Condo glut turns the corner in a growing new urban lifestyle
By Michael Lewis
It should have been obvious five years ago that we were vastly overbuilding condos in Miami's core.
Nobody listened to repeated warnings — hate to say I told you so, but I told you so ad nauseam — that tens of thousands of high-priced condos rising at once was far too many, regardless of the economic boom we were enjoying.
Now, slowly coming out of deep and painful recession, let me again issue a warning about all those boom-time Brickell and downtown condos: the oversupply won't last forever, nor will current prices.
As Yudislaidy Fernandez's carefully balanced report in these pages last week was headlined, "End-users, long-term investors snap up downtown condos."
Though the 22,079 condos that rose in Miami's core during the boom were far more than the entire city could have absorbed in less than a decade, she found the condo collapse is close to stabilization. Only 5,664 units remain vacant.
Of course, "only" is a relative term. Recall that the record year for new housing in Miami before the boom was only about 4,000 units. Note also that the vast majority of Miami's residents could never afford these condos, which cluster at the very high end of housing cost in the city.
These units targeted foreign buyers and a few local residents with wealth, not the ordinary Miamian. In that, we were vastly oversupplied.
But as the boom's collapse forced prices down and speculators had to turn condos into rentals, the market of potential users has vastly expanded, turning unsalable condos into homes for younger Miamians to live and work downtown.
Stabilization comes earlier than predicted. Perversely, the recession that tumbled the condo tower of cards also made it possible to use the condos for other than flipping. As prices dove and speculators felt recession's bite, they've been forced to rent below cost or hand over their units.
Replacing speculators are buyers at lower prices who intend to live in the condos or a different type of investor, one buying and holding for long-term appreciation.
Guess what? That long-term appreciation is a good bet. A decade from now we're going to hear those who didn't buy moan that they could have had one of those Brickell or downtown condos dirt cheap in 2010.
You read it here first.
Not that all are bargains. As the experts told Ms. Fernandez, pricing is all over the map. Some are still vastly overpriced. But not most.
As the economy picks up in years ahead, so will the value of the better core area condos — and their value will rise far faster than average residential pricing, if only because many core prices now are less than replacement cost.
But other causes will escalate the prices.
A key factor is that the balance seems to have tipped downtown. The influx of younger condo renters and buyers in the past few years, coupled with new restaurants and amenities and growing time spent driving in from suburbs, has turned the heart of Miami into a magnet for young executives.
Assuming that the retail mix continues to change to support young residents, that a new Publix to serve downtown does rise in the Omni area and that local government doesn't take some misstep to reverse the change, the age of the core's average resident will continue to dip and the core will continue its rejuvenation, returning to a true downtown.
That in turn will add to Miami's tax base and make it possible to offer more urban services, thus accelerating change for the better — again, assuming city hall reinvests the added receipts downtown.
Will the young people be able to afford Brickell and downtown as this transformation raises the property values in condos that today are a glut on the market? In other words, will the core's future success eventually prove its undoing again? That's a real but quite distant concern.
For now, suffice to note that realism has returned to the urban residential market, that 5,664 vacant units represent more opportunity and that this time around, it's not speculation to buy in the city's core. It's just sensible.
In 10 years you may be kicking yourself for not recognizing the bargains we have today and grabbing, if you can, an inexpensive slice of the new urban lifestyle.