South Florida Business Journal
In-Depth: Real Estate Monthly
July 16, 2004
Tearing Down The House For Land
By Ed Duggan
The urge to tear down and rebuild has become the method of choice to secure outstanding locations, according to Kevin Tomlinson, a Realtor with Esslinger Wooten Maxwell in Miami Beach.
"Without a second thought, buyers are tearing down older, less desirable homes in prime locations because of land scarcity," he said. "I have a buyer who was looking at a $5.2 million home on La Gorce Island in Biscayne Bay. She made an offer on the property without even stepping foot in the home. She said she didn't need to see it because she was just going to rip it down."
From anecdotal evidence to macro numbers, the story is the same: Demand continues to grow as land supply dwindles.
Greater South Florida, an area covering the traditional Miami-Dade, Broward and Palm Beach counties, plus the Treasure Coast of Martin, St. Lucie and Indian River counties, had 6,571 single-family housing starts during this year's first quarter. That's up 20.9 percent compared with the first quarter of 2003, according to Metrostudy, a nationwide research and market information firm.
Metrostudy President Mike Insulman said the improving job market is a major market driver. Increases in gross domestic product, industrial production and manufacturing capacity utilization also point to a solid year ahead for housing, although he is somewhat concerned about both inflation and higher interest rates.
In greater South Florida, the state of the market presents a varied pattern, setting records in all directions for single-family home development.
"The market is growing at the geographic extremes, with strong activity in Miami-Dade and St. Lucie counties," said Bradley F. Hunter, director of Metrostudy's South Florida division.
A few of the firm's key findings:
* Miami-Dade County construction surged with a record high of 7,411 annual housing starts for single-family homes in 2003, compared with an annual average of 5,000 to 5,500 during the past five years. The single-family home action is in the Homestead area, according to Hunter.
* Broward County building is down sharply, with 3,900 housing starts last year. There are a handful of projects in the pipeline, but new home development is down because of the lack of developable land.
* Palm Beach County peaked during the third quarter of 2003 to finish the year at an annual rate of 12,000 starts. The county is expected to do less this year, with an estimated annual start rate of 9,833 homes. Lack of remaining land in Boca Raton, Delray Beach and Boynton Beach has pushed development west to U.S. Highway 441 in Lake Worth and eastward in the form of infill condominiums and townhomes.
* Martin County remains subdued, with a modest increase in new starts during the first quarter because of its restrictive approval process. The lack of new single-family homes works against affordability and the development of 20-acre ranchettes is working against the county's intent to reduce sprawl.
* St. Lucie County is where the action is, as a land rush builds up steam, driving up the price of land tracts. The annual start rate hit 2,493 units in the first quarter, versus 1,200 starts last year.
* Indian River County is waking up, too. It reported 355 starts in the first quarter, up 38 percent compared with the same quarter last year. The big guys are moving into the county and strong first quarter sales are an indication that the next three or four years will see a surge of demand coming out of Palm Beach County.
But one aspect of the current real estate boom that is troubling, some industry experts say, is the role speculators and investors are playing, especially in the overheated condominium sector.
The difference between a speculator and an investor is that a speculator wants to flip a property as soon as possible, while an investor will hold for appreciation and generally wants to collect rent in the meantime.
And the market roars on.