Saturday, May 25, 2013

Economy/Urbanism - Do Luxury Towers Spoil The Rents?

(Drivebycuriosity) - New York City has an interesting new trend: Piling up the rich. Last weekend the New York Times reported that developers are building a series of skyscrapers for wealthy people who like to rent or buy apartments on the upper floors (nytimes).  The super rich agree to pay extremely high prices for the gorgeous view and the absence of street noise the upper floors offer.

According to the paper there is a huge demand for higher flats in upcoming luxury towers like 432 Park Avenue, an 84-story building in Midtown Manhattan. The paper believes that this trend will drive the already high rents in New York City even higher. James Parrott, chief economist for the Fiscal Policy Institute, a liberal research organization supported by unions, claims "the rush to build these towers underscores the gap between rich and poor in New York City" (nytimes).

I don´t subscribe to this theory. Prices and rents for apartments are closely connected with the land on which they are built. If the land prices rise, apartment prices will rise too.  And land prices rise when the demand for land rises because the supply stays unchanged, for instance in Manhattan.

The new luxury towers don´t need much extra land.  The new Manhattan luxury skyscrapers are squeezed between the existing buildings. They are slim structures and rise high into the sky. Take for instance Tower Verre which is now under construction at 53 West 53rd Street in Midtown. Other examples are a 75-story skyscraper at 157 West 57th Street and a 60-story tower in TriBeCa (56 Leonard)  (google  .wikipedia  ).

Actually those luxury towers raise the supply of luxury apartments by transferring air space into flats. This could save Manhattan from the development experienced in London where the demand from the super rich like hedge fund managers, Russian oil tycoons and sheiks from Near East drive land prices & rents up to the sky.

In the British capital the hyper-rich demand a lot of land because they buy spacious  mansions (wordpress). Hence they make land more scarce and expensive.  In Manhattan they buy places in the sky.

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