Luxury Land Shortage Results in “Super-Gentrification”

Suzanne Dranow Real EstateMark Twain said, “Buy land, they’re not making it anymore.” This comic adage has now become a harsh reality for luxury developers, as evinced by these numbers courtesy of the National Association of Realtors: The median average price for a home in the US is $249,000. The median price for a highly desirable “A-Lot” is $635,000.
The numbers get kind of bewildering when a plot of dirt is worth more than the average cozy home.
But this isn’t any dirt, this is “luxury” dirt. And though luxury dirt can sound akin to “magic beans,” it’s purely a matter of perspective. When speaking of housing values to friends in the mid-west, we both shake our heads in disbelief: I’m amazed that they can get a six bedroom home on an acre for $320,000, and they’re amazed that $600,000 can buy a 320 square foot peek-a-boo ocean view property in Malibu.

New Yorkers have understood this concept for decades since most of the prime lots were developed when its citizens were still speaking Dutch. What about the areas of NYC that were “less than prime”? Nature has evolution, cities have “gentrification,” so that neighborhoods which would have been avoided by even the most villainous of comic book super villains are now the populated by the hoitiest of the toitie. The result: The musical “Rent” (which depending on your side of the fence, is about noble bohemians sticking it to ‘the man,’ or squatters who are stiffing their friend who let them use the space for free for a while).
Let’s go across the country to Los Angeles (sorry, flyover states). LA had a brilliant solution to the prime land scarcity problem — make more prime areas. And so the people of LA spread out and out and out creating small independent hamlets like Calabasas, Hidden Hills, Westlake Village.. And now the problem is that the outlying areas are about as out as people want to lie.
On it’s face, the dirt in Beverly Hills is no better than the dirt in Silverlake; there are no ocean views, no beautiful rivers coursing through it… But, being it’s own city, Beverly Hills made their dirt more desirable by situating it with borders that provide top rated schools, excellent city services, and a world famous shopping district that provides qualified shoppers with exotic bottled waters.
Even Culver City, long the butt of jokes for being, well, for being Culver City, has seen skyrocketing prices through the development of its downtown area with top rated restaurants, excellent city services, and the Westside’s only Costco, that sells qualified members Kirkland bottled water.
Los Angeles is now facing the same dilemma that New York faced long ago, and as more and more of the best lots were being purchased by developers, and as housing prices have continued to rise to dizzying heights, gentrifying previously less desirable areas is near the end of running its course (just try to find “a deal” in Echo Park, Eagle Rock or Baldwin Hills), high end developers are now “gentrifying” already high end areas — a process that I have described as “Super-Gentrification.”
Super-Gentrification occurs when a developer buys an already luxury property with a luxury home on it, tears it down and builds an even more spectacularly luxe property (which is where these $20, $30, $40… $100 million dollar properties are coming from). Malibu has seen this happen with beach properties for years, even during the great-recession of 2008. And now, with all the “good seats” taken, luxury developers are forced to tear out these good seats in order to install luxury skybox properties.
Though consumer confidence is beginning to flatten among average consumers, and income disparity is a muted battle-cry among some political parties, the uber-rich keep digging into their pockets to buy these trophy properties, fueling the cycle.
And since it is a cycle, at some point it will eventually become rarer and rarer, and the banks and private equity financiers that provide the multi multi million dollar construction financing will be left holding a few of the bags (nice designer bags, but bags none-the-less).

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