Posted by Leonard Steinberg, President of COMPASS, on February 19th, 2015
Each morning I start the day by writing a letter to my company on a topic of interest. I thought I would share this morning’s, all about the emerging “Affordable Luxury” market that I feel should be termed ATTAINABLE LUXURY. After all, what is so affordable about any real estate in a large city?
In my books buying a home is a luxury for most people at every price-point, especially in a big city. Too many agents poo-poo the buyer who ONLY can spend $1 million on a home, when to that buyer a million dollars seems like a ridiculous fortune. Remember when you bought your first pair of real expensive shoes? That feeling of ‘wow, I am really going all out here’ pales in comparison to the magnitude of a home purchasing transaction. For the VAST majority of home-buyers buying is highly stressful, involves tremendous second-guessing and ranks up there with death and divorce o the stress-meter.
With many large city developers focusing almost exclusively on larger expensive apartments over the past few years, it comes as a relief that some are now as focused on what they call ‘AFFORDABLE luxury’. For most this is simply inaccurate: the vast majority of these buyers will not consider these apartments affordable…….most will still see them as a luxury that is attainable, but the word affordable may be a stretch. Affordable also diminishes the meaning of the word LUXURY and in my opinion should be avoided.
Condominium median pricing in New Developments trades at an approximate 35% premium: This pricing premium is magnified in the ultra-luxury area of the market. The pricing spread between new development and resales may not be sustainable over the longterm. While everyone focuses on price per square foot, at the end of the day it is the absolute price that matters most to the majority of buyers. If they can only afford $2 million to buy a home because that is what their assets, income and bankers will allow, attempting to buy a $2.5million property is pointless. The $2million property will probably deliver less than the more expensive one, so they may not be getting anything terribly affordable at all at the end of the day. More attainable properties that deliver the required room count will probably be less luxurious, in lesser locations and have shrunken dimensions.
Another important factor in this ‘attainable luxury’ market are real estate taxes and monthly carrying costs that keep rising each year. Most cities are subject to rising costs, much of them attributed to labor and unions, not to mention inefficient governments. Unfortunately governments do not make any allowance for cost-of-living in the tax structures: someone earning $500k annually in Memphis would need to earn approximately $826k in Washington DC to live a similar quality of life….about 65% more!
So while the world tries to push the word AFFORDABLE, remember for most this word is inaccurate and simply insulting.