Like a piñata, bursting condo bubble will spill forth goodies
By Michael Lewis
Even Cassandra must have thought once or twice about pie in the sky.
As Miami's unofficial prophet of doom during a condo bubble that is no longer in dispute, I wrote column after column counseling caution rather than unbridled euphoria but claiming that even a bust would leave behind beneficial change.
Now the slide has become reality, Miami's condo-construction wave is about to end, and completed units will soon hit the closing table. I'm no longer in the minority talking bubbles — but on the plus side, I'm also not alone in seeing value in the bubble.
Daniel Gross, in his new book, "Pop! Why Bubbles are Great for the Economy," suggests, "the excess capacity in real estate will be marked down and sold (some of it at catastrophic losses) but not torn down. Some developers in South Florida might go bankrupt, but their half-finished condo towers will be completed and turned into hotels or office buildings or dormitories for rich kids at the University of Miami."
He's partly right: We've been building for our future, and what's rising is of high quality. It will be necessary for Miami's next growth spurt — impossible to predict exactly when, though today is the first day of the rest of our lives.
But almost all those towers we're building will be used exactly as intended: as condos offering better life in an urban area. In the case of the glut of downtown condos, those towers can spur an urban revitalization that is long overdue.
That, Mr. Gross notes, is precisely what happened around New York City, bringing "gentrification and renewal in some of the formerly most wretched spots of cities." Those Biscayne Boulevard condo towers don't sit in wretched spots, but neither were they garden spots.
The new Miami residences soon will cost less than was expected — expected, at least, by the greedy who bought to flip. But that's good for the city and the economy because those who are going to wind up with them are also going to live there.
No local gain but in construction jobs was to be anticipated from a string of condo towers whose empty units were to be swapped around like a pack of trading cards. Once construction was done, we'd just have had empty houses of cards.
But rows of urban towers filled with primarily full-time residents who work nearby and tire of commuting from Kendall or Weston will create a community of not just dwellers but consumers, making streets safer by their presence and causing service businesses to bloom around them. That's a net gain for the city.
It's also a potential gain for the families who will fill those towers. Ask a former city official.
More than two years ago, when Florida International University sponsored a panel on downtown housing's spurt, then-City Commissioner Johnny Winton was asked whether a bust would follow. "You can't use historical data to predict the future because we are in uncharted territory," he said, lacking our benefit of hindsight.
But he had advice for developers: "Build 'em. If they fail, we're going to end up with affordable housing."
Affordable is a reach — but it's going to cost less than pleases would-be flippers who now must head to the closing table. Instead of condo units destined to be traded higher and higher until some mythical sheiks or Latin American moguls or European owners of five residences decided to buy them, most residents now are likely to be Miami workers — even if they're transplants.
Affordable, maybe not, but realistically priced soon. And, in the longer run, priced much higher, just as the would-be flippers once bet.
As a parallel, take the massive fiber-optic network laid in anticipation of what Business Week calls "a never-ending e-commerce boom" by companies that collapsed into bankruptcy at the start of this millennium. "Investors saw some $2 trillion of market value vanish in a little more than two years — twice the damage caused by the parallel bursting of the Internet bubble."
But today, the magazine reports, bandwidth prices are rising after six years of decline. Fittingly, the article is titled "Back from the Dead."
Miami's condo market isn't dead — though it could use vitamins and maybe a transfusion. Sure as I was several years ago that the condo market was dangerously overheated, I'm even more confident today that thousands of condos being rushed to completion will catalyze a far better future — though the most reckless players in their development and sale may not benefit.
The only question is when. Because, as Mr. Winton noted two years ago and is even truer now, "we are in uncharted territory."