Rebuilding Place in the Urban Space

"A community’s physical form, rather than its land uses, is its most intrinsic and enduring characteristic." [Katz, EPA] This blog focuses on place and placemaking and all that makes it work--historic preservation, urban design, transportation, asset-based community development, arts & cultural development, commercial district revitalization, tourism & destination development, and quality of life advocacy--along with doses of civic engagement and good governance watchdogging.

Sunday, September 07, 2014

Quote of the day: "New apartments are generally more expensive than older ones"

From "Apartment rent hikes magnify high cost of a UW education: A rush of new apartments is causing an uptick in rents in the University District, and University of Washington students fear they’re getting priced out of the market." in the Seattle Times. From the article:
Even now, about a thousand new apartment units are under construction in the neighborhood, designated an “urban center” by the city and planned for denser growth. New apartments are generally more expensive than older ones. ...

Fiona Stefanik, a fifth-year student, also found better options outside the University District — she’ll be sharing a two-bedroom apartment with two roommates in Lake City this fall.

“Even though they’re building a lot more housing, it’s still just really expensive, because there is such a high demand,” she said.
Nothing particularly scintillating about these quotes.

Just that it reiterates that a lot of the discussion about the higher cost of housing (e.g., "Why it's so hard to find a cheap apartment in Washington, DC," Post) ascribing the problem of rising housing costs in DC being due to historic preservation is a misreading of economics.

The issue is more that comparatively speaking, historically, DC has a lot more single family housing than apartments. And the single family houses are small.

The issue is low inventory.

Higher demand in the face of low inventory leads to higher prices.

It truly is the most basic concept in economics.

Adding to inventory today won't provide lower cost housing, unless it is subsized, because the cost of new construction is priced into rental rates for new housing at today's market pricing (it's an illustration of LIFO vs. FIFO in accounting practices for the pricing of products--which is most often seen in how gasoline re-prices in the face of rising prices).

However, over long periods of time, adding housing today will result in lower prices, comparatively speaking, in the distant future.

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At 9:18 AM, Anonymous charlie said...

Yes, long term vs short term.

What makes the DC submarket (if you look at it regionally, it is a submarket) is while prices are increasing, it isn't enough to turn over older properties.

you mentioned cathedral gardens -- hundreds of other older apartments and condos along Conn. Ave and in NW (all of glover park) -- which are stagnant inventory.

At this point it is marginally useful to do a popup. Take the V st one -- bought for maybe 250 or so, another 250 in construction? -- then sell 3 units for 300. 500K cost, 800K rev, 300K profit, more if leveraged. Although it appears there are two vacant units so the carry trade isn't so hot.

Have you looked at Somerset House on 16th? Great old building, did a tenant buy out and redid. Beautiful inside, but I noticed the new units clearly don't have enough AC (even for the extremely mild summer) they had to install window units.

What is funny is we can see what happens in the region when you remove the height limit - you get a Rosslyn, or Ballston, or "NoBE". Not attractive and not aspirational.


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