Global Real Estate Lessons on Growth for Dallas Government, Buyers and Developers; Part 2

In case you missed Part One, you can read it here.  In that section I wrote about how the thirst for safe investments that return a decent profit has changed the real estate markets in cities across the globe, particularly Hong Kong. You may think Dallas is nowhere near the bustling city of Hong Kong, but consider that Hong Kong’s population is roughly 7.24 million and the Metroplex is roughly 7.1 million — where we differ is land mass.  The Metroplex sprawls over 9,286 square miles while Hong Kong manages on a much more restrictive 1,064 square miles … nine times the density.

Hong Kong housing can be thought of as a compressed version of Dallas.  There are insights to be gained. This installment covers the results of investment, development, and the shortfalls of grand government plans.

Empty Homes

The results of parking income in real estate can be seen in cities like Seattle, Vancouver, and London where vacant, investor-owned properties are used as oversized piggy banks to park excess cash.  Most of these properties aren’t in the rental pool, depriving the local market of a housing unit. It’s been estimated that between 40 to 50 percent of London homes are empty on a given night … and London is not alone. (Homelessness in these markets is the height of irony.)

As Dallas housing continues to trend, it’s important for governments to study the mistakes and successes of other hot markets.  In hot markets, owners are rewarded on the backs of tenants and those forming households.

It’s unlikely Dallas will ever be globally hot … no beach, mountains, physical boundaries nor globally bustling business sector … but Dallas is projected to grow swiftly in the coming decades.  Learning the lessons of others can only help us manage growth and at least keep poverty and homelessness in check.

While cities like Dallas think their markets are hot (relatively) they’re not global hot.  Hong Kong is a posterchild for expensive real estate.  It’s physically small (islands), geographically mountainous, and home to Asia’s banking backbone. During my recent visit, there was a front-page real estate story about a developer who was selling new-build, small, studio-to-two bedroom condos for under $1,000 per square foot.  It was unheard of in recent memory and generated 16,700 prospective buyers for its 308 units. Homes trading at $2,000 per foot are pedestrian, while homes over $3,000 per foot would still be less luxe than a home at The Stoneleigh.

Redevelopment Skewed Toward Investors

Another problem with hot cities is the tendency to build new homes and condos precisely for the rarely-here investor.  In addition to price increases generated by large swathes of investor-owned properties, these new properties aren’t as suitable for local buyers.  Dallas is already seeing developments targeting Chinese buyers in Corinth and it’s easy to see luxe high-rises in Dallas attracting more multi-home investors than locals.  In Hong Kong, it was reported that in the first two weeks of September, 30 percent of transactions were to investors. London condo developments targeting Middle Eastern investors had slowed to a crawl before Brexit. These purpose-built developments have had to discount to the point of attracting local buyers.

Buying units to force a sale

Another “trick” learned in Hong Kong was the practice of patient investors purchasing individual condos in older mid/high-rises with the goal of securing a majority to vote to sell the building to the developer. In Dallas, it’s unlikely a high-rise would be acquired for demolition, but in Hong Kong, where I enjoyed a drink on the 118^th floor of the Ritz, you can always go higher. You don’t need to go to Asia to see this in action.  Seattle is experiencing it today as investors snap up middle-class buildings to renovate into luxury properties.

I’ve written tons about developer interest in Preston Center and the Pink Wall.  Most of the Pink Wall worth redeveloping is hampered by deed restrictions that require 51 percent of the complexes accounting for 51 percent of the street frontage in their sub-district to vote to remove them.  This seems a high bar.

But maybe not.  A patient developer would only need to purchase 51 percent of units in complexes accounting for 51 percent of the street frontage to have the restrictions removed.  Instead of buying 51 percent of complexes, only something more than 25 percent would be required (51 percent of 51 percent = 25 percent plus). Given the extremely low density of many of the complexes, the investment would not be tremendous overall.  It would just take patience.

Once the deed restrictions are removed, the municipally enforced zoning would be easier to change.

Not building enough

Regardless of where you live, construction of housing stock for the typical local buyer, covering a range of income levels, remains slow.  Perhaps the nationwide slowdown in the luxury market will bring more developers to the table with more financially wide-ranging price points.  I look to Turtle Creek Haus and the latest plans on the table do not call for super-deluxe condos with sprawling floorplans. While no pricing has been hinted at, the square footage estimates don’t translate into another Museum Tower or Stoneleigh.

As you can imagine, Hong Kong has a paucity of lower-priced housing options (evidenced by the disbelief of sub-$1,000 per-square-foot condos).  In 2013, Hong Kong’s highest official, Leung Chun-Ying, trumpeted the construction of 17,000 lower-cost flats … once complete, the project will reportedly now deliver just 4,000 housing units.

In Dallas we see construction cranes everywhere and wonder who’s going to live in all these new homes, condos, and apartments.  What we forget is that during the recession, children didn’t stop growing up and people didn’t stop moving to the Metroplex.  We got behind.  Then we got popular with corporate relocations and other population growers.  Whatever we’re building isn’t enough and it’s not as affordable as it needs to be.

I encourage Dallas to pay more attention to the global real estate stage.  Each new market I learn about educates me and brings ideas and cautions home.  Wouldn’t it be nice if our elected officials and developers were so well-read?

 

Remember:  High-rises, HOAs and renovation are my beat. But I also appreciate modern and historical architecture balanced against the YIMBY movement.  If you’re interested in hosting a Candysdirt.com Staff Meeting event, I’m your guy. In 2016, my writing was recognized with Bronze and Silver awards from the National Association of Real Estate Editors.  Have a story to tell or a marriage proposal to make?  Shoot me an email [email protected].