Housing Records, Affordability and Limited Supply

We’re lousy with housing price records these days to the point where they’ve become white noise to mere mortals like us. They provide a constant reinforcement of the real estate affordability disconnect between the haves and the have-nots. New York real estate has long been a spectator sport so it’s been quite a feedback loop.

At the end of 2014, a record condo sale closed for more than $100M (but went to contract in 2012) at One57, a newly developed condo with about a quarter of the units.

Yesterday Bloomberg News reported that the co-op price record was broken for the third time in a year – a trifecta of $70M+ co-op sales. A billionaire investor paid $77,500,000 for the 6,700 square foot 4-bedroom apartment at 834 Fifth Avenue to Woody Johnson who also owns the New York Jets. The price paid was higher than the $75M asking price. Reportedly Johnson had never moved in since he purchased the apartment years ago and it remained in dated condition for this sale.

Although 834 Fifth Avenue was built in the early 1930’s as a rental building, it was converted to co-op apartments in 1952. The asking price for the apartment 11/12A at the time was $25,300. Assuming the first owner paid full list back then, that’s a simple growth rate of 4,861% per year…a little better than the return on a CD these days.

Here are the highest prices paid annually for each type of Manhattan housing since 1982.

Manhattan Housing prices

By the way, London has seen at least three sales in excess of US$200M.

While I don’t mean for Manhattan to dominate the discussion here it’s easy since the super-luxury development boom is quite visceral, the affordable housing issue has been the battle cry for the new mayoral administration from day one. Plus I work here and walk by all these construction sites.

I’ve long maintained that tight credit conditions are the reason we are seeing the super luxury development boom on a world-wide basis and that all U.S. cities are struggling to find an answer to the affordable housing crisis.

And when I say affordable housing, I am referring to market rate housing for the working and middle class. Most city governments don’t have the resources to provide subsidies so they need to create affordable housing out of thin air.

Until credit standards normalize across the globe, these conditions will probably continue and I will become firmly jaded to all the zeroes in their purchase prices.

Until next week,

Jonathan Miller, CRP, CRE
Miller Samuel Inc.
Real Estate Appraisers & Consultants

ps Please feel free to share.  If you get tired of all the charts, real estate commentary and articles presented in each weekly note, just opt out.  I always appreciate feedback so please email me.

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