all save everything).
I agree that the press is controlling a lot. I watch CNBC all the time, and it is amazing how they'll grab a group that has a consensus view (either positive or negative) and just drive it into the ground.
Regardless of where we go, this is a lesson. Personally, I'll be getting my little cabin in the mtns, suitcase full of cash (or gold), guns, water and canned food!! If not now, we'll surely be back here again in my lifetime!
makes for good reading trace. half of me wants it to get worse so that governments can truly question the roll of society and the power of the market. the other half is more pessimistic as I doubt an system overhaul is in the offering.
Thanks BOTS for posting this, and thanks trace for adding some color commentary to it.
Just thinking of these issues gives me a major headache.
Destruction of middle class has proven to be extremely profitable. It's not a sustainable practice, but it falls in line with short-term-profit MBA approach to economics.
We have also reached a very mature stage of capitalism. All the established parties are deeply entrenched in way of doing business. Noone is willing to concede even an inch for the promise of a mutual benefit...
I'm not sure where our profession fits into the greater scheme of things. On one hand we are at mercy of big money players. On other hand, our influence is comically limited.
We all saw this recession coming as early as 2006. It was just a matter of time, and it was to resemble the recession of late '80-early '90s. So far it has.
As far as the original post on double dipping goes: UK has it extra bad when it comes to horrible political decisions. Shrinking public services while the economy crumbles is a perfect catalyst for prolonged recession.
We are teetering on an edge - either we'll continue to scrape along for a bit, the probably boom upwards once there is job growth....or we fall off the cliff and the world ends
the economy's in nowhereland. I went to a talk the other day by the CEO of one of the more astute NYC property developers, and he was saying that "substantial" employment recovery in the city probably won't happen before 2014 to 2017.
We're looking at a second lost decade (on the back of the last lost decade, from 2000 to 2010. Which pretty much makes it a lost generation.
Meanwhile, the college baord is saying that the proportion of young Americans getting college degrees is in sharp decline...
Come 2020, maybe China will be willing to buy us. Epic fail.
And that is what terrifies me the most. There are those of us barely treading water that cannot wait another 3 years. Firms, investors, and developers have money. Where is the spending and growth?
Developers have no money. Investors and banks have the money, but they aren't giving it to the developers.
Banks are the biggest problem. With the increased pressure for better balance sheets comes less interest in risk, which means no loans to developers.
Developers want to build, trust me, but are getting screwed left and right by the banks (which, in turn, screws me, the architecture profession, and everyone else in line).
Banks are also not lending to individuals that don't have stellar credit, and with the way the job market is, security is a rare thing. This compounds it all - no loans for the buildings, few loans for the buyers.
Until the banks loosen up the credit (and we get back to 'business as usual over leverage'), then the economy will continue to barely move.
At the end of this, the banks that took the mediocre loans with far too much leverage will fail. Those that are financed by deposits or other 'real' money, will prosper greatly as they take over the markets. This is already happening and there are some signs that the stagnation is loosening a little. After all, the banks don't make any money just sitting on their money, they need to lend, and developer's are some of the most profitable clients.
Urbanist - I am thankful not to be in a boom city. The pricing in places like NY, Vegas, etc., were just so far out of whack and the inventory that is out there still priced too high...it just ain't pretty and there won't be growth until there is a flush out.
But some of the other cities out there that didn't go booming aren't looking too bad as far as growth.
"I am thankful not to be in a boom city. The pricing in places like NY, Vegas, etc., were just so far out of whack and the inventory that is out there still priced too high...it just ain't pretty and there won't be growth until there is a flush out."
I think that's the biggest hurdle to recovery. Even in places that haven't ballooned out of proportion, there is a huge stock of units that have not been sold. Idea of more development seems unnecessary at best.
For an average American making around $45/year ($44k is national median) realistic borrowing potential is less than $200k. You can't buy a parking shed for that kind of money in most major cities. In smaller markets you will also make less money.
Real estate ownership is becoming an illusion for increasing number of people. I know it was for me and most of my peers back in my NYC days.
Real estate has gone off the wall in the last decade. Together with cost of education and health care. Something has to give in order for us to proceed forward.
I know the name of the 'double dip'. It's called inflation, and sooner it happens the better we will be off in the long term. Like measles!
This is creating opportunity, though, for developers (this is what we are targeting). There is a large movement going from the suburbs back into downtown-ish locales. This is going to kill the suburbs and companies like Pulte, but creates opportunity for those nimble enough to adapt.
You can buy something for that price. It'll be small, but you can still get it. BUT developers haven't offered that because the market was much higher, people wanted big, etc.
People simply need to be more reasonable. NO ONE needs a 4000-5000 sf home to raise a family! That's crazy. But that's what many Americans believe (or believed, that market is next to gone and won't be back anytime soon, if ever).
So once the banks start lending, we will be off to the races, just with a different product. That's fine, imho.
(if inflation was the only concern, I'd sleep well at night!)
@trace: I look forward to this new type of product. There indeed, appears a missing link between $200k condo studio and $600k house.
I never fully understood why a high-density development costs twice as much per sq.ft. than a fully detached house. My only explanation (from first hand experience) is that most developers are in it for profit, quality product coming in distant second. Hopefully the recession weeds out jokers from visionaries.
Having compiled dozens of project manuals for residential developments in the last decade, I feel sorry for anyone who purchased one of these 'back-to-urbanism' units. If the developers weren't legally required to utilize architectural services, they would have outsourced the design to their 12 year old nephews. The variation between construction documentation and what was actually built has been embarrassing.
As far as inflation goes, it IS a huge threat. Major commodities are still being globally traded with US $ as the measuring stick. An inflation of any kind would shatter the illusion of US prosperity. It would destroy the profits of big players. Do you want to pay $23/gallon? You will, it's a question of when...
steelstuds, that is a really good question. It is curiosity that in the US high rise buildings are considered luxury, when all rlogic would suggest that they should be cheaper, and indeed in many other markets, they are cheaper.
In Hong Kong, for example, the poor all live in very tall, and quite dense high rises. The wealthy also often live in high rises, and only the super wealthy live in something resembling a US single family home.
Synergy, the poor of America HAVE been living in dense projects. Only in recent years has urbanizam been used as a feature in real estate business.
In order to separate the product from iconic ghetto, the condominiums are being marketed as luxury (I despise that word) items, complete with all kinds of support facilities and unnecessary finishes.
A tiny condo unit may be in price range of a first time buyer, but if you are looking for a 4 bedroom condo, you will get 3 times as much sg.ft. for the same price by purchasing the fully detached house 5 minute drive from there.
There is a tremendous opportunity for a smart developer to explore a non-existing housing type.
In your example (Honk Kong), the political situation has governed the nature of urban development, and the outcome is fairly logical. In US, the land of infinite space, things are getting crowded for the first time ever, and the price of that large front lawn and monster back yard is an hour+ commute each way to work. Every day.
During the housing boom, many developers plastered large banners on their building that said "if you lived here, you'd already be home", aimed at tired commuters passing down the street. I wonder what the new slogans will be 7 years from now when recession ends...
ss - the price per sf won't be any cheaper, the finishes will be no less than what you'd expect in the middle range (stainless steel apps, wood floors, granite counters, etc.). Actually, you can get away with a higher $/sf because you are making them small - it is the overall cost that is important, not the $/sf, at least in our research.
People just want cheaper, but still want "luxury". I fall into this market, too. I grew up in a reasonable, mid century modern home, so 1500-2500 for a full family seems adequate. You won't get that in an urban area, just too expensive to build, but you will get the 700-1500 sf condo.
Inflation is of course a concern, but it is this "double dip" and deflation that is the largest concern. We haven't had any meaningful inflation for a while now, not too scared of a little creeping in (and from what I see in the markets, they'd welcome that just to know we won't slip into a 'lost decade').
But what do I know. I'll be celebrating the moment I see:
1. Reasonable job growth (esp. since it is a lagging indicator)
2. Client's getting construction loans (this is actually the most important, so far, no one can get funding, which means nothing is moving in the banking/credit markets, which means we are stagnant and going nowhere)
I'm trying to bite my tongue and remain out of this conversation.
But I think overall 'top-down' federal policy maybe makes up 1/3rd of the overall problem.
Instead of making broad general statements to the US-- I'll relate my problem more locally (which would also apply to a portion of the Eastern seaboard and the sunbelt states).
Florida has between 19,000,000 and 20,000,000 people in the entire state making it the 4th largest state in the union. However, despite the high population and the incredible amount of wealth produced within the state... we're not much of a power player when it comes to the rest of the US.
Other than exporting tourism and hilarious news, Florida isn't a New York or California outside of the state.
The state of Florida has approximately 6-7% of the entire U.S. population.
Despite the massive population, this is a sad breakdown to make:
2-2.5 million live in functional urban environments
3-4 million live in semi functional urban and suburban environments
10-13.5 million live in dysfunctional urban, suburban, exurban and semi-rural environments
0.5 million live in functional rural environments
This is not necessarily an anti-suburbanism rant. However, fundamentally many suburban environments cannot "fully mature."
In Florida, we have some basic [infrastructural] problems that prevent job creation and growth:
-- Low levels of alternative transportation combined with low wages
-- Limited sewage coverage, limited sources of reclamation water
-- Limited access to parking structures and in certain communities a general lack of parking
-- Zoning and building codes that prohibit low- to medium- rise buildings
-- Single use zoning
-- Lack of incorporated areas
-- Lack of flexible utilities-- i.e., utilities were value engineered for a specific peak capacity
So, even if an area had the demographics to support a business, had the housing inventory or didn't have significant social barriers (crime, poverty et cetera)... many communities simply can't accommodate job growth because they were built in a way to prevent or protect a singular or limited variety of development.
Where this ties into the "bigger" picture is that throughout the 1990s and 2000s, the US has built a tremendous amount of single-use, single-function properties.
Economy is a function of place. If you were to symbolize the economy as a machine, we've basically put too many wrong-shaped sprockets and cogs. It still works but does not necessarily work well. And unlike policy changes, places are pretty much forever.
Especially in Florida since the power of eminent domain-- as a wealth distributor-- is no longer legal. And many people are striving to make condemnation illegal soon, too!
Policy is certainly an issue... but I think a majority of people in the U.S. have overlooked that place is more important than policy when it comes to job creation.
"I never fully understood why a high-density development costs twice as much per sq.ft. than a fully detached house. My only explanation (from first hand experience) is that most developers are in it for profit, quality product coming in distant second. Hopefully the recession weeds out jokers from visionaries. "
steelstuds: did u count the land price in? Normally the land cost 30-45% of the total construction cost, at least this happened to china.
1. high density tends to built closer to the the center/at more valuable locations, where land costs more. So the land residual is going to be larger - sometimes much lerger - psf for multi-unit. In some areas, land-residual is up to around half or even more of property value.
2. construction costs differ. A single family, steel stub wood frame house might be buidable for $150 psf in some locales, but reinforced masonry mid-rise might be $250 psf in the same locale. A 30+ story steel and glass tower might be $400 psf or even much much more. Construction costs differ substantially by location (union vs non-union, price of steel and other materials, etc.), but the typological differences ar e huge.
3. supply and demand. Multi-unit is underzoned in many small and mid-sized American cities, where zoning has customarily favored single family homes. This amounts to a regulatory subsidy on single-family home costs, given the distribution of the infrastructure burden.
unfortunately no. If there is such a resource, I could stop paying out fees to cost estimators, so please let me know if you find one... I hate sharing my fees with them bean-counters ;-P hehe..
Haha. Your closest source on that cmrhm is two places-- pr operty tax records and the other place is buying a subscription to a data service that offers comprehensive pricing information.
Number 3 is a really good point that often artificial shortages are created by exclusionary zoning.
In addition to cost, I'd also throw in:
4) site assemblage-- for larger projects, this becomes a significant primary factor in cost
There's a whole theory -- transaction-cost theory of planning -- explaining how development in the U.S. is a series of calculated risks rather than developing a product to meet demand or fulfill need
5) Site/utility improvements-- these are usually hidden so deep within budgets, mortgages and transfers of titles that many in architecture (and economists) ever see them
And this was a point I made previous. Before a site ever makes it to an architect, a lot is typically pre-developed to meet the needs of future development. In either event, the cost of these improvements usually end up getting bundled into the land/lot costs distorting the overall actual cost of real estate.
Many places in the US don't have 18" minimum sewer pipes or triple-phase power-- two things you basically need for a mixed-use block/project.
To all who responded to my comment on cost of urban developments, thank you. You bring up very valid points.
What I was alluding to is that condo developments (up until the crash) were huge cash cows for developers. You could double or triple your investment during the life of the project. It is no surprise that 'developers' were popping up left and right to cash in on the opportunity.
Stacking 30+ families on a piece of land that used to hold 3 single family houses seems like a very efficient use of land and resources, yet you would think that the price would be at least somewhat competitive. It was not.
Whenever the banks start landing again, I expect the new crop of developers to be a lot more frugal about everything. I expect to see a lot more control over the costs, and a lot lower margins of profit.
bear in mind that most multi-unit new build activity these days has at lesat a partially subsidized/affordable housing component to it. That changes the economics significantly, for any developer.
ss- You have to make a significant return to make development worth it. I would hardly say multifamily devs were/are a "cash cow".
You could make more money trading in the stock market, if you were willing to take the gamble. It is all about risk/reward. Developer's take massive risks, often with all of their personal assets (house, car, investments, etc.) on the line. If it fails or the market crashes, as it did, they lose EVERYTHING. I have several clients that lost tens of millions in a matter of months!
Also, if you look at a medium sized development and the time it takes, the money UP FRONT (prior to investors or loans), the final return can look fairly modest.
Obviously you can make a lot of money, too, but I think it is a little short sighted to dismiss things as 'easy' or 'greedy'.
The world operates on a supply/demand, risk/reward value system. Developer's work hard, for nothing, counting on a reward that makes their risk worthwhile.
Math - if you do the math, you'll see what is plausible and what is not. The cost of land near an urban center is exponentially higher than a suburban piece.
It comes down to whether or not the numbers work, plain and simple. It is not about greed, it is simply a business venture just like any other investment or entrepreneurial undertaking.
The developer has to determine how much risk they are willing to take on, who the investors are, etc.
Future - the profits will have to be the same as they were, otherwise it is simply not worth doing (you could make more money investing in the stock market, which is about where we are right now). Successful developers are very frugal and weigh the decisions of what light fixture to put in, the appliances, etc., etc., to maximize the return, making their investors and the banks happy.
actually, without doing funky things with debt in a real estate bubble, it's pretty difficulty to make extraordinary profits out of multiunit residential development.
@urbanist: 'The affordable housing component is responsible for higher cost of units' is a load of crap. You know it. Typically these income restricted units are a product of an incentive. Be that a tax break, or height restriction adjustment. Under your argument developments that don't include such incentives would be significantly cheaper. It's just not the case.
@trace: I am familiar with concept of investment risk. Also, supply/demand can be greatly skewed with a little thing called market speculation. I have no intent of calling anyone greedy, but the housing bubble did make real estate a compelling alternative to stock market.
Here is a case study: Blue Tower by Bernard Tschumi, located in Lower East Side, NYC.
Total cost of construction= 17 million (not sure of cost of land, but even if double...)
Total return on investment= 55k sq.ft @ $1100 to $1400 / sq.ft.
Math - ching ching ching.
Yes, this was in NYC, and other places might have a much tighter return rate on investment.
What if housing bubble never happened? Would that have meant residential construction would not have been financially feasible? Or that we would have not had such a huge market saturation?
Problem with supply/demand economics (taken as an isolated theory) is that it often leads to short sighted decisions and catastrophic results. Yes, your free market will ultimately adjust, but at what cost? The construction industry barely exists anymore... Noone should be happy about that. Not the developer, not the investor, not the designer.
"Future - the profits will have to be the same as they were, otherwise it is simply not worth doing." And here we are. Noone can afford your profits, and (surprise, surprise) nothing is being built. Great.
Otherwise, I've really enjoyed your responses (trace and urbanist). Ok, fine. You too Crazy Unicorn.
ss -by my guess/quick math, the profit comes out to approx. $11,000,000, given the cost of real estate (they also bought the air rights for 3 adjacent buildings, which I didn't factor in).
[someone feel free to jump in and make any corrections or notes, that was damn quick]
That's a lot of money, but not a mind blowing number compared to the risk, the loan amount, the many years of work it took to get it there.
You can make a ton of money in re development, but you can also lose a ton, all in an instant. It takes a lot to make these types of deals happen.
Bubble - obviously the bubble drove much of the suburban development and some urban. When there is increasing value in the building, there is more easy credit, leverage, loan approvals, etc., which is the money and demand that fuels the growth (NOT population, as evidenced by the amount of vacant and foreclosed homes).
Take that increased value out and we'd have seen a more historic growth, which would be more population driven.
Supply/demand is something that works quite well. The problem comes when we have
#1 obscene leverage (decades of this as a growing problem, in the financial industry)
#2 increased subsidies/tax breaks (this is a double edged sword) for distressed home owners, banks, builders, pretty much everyone
#3 pressure to perform - witness wall street, the banks, etc., that were all racing to get a piece of the pie, paying no attention to logic (the general populous was a contributor to this too)
We won't build again until the pain sifts through the system - this means that banks and property owners need to take the losses. The help the gov't has been giving to many, such as the home builders, is just causing things to be unrealistically sustained.
Again, a double edged sword, but it is clear that there is a mess and until that works through the system (supply/demand - no one is going to buy at current levels, not unless the economy makes a full 180).
Business is based on speculation. Look at any business, everyone is betting on the future, on increased demand, population growth, the next iPod, whatever. What determines success is supply/demand.
Problem - the largest problem I see is that we are in a global economy - everyone follows everyone else. Look at wall street - as soon as one company was making tons on some crazy financial device, everyone else had to do that too. This carried over the world, as we all grew, so we fell.
The re boom was largely a result of easy credit. Anyone could get a loan with nothing down, just absurd. People were moving into McMansions that cost much more than what they could "afford".
Just a spiral out of control, largely driven by our consumer society and the stupid idea that we "need" a large place.
Gov't is also part of the problem. Subsidized oil is insane, but its a drug that we need to live, pull that and we'll fall into the abyss (but that cheap oil also promotes cheap suburbs, etc.).
ss, I am enjoying this discussion too and would love to get others involved.
actually steelstuds, that's not what I said/meant. What I was trying to saying is that the affordable component works differently in terms of the financials, not that it was more or less profitable or expensive to develop. The various credits and program subsidies change the economic equation for them, making them not-directly comparable with other product types.
urbanist, are u refering to my "parking" statements? No. I don't feel sad. We still can make a simple building into a reasonable/extraordinary one, in the meantime, pay the bill.
true, and yes parking structures are not the greatest things to work on, but they played a big part in the firm I work for coming through the last two years in increasingly good shape. in 2008/09 we did three parking structures for regular developer clients. this did a few things:
the developer kept themselves busy on a low risk/decent return project, kept their construction contacts busy and made use of land that was idle and losing money, which was critical for them to be able to secure loans for new projects.
we were able to retain our highly valued delivery focused architects while other firms in our sector in Australia cut themselves back to schematic/job winners. (was bloody tight though)
two of those developers have now given us significant projects now that things are improving. one has picked us on a 120,000m2 commercial precinct totaling 4 towers. all full fee delivery and one of which is on site already. the other has engaged us for two 40 storey apartment towers in and a potential 70 in another Australian city.
that sounds good. What I was tryng to say that it's a bit of a sad commentary that parking garages are one of the most profitable areas for real estate development today.
the worst kept secret in the UK construction business is that profitable developers apply the basic equation
1/3 cost land
1/3 cost construction and fees
1/3 profit
even with these financial odds I've seen previously successful developers go to the wall in the current climate.
city centre parking structures (known a multi storey car parks here in the uk) make a turn over of approx $8k per annum per space although with petrol heading for $8 per gallon we probably need to invest in more bike racks...
also worth noting that a residential developer need only apply 1 parking space per apartment which is an optional extra upon purchase. mine cost me $15k
I'd also throw in that the U.K. is 3/4 of the size of New Mexico (U.K. 90,000 square miles, New Mexico 120,000 square miles).
In New Mexico, it isn't uncommon for someone to drive from Las Cruces (very south portion of the state) to Santa Fe (middle north portion) in a day-- roughly 290 miles.
That's roughly about the same drive as driving from London to the England/Scotland boarder (Newcastle upon Tyne?). To drive all the way from the south end of New Mexico to Colorado is equivalent of driving from London to Aberdeen.
Essentially where I am going with this is there's significant consideration when comparing U.S. to U.K. building habits. Distance in the U.K. seems almost insignificant compared to distance in the U.S.
However, development patterns in the U.K. are startling similar to those in the U.S. -- I'm assuming this is one of the reasons why Prince Charles has his panties in a constant wedge.
If gasoline was as much here as it is in the U.K., I'd imagine half of the U.S. would be functionally abandoned and the other half would be nearly identical to the U.K.
I think if you were to ask an American planner or an American architect to fit 62,000,000 people in an area 3/4 the size of New Mexico... they'd probably have a heart attack, curl up into the fetal position and drink til they blacked out.
The point? When you have a much more significant population, subtle changes tend to work better than radicalized approaches (common in the U.S.).
Parking tends to be a significant revenue generator for many American cities. Like you pointed out, selling parking spaces as titled land is one option.
Consider this--
A single garage parking space, 10' wide by 18' long? Given that surface parking is about $9,000 a space (plus fees) and garage parking is about $12,000 (less fees than surface).
That's about $69 a month for each space (mortgaged). Add in another $5 a month for maintenance and security.
Given that, parking garage spaces around here typically go for around $15 dollars a day. And the occupancy rate is about 50% meaning the space is only occupied 50% of the time.
That's about $225 a month per space at half use.
Roughly a $151 profit. Or 300% profit. Landlord are lucky to get a 10% profit.
Now times that profit by say 150 spaces.
Then multiply it by 30 years.
Then remove the mortgage payment and multiply by 20 years.
$1.3 million over a 50 year time period on a half full parking lot!
The sad reality is that this is a poor example of a parking lot. There's a municipal parking structure near me that I worked on some of the preliminary planning for it that expects to generate about $55 million in profit over its 50 year life.
Combined with parking tickets, the net revenue is going to be closer to $70 million.
good points on the parking comparisons - note that the London orbital motorway (M25) can take a day to circumnavigate its 120 miles due to the congestion. Most car journeys here are fraught with daily traffic jams, roadworks in the UK, sadly you get used to it and adopt the winge-ing Pom stereotype the Autralians are so fond of.
Back on DD topic:-
Taken from BD last week
RIBA survey confirms that architects are anticipating a second downturn.
The double-dip recession is already here. That is the to-the-point view of Aukett Fitzroy Robinson chief executive Nick Thompson. As the boss of one of just two architects listed on the Stock Exchange, being frank is a requirement when answering to shareholders.
“The architectural industry is definitely going into a double dip recession,” he said. “The number of new projects is not replacing the number of old ones. The level of activity is not going to return to where it was before because there is no regional market. London is very strong but outside of London there is very little.” He said that his reasoning was underpinned by one simple view. “There just aren’t enough enquiries in the UK.”
This week the RIBA said architects were now predicting that a double dip recession – when the economy slides back to negative growth after a quarter or two of positive growth – is “almost certain”. It said a number of firms expect workload to decrease.
It baffles some, for sure. Woods Bagot principal James Berry said the firm, buoyed by its recent success in Russia as well as other overseas schemes, was “flat out” and the man in charge of BDP isn’t ready to throw in the towel.
“BSF (school investment) was unfortunate,” said Peter Drummond, “but the commercial world is beginning to wake up. There are some major office schemes in the wings.
“Activity is not going to return to where it was because there is no regional market”
“It’s not all doom and gloom but if a practice is in market sectors that aren’t very active, like housing, they have to look to other places.”
But talk of another lurch into recession has not gone away for some time now and this week the RIBA said any hope of a post-election bounce had simply not materialised. “The overall sense is that the general election has not had the effect of improving confidence,” said its director of practice Adrian Dobson.
He added that the survey had provided a “clear indication that architects now anticipate a further significant downturn in overall levels of business”. The most pessimistic were medium-sized firms.
Austerity cuts, an emergency budget and the BSF cancellation all managed to convey the impression of an economy under siege.
That mentality won’t have been helped by this week’s news that the Bank of England had lowered its economic growth forecast for the UK in 2011. It had forecast growth of around 3.4% next year but has cut this to about 2.5% in 2011.
Aug 24, 10 8:42 pm ·
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RE: Double Dipping
Before we experience the real fears and dreams of archnicters who work at the hard end of the economy. To clarify:
Double dipping is not a favoured behaviour of crude diners who reproach the dipping mixture with half eaten food, or daring sexual behaviour between three consenting adults (2xm & 1xf). We are taking about economics, consumer confidence, and the construction sector.
The following two sides are given from Architects who operate in the UK where our economic recovery was revealed to be at a critical stage. This following the new governments key aim of significantly reducing the national debt, quick time: Slash the public sector and associated regional services, stop capital infrastructure investment, raise tax on general goods from 17.5% to 20%.
I think that now I have been made redundant, once this economic debacle passes I am going to feel as if I was double dipped either way!
As lifted from last week’s Building Design:
DEBATE
Are we heading for a double-dip recession?
’Yes’
Maribel Mantecon, project architect, CZWG
Yes, of course we are. Not least because we, and the media in general, keep talking about it – making it a self-fulfilling prophecy. The economic system that supports our way of life relies on consumerism and faith in the system. If we believe things are going well, we go out and spend, buy houses and create jobs. If we are told that doom is upon us we lock ourselves away at home in fear.
Undoubtedly, historic confidence in the stability of the banking institution has been heavily eroded and our new government does not seem to be about to support any Keynesian “New Deal” style policies. With little public money pumped into the economy it may not be just a double dip but one followed by a scrape along the bottom of the economic graph.
Banks’ cautious lending coupled with the government’s and the media’s stance may be pushing towards a double dip in the economy, but we have the opportunity to emerge as a fairer, more sustainable and happier society.
Why, with so much unemployment, do we work the longest hours in Europe? Why is the gap between the richest and the poorest increasing with every generation? A forced reassessment of our consumerist lifestyles and dependencies could lead to a fairer distribution of work and wealth and an increased quality of life.
Of course one could doom-monger and say we may head towards a Mad Max anarchic violent state. Our choices will determine our future, but a rapid return of the economy to where it was a few years ago is hardly likely.
’No’
John Bushell, principal, Kohn Pedersen Fox Associates
A double-dip recession is not inevitable. What is most likely is a long haul of recovery to a rather different looking economy, with variable fortunes and no generalised all-encompassing trends or comfort. The recession was an implosion of a key component of the economic system, the financial sector, and until that component is fixed, not necessarily to its original state, then recovery will be slow.
The first case for optimism is evidence that lessons are being learnt. “Time to wait, watch and act as necessary,” concluded the Bank of England and Federal Reserve last week. The independence of these institutions enables a balance to be made on some of the recessive pressures of the coalition government’s deficit plans. Second is the huge amount of capital and resource available, globally, for investment. With appropriate objectives and policy conditions the UK is well positioned to benefit.
As an industry, we have an opportunity to “fix” and transform our built environment and encourage business patterns which are sustainable, adaptable and authentic.
Essentially this crisis is not the result of a lack of resources or demand but a shortage of understanding. It is complex and no one can really predict or control what happens. Experts, however, pore over every fresh statistic and theory which in turn is sensationalised by elements of our media; we should avoid talking ourselves into a double-dip recession and instead build on a more sober, higher quality and effective future.
______________________________________________________________
What do you think?
I agree, from what I hear/watch/read.
"Yes" - nothing has changed, besides trillions in debt. No one talks about any changes (FinReg doesn't really count, here in the US), just earnings again. Stocks rule the day, and the financial institutions have taken full control of the stock market (High frequency, etc.).
Patching a gaping wound with a solid gold bandaid. It'll fall off sooner or later, leaving us much more exposed, psychological impact will be worse than anything as everyone retreats into total saving mode, stagnating our economy.
Politics - worse than ever. Both sides are stupid and self serving. Amazing how there is total disregard for honesty or true discussion (again, on both sides). I officially hate both parties.
More of the same. No difference with Obama vs. Bush, really, from what I can see. Same players, same policies, more or less. I had high hopes, but haven't seen anything new. That, and there is NO discussion of job creation (which should have come before health care and finreg)
Wars - why are we still at war?? Anywhere? Doing nothing measurably good, costing us $12billion per month! For God's sake!!
Banks - unlike past recessions, the banks have locked their vaults. No loans = no growth = no jobs = equals death to us all (and a slow one).
Deflation - more and more talk of it being a possibility. The "lost decade" of Japan.
"No" - the world (and people) are resilient, as soon as there is one positive sign of real job growth we'll be off to the races.
Money - there is TONS of money out there, waiting for a sign. This includes re development
Cost of money - so cheap now, that when things do start in a positive direction, there will be a stampede to get the cheap money (both on the borrowing side, the consumer side, etc.).
Earnings - pretty good now
Stock prices - not too bad now, either, considering
(Naive) Optimism - this I think is too hard to tell. People will forget this quickly, if we come out screaming. There is no 'correct' approach, so no one can promise a better future (we can't have a 'better' future, if all save everything).
I agree that the press is controlling a lot. I watch CNBC all the time, and it is amazing how they'll grab a group that has a consensus view (either positive or negative) and just drive it into the ground.
Regardless of where we go, this is a lesson. Personally, I'll be getting my little cabin in the mtns, suitcase full of cash (or gold), guns, water and canned food!! If not now, we'll surely be back here again in my lifetime!
Greed, is not good.
makes for good reading trace. half of me wants it to get worse so that governments can truly question the roll of society and the power of the market. the other half is more pessimistic as I doubt an system overhaul is in the offering.
Thanks BOTS for posting this, and thanks trace for adding some color commentary to it.
Just thinking of these issues gives me a major headache.
Destruction of middle class has proven to be extremely profitable. It's not a sustainable practice, but it falls in line with short-term-profit MBA approach to economics.
We have also reached a very mature stage of capitalism. All the established parties are deeply entrenched in way of doing business. Noone is willing to concede even an inch for the promise of a mutual benefit...
I'm not sure where our profession fits into the greater scheme of things. On one hand we are at mercy of big money players. On other hand, our influence is comically limited.
We all saw this recession coming as early as 2006. It was just a matter of time, and it was to resemble the recession of late '80-early '90s. So far it has.
As far as the original post on double dipping goes: UK has it extra bad when it comes to horrible political decisions. Shrinking public services while the economy crumbles is a perfect catalyst for prolonged recession.
this image is probably out of date already then... the UK should now be entering it's green phase
sounds like the US Architects are feeing some positive vibes for a bounce back.
link
We are teetering on an edge - either we'll continue to scrape along for a bit, the probably boom upwards once there is job growth....or we fall off the cliff and the world ends
New jobless claims: 500,000
that's not good
the economy's in nowhereland. I went to a talk the other day by the CEO of one of the more astute NYC property developers, and he was saying that "substantial" employment recovery in the city probably won't happen before 2014 to 2017.
We're looking at a second lost decade (on the back of the last lost decade, from 2000 to 2010. Which pretty much makes it a lost generation.
Meanwhile, the college baord is saying that the proportion of young Americans getting college degrees is in sharp decline...
Come 2020, maybe China will be willing to buy us. Epic fail.
Urbanist...
And that is what terrifies me the most. There are those of us barely treading water that cannot wait another 3 years. Firms, investors, and developers have money. Where is the spending and growth?
Hidden under the mattress is where.
Developers have no money. Investors and banks have the money, but they aren't giving it to the developers.
Banks are the biggest problem. With the increased pressure for better balance sheets comes less interest in risk, which means no loans to developers.
Developers want to build, trust me, but are getting screwed left and right by the banks (which, in turn, screws me, the architecture profession, and everyone else in line).
Banks are also not lending to individuals that don't have stellar credit, and with the way the job market is, security is a rare thing. This compounds it all - no loans for the buildings, few loans for the buyers.
Until the banks loosen up the credit (and we get back to 'business as usual over leverage'), then the economy will continue to barely move.
At the end of this, the banks that took the mediocre loans with far too much leverage will fail. Those that are financed by deposits or other 'real' money, will prosper greatly as they take over the markets. This is already happening and there are some signs that the stagnation is loosening a little. After all, the banks don't make any money just sitting on their money, they need to lend, and developer's are some of the most profitable clients.
Urbanist - I am thankful not to be in a boom city. The pricing in places like NY, Vegas, etc., were just so far out of whack and the inventory that is out there still priced too high...it just ain't pretty and there won't be growth until there is a flush out.
But some of the other cities out there that didn't go booming aren't looking too bad as far as growth.
"I am thankful not to be in a boom city. The pricing in places like NY, Vegas, etc., were just so far out of whack and the inventory that is out there still priced too high...it just ain't pretty and there won't be growth until there is a flush out."
I think that's the biggest hurdle to recovery. Even in places that haven't ballooned out of proportion, there is a huge stock of units that have not been sold. Idea of more development seems unnecessary at best.
For an average American making around $45/year ($44k is national median) realistic borrowing potential is less than $200k. You can't buy a parking shed for that kind of money in most major cities. In smaller markets you will also make less money.
Real estate ownership is becoming an illusion for increasing number of people. I know it was for me and most of my peers back in my NYC days.
Real estate has gone off the wall in the last decade. Together with cost of education and health care. Something has to give in order for us to proceed forward.
I know the name of the 'double dip'. It's called inflation, and sooner it happens the better we will be off in the long term. Like measles!
This is creating opportunity, though, for developers (this is what we are targeting). There is a large movement going from the suburbs back into downtown-ish locales. This is going to kill the suburbs and companies like Pulte, but creates opportunity for those nimble enough to adapt.
You can buy something for that price. It'll be small, but you can still get it. BUT developers haven't offered that because the market was much higher, people wanted big, etc.
People simply need to be more reasonable. NO ONE needs a 4000-5000 sf home to raise a family! That's crazy. But that's what many Americans believe (or believed, that market is next to gone and won't be back anytime soon, if ever).
So once the banks start lending, we will be off to the races, just with a different product. That's fine, imho.
(if inflation was the only concern, I'd sleep well at night!)
@trace: I look forward to this new type of product. There indeed, appears a missing link between $200k condo studio and $600k house.
I never fully understood why a high-density development costs twice as much per sq.ft. than a fully detached house. My only explanation (from first hand experience) is that most developers are in it for profit, quality product coming in distant second. Hopefully the recession weeds out jokers from visionaries.
Having compiled dozens of project manuals for residential developments in the last decade, I feel sorry for anyone who purchased one of these 'back-to-urbanism' units. If the developers weren't legally required to utilize architectural services, they would have outsourced the design to their 12 year old nephews. The variation between construction documentation and what was actually built has been embarrassing.
As far as inflation goes, it IS a huge threat. Major commodities are still being globally traded with US $ as the measuring stick. An inflation of any kind would shatter the illusion of US prosperity. It would destroy the profits of big players. Do you want to pay $23/gallon? You will, it's a question of when...
steelstuds, that is a really good question. It is curiosity that in the US high rise buildings are considered luxury, when all rlogic would suggest that they should be cheaper, and indeed in many other markets, they are cheaper.
In Hong Kong, for example, the poor all live in very tall, and quite dense high rises. The wealthy also often live in high rises, and only the super wealthy live in something resembling a US single family home.
Synergy, the poor of America HAVE been living in dense projects. Only in recent years has urbanizam been used as a feature in real estate business.
In order to separate the product from iconic ghetto, the condominiums are being marketed as luxury (I despise that word) items, complete with all kinds of support facilities and unnecessary finishes.
A tiny condo unit may be in price range of a first time buyer, but if you are looking for a 4 bedroom condo, you will get 3 times as much sg.ft. for the same price by purchasing the fully detached house 5 minute drive from there.
There is a tremendous opportunity for a smart developer to explore a non-existing housing type.
In your example (Honk Kong), the political situation has governed the nature of urban development, and the outcome is fairly logical. In US, the land of infinite space, things are getting crowded for the first time ever, and the price of that large front lawn and monster back yard is an hour+ commute each way to work. Every day.
During the housing boom, many developers plastered large banners on their building that said "if you lived here, you'd already be home", aimed at tired commuters passing down the street. I wonder what the new slogans will be 7 years from now when recession ends...
isn't this a porn reference?
quality insight h.b. - see the beginning of the thread for clarity
ss - the price per sf won't be any cheaper, the finishes will be no less than what you'd expect in the middle range (stainless steel apps, wood floors, granite counters, etc.). Actually, you can get away with a higher $/sf because you are making them small - it is the overall cost that is important, not the $/sf, at least in our research.
People just want cheaper, but still want "luxury". I fall into this market, too. I grew up in a reasonable, mid century modern home, so 1500-2500 for a full family seems adequate. You won't get that in an urban area, just too expensive to build, but you will get the 700-1500 sf condo.
Inflation is of course a concern, but it is this "double dip" and deflation that is the largest concern. We haven't had any meaningful inflation for a while now, not too scared of a little creeping in (and from what I see in the markets, they'd welcome that just to know we won't slip into a 'lost decade').
But what do I know. I'll be celebrating the moment I see:
1. Reasonable job growth (esp. since it is a lagging indicator)
2. Client's getting construction loans (this is actually the most important, so far, no one can get funding, which means nothing is moving in the banking/credit markets, which means we are stagnant and going nowhere)
I'm trying to bite my tongue and remain out of this conversation.
But I think overall 'top-down' federal policy maybe makes up 1/3rd of the overall problem.
Instead of making broad general statements to the US-- I'll relate my problem more locally (which would also apply to a portion of the Eastern seaboard and the sunbelt states).
Florida has between 19,000,000 and 20,000,000 people in the entire state making it the 4th largest state in the union. However, despite the high population and the incredible amount of wealth produced within the state... we're not much of a power player when it comes to the rest of the US.
Other than exporting tourism and hilarious news, Florida isn't a New York or California outside of the state.
The state of Florida has approximately 6-7% of the entire U.S. population.
Despite the massive population, this is a sad breakdown to make:
2-2.5 million live in functional urban environments
3-4 million live in semi functional urban and suburban environments
10-13.5 million live in dysfunctional urban, suburban, exurban and semi-rural environments
0.5 million live in functional rural environments
This is not necessarily an anti-suburbanism rant. However, fundamentally many suburban environments cannot "fully mature."
In Florida, we have some basic [infrastructural] problems that prevent job creation and growth:
-- Low levels of alternative transportation combined with low wages
-- Limited sewage coverage, limited sources of reclamation water
-- Limited access to parking structures and in certain communities a general lack of parking
-- Zoning and building codes that prohibit low- to medium- rise buildings
-- Single use zoning
-- Lack of incorporated areas
-- Lack of flexible utilities-- i.e., utilities were value engineered for a specific peak capacity
So, even if an area had the demographics to support a business, had the housing inventory or didn't have significant social barriers (crime, poverty et cetera)... many communities simply can't accommodate job growth because they were built in a way to prevent or protect a singular or limited variety of development.
Where this ties into the "bigger" picture is that throughout the 1990s and 2000s, the US has built a tremendous amount of single-use, single-function properties.
Economy is a function of place. If you were to symbolize the economy as a machine, we've basically put too many wrong-shaped sprockets and cogs. It still works but does not necessarily work well. And unlike policy changes, places are pretty much forever.
Especially in Florida since the power of eminent domain-- as a wealth distributor-- is no longer legal. And many people are striving to make condemnation illegal soon, too!
Policy is certainly an issue... but I think a majority of people in the U.S. have overlooked that place is more important than policy when it comes to job creation.
"I never fully understood why a high-density development costs twice as much per sq.ft. than a fully detached house. My only explanation (from first hand experience) is that most developers are in it for profit, quality product coming in distant second. Hopefully the recession weeds out jokers from visionaries. "
steelstuds: did u count the land price in? Normally the land cost 30-45% of the total construction cost, at least this happened to china.
1. high density tends to built closer to the the center/at more valuable locations, where land costs more. So the land residual is going to be larger - sometimes much lerger - psf for multi-unit. In some areas, land-residual is up to around half or even more of property value.
2. construction costs differ. A single family, steel stub wood frame house might be buidable for $150 psf in some locales, but reinforced masonry mid-rise might be $250 psf in the same locale. A 30+ story steel and glass tower might be $400 psf or even much much more. Construction costs differ substantially by location (union vs non-union, price of steel and other materials, etc.), but the typological differences ar e huge.
3. supply and demand. Multi-unit is underzoned in many small and mid-sized American cities, where zoning has customarily favored single family homes. This amounts to a regulatory subsidy on single-family home costs, given the distribution of the infrastructure burden.
Urbanist:
That is a good explanation. Do you know where I can find the construction cost data for all types of buildings and location?
cmhrm,
unfortunately no. If there is such a resource, I could stop paying out fees to cost estimators, so please let me know if you find one... I hate sharing my fees with them bean-counters ;-P hehe..
Haha. Your closest source on that cmrhm is two places-- pr operty tax records and the other place is buying a subscription to a data service that offers comprehensive pricing information.
Number 3 is a really good point that often artificial shortages are created by exclusionary zoning.
In addition to cost, I'd also throw in:
4) site assemblage-- for larger projects, this becomes a significant primary factor in cost
There's a whole theory -- transaction-cost theory of planning -- explaining how development in the U.S. is a series of calculated risks rather than developing a product to meet demand or fulfill need
5) Site/utility improvements-- these are usually hidden so deep within budgets, mortgages and transfers of titles that many in architecture (and economists) ever see them
And this was a point I made previous. Before a site ever makes it to an architect, a lot is typically pre-developed to meet the needs of future development. In either event, the cost of these improvements usually end up getting bundled into the land/lot costs distorting the overall actual cost of real estate.
Many places in the US don't have 18" minimum sewer pipes or triple-phase power-- two things you basically need for a mixed-use block/project.
To all who responded to my comment on cost of urban developments, thank you. You bring up very valid points.
What I was alluding to is that condo developments (up until the crash) were huge cash cows for developers. You could double or triple your investment during the life of the project. It is no surprise that 'developers' were popping up left and right to cash in on the opportunity.
Stacking 30+ families on a piece of land that used to hold 3 single family houses seems like a very efficient use of land and resources, yet you would think that the price would be at least somewhat competitive. It was not.
Whenever the banks start landing again, I expect the new crop of developers to be a lot more frugal about everything. I expect to see a lot more control over the costs, and a lot lower margins of profit.
bear in mind that most multi-unit new build activity these days has at lesat a partially subsidized/affordable housing component to it. That changes the economics significantly, for any developer.
ss- You have to make a significant return to make development worth it. I would hardly say multifamily devs were/are a "cash cow".
You could make more money trading in the stock market, if you were willing to take the gamble. It is all about risk/reward. Developer's take massive risks, often with all of their personal assets (house, car, investments, etc.) on the line. If it fails or the market crashes, as it did, they lose EVERYTHING. I have several clients that lost tens of millions in a matter of months!
Also, if you look at a medium sized development and the time it takes, the money UP FRONT (prior to investors or loans), the final return can look fairly modest.
Obviously you can make a lot of money, too, but I think it is a little short sighted to dismiss things as 'easy' or 'greedy'.
The world operates on a supply/demand, risk/reward value system. Developer's work hard, for nothing, counting on a reward that makes their risk worthwhile.
Math - if you do the math, you'll see what is plausible and what is not. The cost of land near an urban center is exponentially higher than a suburban piece.
It comes down to whether or not the numbers work, plain and simple. It is not about greed, it is simply a business venture just like any other investment or entrepreneurial undertaking.
The developer has to determine how much risk they are willing to take on, who the investors are, etc.
Future - the profits will have to be the same as they were, otherwise it is simply not worth doing (you could make more money investing in the stock market, which is about where we are right now). Successful developers are very frugal and weigh the decisions of what light fixture to put in, the appliances, etc., etc., to maximize the return, making their investors and the banks happy.
actually, without doing funky things with debt in a real estate bubble, it's pretty difficulty to make extraordinary profits out of multiunit residential development.
@urbanist: 'The affordable housing component is responsible for higher cost of units' is a load of crap. You know it. Typically these income restricted units are a product of an incentive. Be that a tax break, or height restriction adjustment. Under your argument developments that don't include such incentives would be significantly cheaper. It's just not the case.
@trace: I am familiar with concept of investment risk. Also, supply/demand can be greatly skewed with a little thing called market speculation. I have no intent of calling anyone greedy, but the housing bubble did make real estate a compelling alternative to stock market.
Here is a case study: Blue Tower by Bernard Tschumi, located in Lower East Side, NYC.
Total cost of construction= 17 million (not sure of cost of land, but even if double...)
Total return on investment= 55k sq.ft @ $1100 to $1400 / sq.ft.
Math - ching ching ching.
Yes, this was in NYC, and other places might have a much tighter return rate on investment.
What if housing bubble never happened? Would that have meant residential construction would not have been financially feasible? Or that we would have not had such a huge market saturation?
Problem with supply/demand economics (taken as an isolated theory) is that it often leads to short sighted decisions and catastrophic results. Yes, your free market will ultimately adjust, but at what cost? The construction industry barely exists anymore... Noone should be happy about that. Not the developer, not the investor, not the designer.
"Future - the profits will have to be the same as they were, otherwise it is simply not worth doing." And here we are. Noone can afford your profits, and (surprise, surprise) nothing is being built. Great.
Otherwise, I've really enjoyed your responses (trace and urbanist). Ok, fine. You too Crazy Unicorn.
ss -by my guess/quick math, the profit comes out to approx. $11,000,000, given the cost of real estate (they also bought the air rights for 3 adjacent buildings, which I didn't factor in).
[someone feel free to jump in and make any corrections or notes, that was damn quick]
That's a lot of money, but not a mind blowing number compared to the risk, the loan amount, the many years of work it took to get it there.
You can make a ton of money in re development, but you can also lose a ton, all in an instant. It takes a lot to make these types of deals happen.
Bubble - obviously the bubble drove much of the suburban development and some urban. When there is increasing value in the building, there is more easy credit, leverage, loan approvals, etc., which is the money and demand that fuels the growth (NOT population, as evidenced by the amount of vacant and foreclosed homes).
Take that increased value out and we'd have seen a more historic growth, which would be more population driven.
Supply/demand is something that works quite well. The problem comes when we have
#1 obscene leverage (decades of this as a growing problem, in the financial industry)
#2 increased subsidies/tax breaks (this is a double edged sword) for distressed home owners, banks, builders, pretty much everyone
#3 pressure to perform - witness wall street, the banks, etc., that were all racing to get a piece of the pie, paying no attention to logic (the general populous was a contributor to this too)
We won't build again until the pain sifts through the system - this means that banks and property owners need to take the losses. The help the gov't has been giving to many, such as the home builders, is just causing things to be unrealistically sustained.
Again, a double edged sword, but it is clear that there is a mess and until that works through the system (supply/demand - no one is going to buy at current levels, not unless the economy makes a full 180).
Business is based on speculation. Look at any business, everyone is betting on the future, on increased demand, population growth, the next iPod, whatever. What determines success is supply/demand.
Problem - the largest problem I see is that we are in a global economy - everyone follows everyone else. Look at wall street - as soon as one company was making tons on some crazy financial device, everyone else had to do that too. This carried over the world, as we all grew, so we fell.
The re boom was largely a result of easy credit. Anyone could get a loan with nothing down, just absurd. People were moving into McMansions that cost much more than what they could "afford".
Just a spiral out of control, largely driven by our consumer society and the stupid idea that we "need" a large place.
Gov't is also part of the problem. Subsidized oil is insane, but its a drug that we need to live, pull that and we'll fall into the abyss (but that cheap oil also promotes cheap suburbs, etc.).
ss, I am enjoying this discussion too and would love to get others involved.
actually steelstuds, that's not what I said/meant. What I was trying to saying is that the affordable component works differently in terms of the financials, not that it was more or less profitable or expensive to develop. The various credits and program subsidies change the economic equation for them, making them not-directly comparable with other product types.
Parking structure is very profitable. Any one work w/ developer for new parking structure?
never worked on one, but I've heard the same thing ;-P. Kinda sad, if you think about it.
urbanist, are u refering to my "parking" statements? No. I don't feel sad. We still can make a simple building into a reasonable/extraordinary one, in the meantime, pay the bill.
true, and yes parking structures are not the greatest things to work on, but they played a big part in the firm I work for coming through the last two years in increasingly good shape. in 2008/09 we did three parking structures for regular developer clients. this did a few things:
the developer kept themselves busy on a low risk/decent return project, kept their construction contacts busy and made use of land that was idle and losing money, which was critical for them to be able to secure loans for new projects.
we were able to retain our highly valued delivery focused architects while other firms in our sector in Australia cut themselves back to schematic/job winners. (was bloody tight though)
two of those developers have now given us significant projects now that things are improving. one has picked us on a 120,000m2 commercial precinct totaling 4 towers. all full fee delivery and one of which is on site already. the other has engaged us for two 40 storey apartment towers in and a potential 70 in another Australian city.
that sounds good. What I was tryng to say that it's a bit of a sad commentary that parking garages are one of the most profitable areas for real estate development today.
the worst kept secret in the UK construction business is that profitable developers apply the basic equation
1/3 cost land
1/3 cost construction and fees
1/3 profit
even with these financial odds I've seen previously successful developers go to the wall in the current climate.
city centre parking structures (known a multi storey car parks here in the uk) make a turn over of approx $8k per annum per space although with petrol heading for $8 per gallon we probably need to invest in more bike racks...
also worth noting that a residential developer need only apply 1 parking space per apartment which is an optional extra upon purchase. mine cost me $15k
I'd also throw in that the U.K. is 3/4 of the size of New Mexico (U.K. 90,000 square miles, New Mexico 120,000 square miles).
In New Mexico, it isn't uncommon for someone to drive from Las Cruces (very south portion of the state) to Santa Fe (middle north portion) in a day-- roughly 290 miles.
That's roughly about the same drive as driving from London to the England/Scotland boarder (Newcastle upon Tyne?). To drive all the way from the south end of New Mexico to Colorado is equivalent of driving from London to Aberdeen.
Essentially where I am going with this is there's significant consideration when comparing U.S. to U.K. building habits. Distance in the U.K. seems almost insignificant compared to distance in the U.S.
However, development patterns in the U.K. are startling similar to those in the U.S. -- I'm assuming this is one of the reasons why Prince Charles has his panties in a constant wedge.
If gasoline was as much here as it is in the U.K., I'd imagine half of the U.S. would be functionally abandoned and the other half would be nearly identical to the U.K.
I think if you were to ask an American planner or an American architect to fit 62,000,000 people in an area 3/4 the size of New Mexico... they'd probably have a heart attack, curl up into the fetal position and drink til they blacked out.
The point? When you have a much more significant population, subtle changes tend to work better than radicalized approaches (common in the U.S.).
Parking tends to be a significant revenue generator for many American cities. Like you pointed out, selling parking spaces as titled land is one option.
Consider this--
A single garage parking space, 10' wide by 18' long? Given that surface parking is about $9,000 a space (plus fees) and garage parking is about $12,000 (less fees than surface).
That's about $69 a month for each space (mortgaged). Add in another $5 a month for maintenance and security.
Given that, parking garage spaces around here typically go for around $15 dollars a day. And the occupancy rate is about 50% meaning the space is only occupied 50% of the time.
That's about $225 a month per space at half use.
Roughly a $151 profit. Or 300% profit. Landlord are lucky to get a 10% profit.
Now times that profit by say 150 spaces.
Then multiply it by 30 years.
Then remove the mortgage payment and multiply by 20 years.
$1.3 million over a 50 year time period on a half full parking lot!
The sad reality is that this is a poor example of a parking lot. There's a municipal parking structure near me that I worked on some of the preliminary planning for it that expects to generate about $55 million in profit over its 50 year life.
Combined with parking tickets, the net revenue is going to be closer to $70 million.
good points on the parking comparisons - note that the London orbital motorway (M25) can take a day to circumnavigate its 120 miles due to the congestion. Most car journeys here are fraught with daily traffic jams, roadworks in the UK, sadly you get used to it and adopt the winge-ing Pom stereotype the Autralians are so fond of.
Back on DD topic:-
Taken from BD last week
RIBA survey confirms that architects are anticipating a second downturn.
The double-dip recession is already here. That is the to-the-point view of Aukett Fitzroy Robinson chief executive Nick Thompson. As the boss of one of just two architects listed on the Stock Exchange, being frank is a requirement when answering to shareholders.
“The architectural industry is definitely going into a double dip recession,” he said. “The number of new projects is not replacing the number of old ones. The level of activity is not going to return to where it was before because there is no regional market. London is very strong but outside of London there is very little.” He said that his reasoning was underpinned by one simple view. “There just aren’t enough enquiries in the UK.”
This week the RIBA said architects were now predicting that a double dip recession – when the economy slides back to negative growth after a quarter or two of positive growth – is “almost certain”. It said a number of firms expect workload to decrease.
It baffles some, for sure. Woods Bagot principal James Berry said the firm, buoyed by its recent success in Russia as well as other overseas schemes, was “flat out” and the man in charge of BDP isn’t ready to throw in the towel.
“BSF (school investment) was unfortunate,” said Peter Drummond, “but the commercial world is beginning to wake up. There are some major office schemes in the wings.
“Activity is not going to return to where it was because there is no regional market”
“It’s not all doom and gloom but if a practice is in market sectors that aren’t very active, like housing, they have to look to other places.”
But talk of another lurch into recession has not gone away for some time now and this week the RIBA said any hope of a post-election bounce had simply not materialised. “The overall sense is that the general election has not had the effect of improving confidence,” said its director of practice Adrian Dobson.
He added that the survey had provided a “clear indication that architects now anticipate a further significant downturn in overall levels of business”. The most pessimistic were medium-sized firms.
Austerity cuts, an emergency budget and the BSF cancellation all managed to convey the impression of an economy under siege.
That mentality won’t have been helped by this week’s news that the Bank of England had lowered its economic growth forecast for the UK in 2011. It had forecast growth of around 3.4% next year but has cut this to about 2.5% in 2011.
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