Boston Sweet Digs

April 20, 2008

Boston’s Dark Side: Luxury Overdevelopment

Croesus, richest man in the ancient worldYes, much as I like this town, I need to come to grips with a simple reality: developers aim too much of Boston’s housing at the wealthiest segments of society. This especially true in Back Bay and Beacon Hill.

A good case in point is the Clarendon Back Bay condos that recently hit MLS. The cheapest unit, a 589 sq. ft. studio, goes for an astronomical $695,000, or nearly $1200 per square foot. Other properties within the complex range from a modest 2 bed ($1300/sq. ft.) to a downright humble penthouse ($1600 sq. ft.). You know it’s bad news when people not receiving an economic stimulus check still can’t afford to buy in.

It’s an unfortunate side-effect of the region’s continued prosperity, really, and it’s not an easy thing to fix. After all, developers make a whole lot more money selling million-dollar condos than they do selling $200,000 condos. As long as we live in a society that values and runs on capitalism, we really can’t berate developers for wanting to make money, can we?

Plus, there’s no real consensus that developers are solely at fault for high prices. Despite limited redevelopment, Manhattan’s high end continues to rise, and unprepared buyers and overzealous agents may also share some of the blame.

But the good news is, if you believe in the efficient market hypothesis, the market will self-correct. An oversupply of luxury condos will result in reduced prices, meaning a few developers will lose big, dissuading others from investing in the already saturated market. In fact, a few recent examples suggest this may be happening already.

Let’s hope the trend toward sanity continues into Beacon Hill and the Back Bay.

More on Back Back Bay and Beacon Hill from Cosmo Catalano

Sweet Digs Boston Home

Image: Croesus Receiving Tribute from a Lydian Peasant. Claude Vignon, 1629. Public domain, via Wikimedia Commons.

Posted by cosmo.catalano on April 20, 2008 2:00 PM | del.icio.us | Digg

  • Sunshine & Lollipops
    Cosmo - Please accept my apologies regarding my mistaken mention of the Modern. Typo! The Modern never really appeared on my radar screen since I and my buyers have never really considered that street to be part of the South End.

    But regarding oversupply of luxe housing in Boston, both Anthony and I can assure you, if anything there is a striking *shortage* of such housing. As your co-bloggers here on Redfin have noted, foreign buyers are sweeping in and scooping up bargains here in the Golden Triangle of Back Bay, South End and Beacon Hill since the euro is so strong. I swear, last weekend at open houses I needed an interpreter at times!

    While you might decry that the upper end of the market is too expensive, I'd counter that it's surprisingly cheap in comparison to other world class cities. Manhattan friends always gasp when they visit, exclaiming "You need to work twice as hard for half as much in The City!!" I say that if anything, our high end housing isn't expensive *enough*, considering the demand. Sub-$1000 sqft prices are mindblowing to my friends in London, Paris, Dubai and Manhattan.

    And condisdering the level of activity that Anthony and I are seeing out there, our buyers agree!! I am going to go out on a limb and predict the biggest year EVER for the city center Boston market. So congratulations all around everyone!
  • "Sales at developments like 45 Province, the Penmark, the Bryant, the Modern are breathtaking!!"

    http://bostonreb.com/2008/04/2...

    What was that about The Modern?
  • Sunshine & Lollipops -Loving the name by the way...we are humming downtown...this weekend was out of control busy. I would say....were back.... :)

    The only hump we need to hurdle is the credit crunch which is effecting my 600-900k buyers who want to put down 5-10%. Other than that...smooth sailing in Boston...no other way to s(p)ray it :)
  • While I agree there's plenty of data to suggest that Boston's demand for luxury condos is not being met, as a market watcher, I really don't find it that persuasive.

    First, while the Primetime Communities report is very impressive, keep in mind that because Primetime sells units, they have vested interest in maintaining high levels of luxury sales in the Boston area. I'm not impugning their research, but statistics are notoriously easy to tweak.

    Second, from my perspective, there are just too many examples indicating inflation and oversupply to ignore. And you can add to them last week's 40% price slash on this building by the Greenway. I'm not saying a catastrophic crash is looming on the horizon, just a correction toward homes more people can afford.

    Thirdly, major financial organizations are steering clear of funding mortgages for condos and condo projects in so-called "declining areas"; this includes Suffolk County. Regardless of credit rating, if you can't scrape up a 20% down payment, you'll have trouble getting a mortgage.
    I realize there are many buyers out there who have $200,000 cash floating around, but there are far more who do not.

    Honestly, though, I don't see all of this as particularly bad. An oversupply means prices will go down, which will in turn stimulate the market. The people who lose out here are a relatively small number of investors, speculators, and buyers who looked at their home as a vehicle for monetary gain, rather an investment in shelter, lifestyle, and comfort.
  • Sunshine & Lollipops
    Thank you so much Anthony for the welcomed balance you've provided to what I feel is Cosmo's unnecessarily gloomy prediction. As you surely have seen, and have graciously reported in your Boston Marketplace Report, the sun is shining *extremely* brightly in the downtown city center market! Bubble? What bubble?? Homes are *flying* off the shelf here in boutique Boston! As you noted in your report, bidding wars are happening, young professionals can easily afford the $500K entry-level prices that sellers are demanding given the high salaries at downtown office jobs.

    And at the high end, luxury developers are reaping the success that our sunny market has blessed them with. Sales at developments like 45 Province, the Penmark, the Bryant, the Modern are breathtaking!! Demand for such units seems to be unquenchable. 285 Columbus is closing up final sales, the Bryant is almost gone, and if the early interest that prospective buyers are showing in the Clarendon is any guage, it looks like this one will be a grand slam as well. You want data?? I urge you all to read Anthony's report. Don't be swayed by the gloom & doomers out there! Boston is BOOMING!!!!
  • Oooooo -- I think I am going to have to strongly disagree with this post. Usually you guys are right on. Over - development especially on the luxury front is definitely not an issue here in Boston not to mention I forsee The Clarendon to be one of the most successful projects to hit Boston @ 1200-1600 per sq/ft.

    Check out the latest market report on the luxury Boston marketplace here: http://boston.condodomain.com/...
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