L.A. Rated Tops for Investments
The spoils of victory in Tuesday’s election will include the major issue of coping with the waning affordability of the single-family home, always a key economic measure.
While land and housing prices escalate in most sectors of the nation, California, in particular, faces the dilemma of continuing growth in population along with the highest home prices anywhere.
Fostered by economic diversity, job growth, its prominence on the Pacific Rim, its highly touted life style and its climate, the Golden State has a tough time saying “no” to growth in any dimension.
Its global attractions obviously continue to outweigh its constant, critical problems and public irritants--traffic congestion, hazardous wastes, smog, crime and home prices that are up to $50,000 more than the typical American dwelling.
Its mounting attraction is cited once again in a new study by the Real Estate Research Corp., putting Los Angeles at the top of the list of cities with the best prospects for real estate investment in 1989.
But the report also notes that despite its attractiveness, “housing costs are a barrier to continued high levels of commercial construction” and expansion.
As of September, only 23% of California households could muster the necessary annual income of $54,000 to qualify to buy the median-priced detached house selling for $174,094, carried by a conventional 30-year loan. In September of 1987, 30% could buy the median-priced home, then costing $147,370.
The high cost factor is evident in the number of transferees from state to state, showing that Western states attracted only 15% of all transferee families selling a house in one community and purchasing another in a new community during the first nine months of this year.
The heaviest transferee activity, 35%, took place in the far more affordable-home areas of the Southeastern states. New England and other Northeastern states attracted 25%. The Midwest attracted 13%, Southwest 10%, and the North Central states only 3%.
Favorable economic conditions, opening of new plants and expansion of corporate facilities, coupled with the ability of families to buy homes in the Southeastern states, resulted in the 35% relocation figure, the RELO/Inter-City Relocation Service reported. The Chicago-based network gathered its data from 1,400-member firms involved in arranging for the relocation needs of transferees.
The Real Estate Research Corp., also based in Chicago, interviewed 90 leading realty investors, lenders and developers to prepare its annual “Emerging Trends in Real Estate” report for New York-based Equitable Real Estate Investment Management Inc., the nation’s largest manager of tax-exempt equity real estate assets ($8.3 billion) for corporate, pension fund and overseas investors.
The study placed Los Angeles, Washington and Boston as the best places for investments next year, deleting New York City from last year’s “best” list because of “cutbacks in financial service firms when new space is coming on line.”
Besides, the Big Apple “is just too expensive, and many firms can’t justify the rents,” the report says.
For the third consecutive year, the worst cities for investment were Houston, Denver and Dallas, while Phoenix joined their unenviable company as a city “with the poorest real estate investment outlook.”
Although some reports indicate there is much more stability in both Texas cities, the study suggests that “any meaningful turnaround is still a year or so off in Dallas and two to three years in Houston.”
A one- to two-year respite is needed in Denver, while “there is an oversupply of every property type in Phoenix, and the city needs three years for enough momentum to justify new starts.”
Addressing the national picture, George R. Puskar, chairman and chief executive officer of Equitable, warned:
“This is no time for everybody to start building again. Most office markets are still very fragile and a lot of ‘spec’ projects could be disasters.”
