Quote:
Originally Posted by LAsam
I think this could be a key point. Cheap financing fuels the flames of real estate development like few other things can.
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True, rates are low and falling again. But many banks are getting a bit more picky at approving loans. More risk aversion. They want the borrowers to have more "skin" in the game, in the form of their own funds. A project that has lease commitments is also more likely to get funded. Definite credit tightening going on. One thing is pretty certain--the days of easy Chinese money in quantity is over for now. Hopefully Canadian, U.S. and Euro funds will fill the bucket. But a slowdown in the boom was inevitable, in L.A. and other cities. Lower rates ARE a net positive as long as the banks are willing to lend and we don't fall into a recession. The Olympics and need for housing are positive, but the real demand is for more affordable housing for the lower and middle classes. Most of the DTLA projects target the wealthy or upper middle class. Can affordable housing projects pencil out? It might take some government subsidies. The government could help out by approving more projects featuring smaller units, even micro-units under 500 sq. ft.
I think a skyscraper filled with affordable smaller units would sell out like hotcakes. Tiny apartments and tiny condos and tiny houses sell if the price is right. More projects should also be developed that feature the "dorm" model--a central kitchen/living area shared by a number of residents who have their own private rooms (with a small bathroom) surrounding the common area. I could see a project built with one common area per floor, and private rooms surrounding the commons (kitchen, rec room, lounge etc.). Or maybe just a big common room/dining room/gym/rec room for the entire building. A staff would be hired to prepare meals and keep things clean for the entire building of private small rooms. Each room would have a small bathroom/small shower. Could really pack in the units, and keep them fairly cheap.