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US cities keep building luxury condos almost no one can afford

EMILY YOUNG throws open the shades of the three-bedroom penthouse. “This is amazing,” she says, walking past the wine fridge and wet-dry bar. “Look at that fireplace.” Ms. Young, a real estate agent with a Marc Jacobs handbag on her hip, is giving a tour of one of the most luxurious apartment buildings in Austin.

At the Hanover Republic Square, there’s a “vinyl parlor” with a DJ-quality turntable; a movie theater; a dog–grooming spa; and a rooftop pool on the 44th floor. There, you can gaze at sunsets — and a neighboring skyscraper. Nearly complete, it rises 66 stories and will have a pool to rival the Hanover’s. Actually, that’s not quite right — it’s “pools,” plural. There will be three of them.

Austin is experiencing an unrivaled apartment boom. In 2021 the region including the Texas capital issued nearly 26,000 multifamily housing permits, about 11 units per 1,000 residents. That’s more per capita than any large US metro area since 1996, when Las Vegas OK’d new apartments at only a slightly higher level, according to rental marketing firm Apartment List. By the same measure, which is based on an analysis of US census data, Austin topped the 50 largest US metropolitan areas in 9 of the last 10 years.

Many, if not most, of these apartments are classified as luxury, depending on how you define it. (Some developments are likely using a bit of real estate puffery.) Buildings such as the Hanover have become a flashpoint in a fierce, often bitter debate raging in Texas, the US and around the world. It’s about the best way to shelter this generation and the next, particularly in the most sought-after and expensive cities.

Academics, developers and people in their 20s and 30s — particularly those most active on social media — have reached an unusual level of consensus. Their solution, supported by a wealth of scholarly research, is simple and elegant: Loosen regulations, such as zoning, and build more homes of any kind — cheap, modest and palatial.

The shorthand for the movement has become “Build, build, build” or “Yes, in my backyard” — Yimby, for short. It’s a rejoinder to the “Not in my backyard,” or Nimby, crowd, the hidebound folks who typically thwart construction.

Texas is famous for its business-friendly ways, and David Ott is one of many embracing the Yimby approach. He oversees the Texas projects of Houston-based Hanover Co., which developed the building Young was showing on a recent March afternoon. He says Austin is getting overbuilt, so rents will indeed come down, especially in the suburbs. “It’s simple supply and demand,” he says.

Inconveniently for the Yimbys, Austin, like other cities, is still way more expensive than it was years ago, even though it’s built so many apartments. As a result, a small group of academics is starting to question the free-market path. These critics note that the market leads developers to build luxury housing on scarce and sought-after property to maximize the return on their investment. “Yimbys say, ‘We have to let the market build,’” says Benjamin Teresa, an urban planning scholar at Virginia Commonwealth University. “But what kind of housing are you building, and for whom?”

Desirable cities around the world have all, one way or another, tried the Austin-style solution to their own housing crises. And they’ve all ended up in a similar bind: urban centers packed with luxury properties that regular folks can’t afford.

London has its Opportunity Areas, where eased red tape encourages development. They include the Nine Elms district, where 20,000 apartments are rising along what was once an industrial neighborhood on the south bank of the River Thames. While the development includes -affordable units, most are expensive and some truly grand. The Embassy Gardens residences feature a gawkworthy “sky pool,” which looks like a giant aquarium suspended between two buildings.

Back in the US, California, Massachusetts, New York and Washington are all trying to make it easier to develop apartments on land previously reserved for single-family homes or other uses. So have New Zealand and Sydney, Australia. A common change involves reducing the zoning restrictions near mass transit to encourage apartments, instead of -single-family homes.

The idea is to promote “density,” or more people living on prized real estate, which increases the supply of housing. There’s another potential benefit: promoting clusters of highly paid, educated workers in fields such as finance and tech, which can lead to outsize productivity gains, according to many economists.

But the very popularity of these places with the affluent drives up housing costs, making it harder for companies to find workers and pushing firms to relocate elsewhere. The Austin metro area, one of the fastest-growing in the US, with a population exceeding 2 million, has benefited from corporations fleeing the high cost of housing elsewhere, particularly on the east and west coasts of the US. Home of the University of Texas’ flagship campus, it’s lured Elon Musk’s Tesla, along with Oracle, from Silicon Valley. JPMorgan Chase and Charles Schwab are expanding there, too.

Now rising housing costs in Austin and other more affordable cities threaten them, as well. “Build, build, build” is supposed to help. Academics cite a process they call filtering; richer renters trade up into new luxe units, starting a chain of move-ins and move-outs that lower prices for modest homes. Think trickle-down economics but for apartments.

A growing body of research focusing on cities such as San Francisco and Helsinki has offered support for the filtering effect. Building more apartments, even luxury ones, does indeed moderate prices in surrounding neighborhoods. Older buildings become less attractive; other tenants move in and pay less. In 2019, Brian Asquith and Evan Mast, economists at the W.E. Upjohn Institute for Employment Research in Kalamazoo, Michigan, concluded that new buildings in low–income areas slow rent growth nearby.

Using similar methods, Anthony Damiano and Chris Frenier, Yimby-skeptical University of Minnesota researchers, also found that new construction reduces rents nearby — but only in upscale buildings and not in a significant way. More important, though, a gentrifying neighborhood drives up the prices of more ordinary units. Overall, they determined in their study of Minneapolis from 2000 to 2018, the new units actually pushed prices up, validating the displacement fears of low-income residents.

Frustration over rising rents has led cities to consider government interventions that were once deemed discredited. Boston, Orlando and Kingston, New York, have taken fresh looks at rent control, which had been blamed for distorting the market and raising the cost of other apartments.

Others, including Austin, are turning to publicly subsidized housing. Singapore, one of Asia’s most expensive housing markets, is one model. Half a century ago, the government started to build affordable apartments, where much of the population now lives.

In London, Mayor Sadiq Khan aims to make half of all new homes in the city “genuinely affordable” and is pushing for the construction of more “council” flats, the UK version of public housing. In Los Angeles, voters approved a $1.2-billion bond to build apartments for homeless people.

But critics in the UK and the US complain about the often glacial progress of such efforts as well as the costs. In Los Angeles, a government watchdog said the price of the apartments for homeless people is approaching $600,000 a unit.

These challenges help make Yimbyism attractive. In the US, advocates point out that zoning has long had the effect — and, historically, the explicit intention — of excluding poor and minority families from the best housing, while raising costs for everyone.

At times, the debate can inspire the ugliest rhetoric of US elections. On Twitter, people have called each other frauds, segregationists, even Nazis. “I’ve been told that I shouldn’t have been allowed to get a Ph.D., that I don’t know how to control for inflation, that I’m a moron,” says Mr. Damiano, the Yimby skeptic who’s been accused, he says, of “cooking the data to fit my anti-housing agenda.”

Rich Heyman, a geographer who teaches at the architecture school of the University of Texas at Austin, says the problem is wage inequality, not housing, and government intervention is needed to fix it. “Somehow, the real estate industry has gotten a lot of self-styled progressives to buy into the idea that deregulating land use is the one key to unlocking affordability in housing,” he says.

The debate over the impact of new housing hinges on obscure methods of analyzing imperfect rental data, so it isn’t settled. One possibility is that both sides are right, up to a point. Building more does lower prices, just not enough, at least in the short run. And everyone knows what the economist John Maynard Keynes said about the long run: We’re all dead.

The Yimby-oriented say it would have been far worse without the increased supply. In addition, an effort to promote density throughout the city is now tied up in court because of community opposition. If it had moved forward, Yimbys say, increases may have been more moderate.

João Paulo Connolly, organizing director for the Austin Justice Coalition, which advocates for racial equity, says zoning codes still make it difficult to build multifamily housing in much of the city. “For me, blocking or resisting market-rate units or constraining supply only makes things much, much worse,” says Mr. Connolly, 34, who’s on the Austin Planning Commission. “We could create housing in other ways, but we have a capitalist system so that’s how we do it.”

For now, downtown apartments can approach New York sizes as well as prices. At the Shoal, which offers “luxury living in a scaled-down footprint,” a seventh-floor studio with a Murphy bed rents for $1,895 a month. It measures all of 347 square feet, the size of two parking spaces.

Foundation Communities, a nonprofit developer of affordable housing, has a waitlist of more than 2,000 at two of its most recent projects. “We absolutely need more housing supply — people keep moving here, and we don’t want to stop that,” says Walter Moreau, its executive director. “The market left to its own devices will never build enough for folks at the lowest income level. Those folks are just priced out of town.”

Karen Reyes, an Austin elementary school teacher, paid $850 in monthly rent when she first moved from San Antonio in 2014. Last spring, her landlord raised the price by about $300, to $1,500 a month. She calculated that rent consumes more than 40% of her take-home pay. She’s looked at moving 22 miles away to rural Kyle, but it wasn’t much cheaper after commuting costs.

“I make good money and should be able to afford a one-bedroom apartment in the city I work in,” she says. “But, honestly, I’m barely making it — I also help out my mom with her rent, and we all have bills to pay.” She found a place last summer for $1,400 a month but worries that she’s one car repair away from not being able to afford it. — Bloomberg


Gopal, based in Boston, and Clark, in New York, cover real estate for Bloomberg News.

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