Wednesday, April 27, 2005

Land Price Boom Changes Economics In Florida

As with any financial distortion, the side effects are not just what happens, but what doesn't happen. In the case of Florida, former affordable housing firms are quitting. "For-profit affordable housing builders can make more money flipping land."

"Continental's Castiglia said he worked with one community development corporation, generally called a CDC, which bought land in Miami's Allapattah neighborhood for $250,000, but spent three years trying to pull together the financing. The project fell apart and the land sold for $1.9 million."

"'Why take the risk and make 20 percent when you can make 100 percent or more?' Castiglia said."

"Some say the overbuilding of condos will create new rental inventory, but that won't benefit low-income households, Gonzalez said. 'It's absolutely not true that this will be future housing stock.'"


At 9:32 PM, Blogger Sunny said...

I used to represent developers like this who did affordable housing. It was extremely profitable and low risk five to ten years ago. Then competition began, local gov't and housing authorities started to "bid down" their subsidies, in a manner of speaking. Now its more of a political game winning the bid, getting the tax credits, the gov't subsidy.

Affordable housing is rent restricted for a period of time, sometimes up to 50 years and the maximum rent charged is based on a formula using median income. Developers make very little money on holding the property (i.e. cash flow) as opposed to their up front "developer's fees" and other charges. So developers love to win the projects but with our current market and its disregard for income levels, I would imagine it would be a nightmare to manage them. Demand is probably unreal crazy, but they're profits are capped!

At 7:09 AM, Blogger Ben Jones said...

Thanks for the first hand account. I am no fan of subsidy. I thought it is significant because it is another by product of the price boom.

At 8:24 PM, Blogger Sunny said...

"...another by product of the price boom."

Exactly, and the subsidies are going have to get sweeter to attract private money. When they keep rates low to stimulate spending, I wonder if Greenspan and the Fed thinks about all of the people that may not have a place to live because of of a lack of gov't subsidized private affordable housing.


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