Separating McMansions from luxury homes

What is the difference between a McMansion and a luxury home? Here is one viewpoint:

Photo by Frans Van Heerden on Pexels.com

So, what exactly is a luxury home, Michael, you ask? Some people classify it by the style of the house, or perhaps by its finishes, or by the product brands in the home. So, how do we define a luxury home from a price standpoint? I know different brokerages and different real estate firms define luxury real estate differently. Many define a “luxury home” as a property that is priced at $1,000,000 or higher.  For the purposes of this article, we’re going to define a luxury home as a home that is listed for sale at at least three times the average sales price for that market. (There are four primary price points in most markets: starter-/entry-level, average, high-end and luxury pricing. I define high-end homes as homes that are two times the average sales price for that given area.)

Luxury is relative to that specific market. Most markets have luxury homes based on our definition; it’s all relative, however, because when people think of luxury, they often think of McMansions or estate homes, and that’s not always the case. To take action, you need to develop graphs and other visuals that can articulate the data for luxury and high-end real estate for/in your marketplace: Are you in a buyer’s market or a seller’s market? High-end and luxury homes start at what price point for your market?

I am interested in the ways the dimensions of a luxury home are different than those of McMansions. This is based on my four traits of McMansions.

  1. The absolute square feet of the home is not mentioned above. Presumably, both McMansions and luxury homes are large.
  2. The relative square footage is also not mentioned above. Perhaps luxury homes are generally larger than McMansions?
  3. The architecture and design is mentioned as luxury homes may have particular features and/or finishes. While McMansions are often criticized for mass produced features and/or poor architectural choices, luxury homes stand apart from this.
  4. The luxury home is more expensive, whether over $1,000,000 in price or some multiplier above the market or in a tier above others. McMansions are more expensive than small homes or starter homes but they are not as pricey as luxury homes. The luxury home is then a true luxury good available only to a few while McMansions are meant to appeal to a broader audience.

If the description above is correct, luxury homes are mostly different because of their price at the top end of the market. McMansions are not that; they may aspire to be luxury homes but they are for a different price point and have different features that have less to do with square feet and more to do with design elements or features.

(The next step might then be to provide advice for real estate agents and others who want to appeal to McMansion buyers and owners. How to stay away from luxury home territory and above more typical homes?)

Declaring a mountain lion sanctuary and other NIMBY efforts

Wealthier communities have a variety of means by which to oppose or block cheaper housing or affordable housing. This can include emphasizing conservation in a Silicon Valley community:

Photo by Pixabay on Pexels.com

“Woodside declared its entire suburban town a mountain lion sanctuary in a deliberate and transparent attempt to avoid complying with SB 9,” California Attorney General Rob Bonta wrote in a letter to notify the town that the move violates state law and must be amended.

After receiving a letter from the attorney general this weekend that threatened further legal action, the town ended its short jaunt into the world of conservation the next day. In a statement on Monday, the council said that the Department of Fish and Wildlife “had advised that the entire Town of Woodside cannot be considered habitat” and that “as such, the Town Council has instructed staff to immediately begin accepting SB 9 applications.”

Woodside is not alone in recent efforts:

Woodside is far from the only town that has attempted to come up with creative ways to block the statewide rezoning law. Since its introduction last year, local governments and homeowner groups have opposed the plan, claiming that it crushes single-family zoning.

There have been at least 40 cases in which towns attempted to block or limit SB 9 housing, according to affordable housing advocacy group Yes in My Back Yard Law.

I would not expect wealthier communities to just go along with new guidelines. The combination of local government authority over zoning plus wealth means that certain communities can delay and/or fight affordable housing or more housing. Or, state legislation or federal guidelines are written in such a way that communities escape scrutiny or any penalties (see the example of Illinois). Is the situation different now in California such that communities will not be able to delay any longer?

More broadly, how much do efforts to conserve open space in suburban areas really take place to protect wildlife and land versus limiting the amount of development? From my research in the Chicago suburbs, I recall numerous efforts to protect open land and expand Forest Preserves. These often occurred during mass suburbanization in the postwar area as open space quickly disappeared among new subdivisions and roads. Open space can help limit the number of nearby residences, reduce noise and traffic, and boost property values by limiting housing supply.

Just how many compounds, mansions, and luxury condos does a billionaire need?

Jeff Bezos owns multiple expensive properties:

Photo by James Wheeler on Pexels.com

When Jeff Bezos isn’t launching himself into space, he’s on the hunt for another trophy property to add to his already-impressive real estate portfolio. Earlier this year, the Amazon founder reportedly acquired a 14-acre compound in Hawaii for a whopping $78 million in a mysterious deal (more on that later) which brought the value of his real estate holdings to an astronomical $578 million, if not more. The billionaire has picked up several properties in his home state of Washington, a number of New York City apartments, a few sprawling estates in California, a ranch in Texas, and a number of places in Washington, D.C. Below, we’ve rounded up all of the homes the entrepreneur owns in the U.S.—so far…

Several years after Bezos founded Amazon, he put down $10 million for what has largely been his primary residence over the past few decades. It comprises two homes measuring 20,600 square feet and 8,300 square feet, respectively, situated on about 5.3 acres in the exclusive Medina neighborhood of Seattle (Bill Gates also owns a home there). In 2010, the Albuquerque native invested $28 million to renovate the property. That same year, Bezos reportedly bought the property next door, a 24,000-square-foot house that came with an additional five acres. The Tudor–style home was listed for $53 million at the time, but it is unclear what the billionaire ended up paying for the purchase. Bezos still owns this massive compound…

Bezos made a big move to Washington, D.C. in late 2016, snapping up two sprawling mansions measuring a combined 27,000 square feet for $23 million. Built in 1914, one of the massive homes was previously the site of the Textile Museum and was recorded as one of the largest houses in all of D.C. According to The Washington Post, which Bezos owns, the billionaire purchased the property with plans to convert the two adjacent structures into one single family home so that the Bezos family could use it during their visits to the city. It is located in the Kalorama neighborhood, which has also been home to the Obamas, Ivanka Trump, and Jared Kushner. In 2018, it was reported that Bezos was planning a $12-million renovation on the place, including the addition of a garden room to one of the two structures…

The next year, Bezos expanded his Beverly Hills compound with the purchase of the $12.9-million home next door to the Spanish-style mansion he’d bought in 2007. While details of the house are scant, the Los Angeles Times reports that the structure measures 4,586 square feet, with four bedrooms and six full bathrooms. The property features a gated semi-circular drive and a picturesque swimming pool shaded by mature trees…

In April, Bezos bought a fourth unit in the luxe Madison Square Park apartment building where he’d snapped up three homes the previous summer, dropping $16 million for a three-bedroom unit adjacent to the two lower-level units from the original purchase. Although it was unclear at the time what Bezos’s plans were for combining all four units, building permits were submitted in fall 2019, so it’s likely the fourth acquisition was meant to be an addendum to the already-grand Manhattan mega-mansion.

Real estate can serve multiple purposes for the wealthy. They need multiple places, homes near work, in important cities, and in getaway locations, to keep their wealthy lifestyle going and to keep their daily activity out of the public eye. These properties can be investments as the number of such units is limited. Finally, these holdings are status symbols in themselves as they require money, staff, and attention that few individuals could provide.

The implication here is that Bezos has spent a lot on all of his properties. Given his wealth, maybe not. What I would be more interested in is how his holdings compare to other billionaires. What is the average number of expensive properties? Are mansions, urban luxury locations, resort properties, or rural holdings more common? How do these big actors affect real estate activity in different locations? Deeper study of the real estate activity of the most wealthy could help us better understand how wealth translates into real estate capital.

Who should be able to live on or near the coast?

A new federal government flood insurance plan highlights an ongoing question: should living near the ocean coast be available to many?

Photo by Daniel Jurin on Pexels.com

At the center of the fight are the questions of who gets to live by the water, and who should shoulder the burden of costs that rise with the sea level. The estimated 13 million people who reside in the officially designated floodplain are divided between those who can buy pricey waterfront homes and those consigned to live in less desirable, low-lying areas because that’s all they can afford. Some of the people hardest-hit by major recent storms have been vulnerable communities in New Orleans; Port Arthur, Texas, outside Houston; and poor neighborhoods in the farthest reaches of New York City. The updated flood-insurance system is designed to help those populations, but in coastal communities across the country, uncertainty about the new prices is spreading fear that however well intentioned, the administration’s policy will exacerbate the inequality of beachfront living, pushing out homeowners most sensitive to climbing insurance rates.

Real estate is famously about location, location, location with recent examples – COVID-19 migration and opportunities in the metaverse – illustrating this maxim. The coast may be one of the most desirable locations as there is only so much of it and people like the views and access to the water and beaches. Even though not all coastal properties are really expensive, such land near big cities and destinations can be very pricey with high demand.

Even as the insurance program is updated, perhaps the real long term question is just how many people should be able to live on the coast at all given climate change, environmental concerns including erosion and habitat degradation, and an interest in keeping shoreline available for public use. Is there any chance more coastline in popular areas is protected fifty or one hundred years from now or are the market pressures just too strong?

Wealthy people can just buy a town, Mark Cuban edition

A very small community in Texas is now owned by Mark Cuban:

Google Maps, Mustang, TX, on December 3, 2021

The billionaire just bought the entire town of Mustang, Texas — a blip on the map off I-45, with a population of 21 people, according to the latest census data.

The reason, Cuban told the Dallas Morning News: A buddy needed to sell it…

The town was founded in the early 1970s, when it was known mostly as a local watering hole in an otherwise dry Navarro County, according to the paper. These days, there’s little more than a trailer park and a strip club, Wispers Cabaret, which is reportedly in disrepair. On Friday, Google Maps showed the name of the club had been edited to “Mark Cubaret.”…

It’s not clear what Cuban paid for the town, but for someone with a net worth of nearly $6 billion, it was almost certainly a steal. The town was reportedly put up for sale in 2017 for $4 million, but Turner said it was overpriced, even when they slashed the listing price in half.

The angle taken in this reporting is whimsical: a billionaire purchases a town with few plans except to help a friend. The point is made clearly by the opening comparison of Cuban to Johnny Rose, the father in the comedy series Schitt’s Creek.

There are other ways to approach such a story:

  1. How often do wealthy people make such purchases?
  2. When you buy a town, what happens to the people who live there? Is this like buying homes or apartments or is there something different involved when purchasing a community?
  3. What could these 77 acres become given the existing land use and location?

The buying and developing of large land parcels is big business and has consequences for many people. Where does the story go from here?

(This is not the first time I have written about the selling or buying of towns in the United States. See here.)

For five years running and the highest priced real estate by close to $2 million: America’s most expensive zip code

One way to consider the geographic concentration of wealth in the United States is to look at the most expensive zip codes. The leader is both persistent and has housing costs significantly above others on the list:

Photo by cottonbro on Pexels.com

“Reaching a new record median sale price at $7,475,000, Atherton’s 94027 remains the #1 most expensive zip code in the U.S. for the fifth consecutive year — nearly $2 million ahead of the runner-up,” the real estate property firm said in a news release. “Not only that, but the billionaire favorite also saw its median rise 7% year-to-year, suggesting that this exclusive enclave may continue to retain its leading position in the future.”…

The list of the ten most expensive zip codes includes several locations in the Bay Area, one in the Boston area, one outside New York City, one in Miami, several in southern California, and one outside Seattle. These are not surprising given the money in such locales plus the high real estate values in these markets.

At the same time, the Atherton zip code stands out. The housing is almost $2 million higher than other desirable locations. This does not necessarily it has the most expensive properties in the United States but it does speak to the uniformity across the zip code. And this has been the most expensive zip code for five years running. There is consistency which could be related to development activity (or a lack thereof), demand for housing in that particular place, and local regulations and zoning.

Even as numerous scholars have studied the concentration of poverty in certain locations or gentrification and changes in particular locations, I have not read as much on the concentration of wealth. How often does top-end wealth change locations? I would guess at least some of the zip codes in the top ten have been significantly wealthy for a long time. However, locations can change, new industries arise, and capital can move and real estate fortunes change. How different would a similar list be several decades ago or a century ago in the United States?

Does Ben Simmons live in a McMansion or a mansion?

Basketball all-star Ben Simmons has his house on the market and one publication calls it, in the final paragraph, a McMansion:

Now his McMansion, replete with dedicated “Simmo the Savage” room, has popped up on the market for five big ones. It’s almost too perfect to believe.

Is his suburban home a McMansion? Here are more details about the house from the first two paragraphs of the story:

9 Miller Court, Moorestown, New Jersey. Five beds, six baths. 10,477 square feet of high-end appliances, Cambria quartz countertops, and floor-to-ceiling wine walls blooming from an awe-inspiring grand foyer with a spiral staircase climbing up from its center. All of this and more could be yours for just $4,999,999.

Now at this point, you may find yourself wondering: What sort of small-time CEO or TV actor would occupy such an extravagant abode in southwest New Jersey?

I have seen similar stories before: any big recently-built house of a wealthy person could be labeled a McMansion. And this one is owned by a star in the news! But, some of the details above do not line up with the idea of a McMansion:

  1. The size. This is a large house. I would put the upper cut-off for a McMansion more at like 8,000 or 10,000 square feet. This is not a run-of-the-mill large suburban home.
  2. The price. This is a $5 million home. This is out of the reach of even many wealthy people.
  3. The architecture is a bit strange – the facade mixes styles, features a two story entry, and has modern windows – but the interior finishes seem high-end, not necessarily mass-produced. The home overall does not appear gaudy.

While the home may not look like a traditional mansion or one associated with old money, I would argue it is not a McMansion. This is a big expensive home with a lot of finishes that puts it beyond the typical suburban McMansion.

More Americans looking for vacation homes in Europe

Those with means and resources can purchase real estate around the globe. This is essential for development in many locations, including major cities as well as vacation destinations in Europe:

Photo by Pixabay on Pexels.com

From Lisbon to the Greek islands, the Americans are back, ready to take advantage of the buyer’s market in many of Europe’s leading resort areas. There are bargains to be had at the entry and mid-levels, with prices buoyant at the top end…

Knight Frank last week released its Global Residential Cities Index for the first quarter of 2021, giving a view of price changes from the year-earlier period, when lockdowns began to take hold world-wide. It shows double-digit increases clustered in the Nordic countries and Eastern Europe, while prime European second-home destinations that had been inching toward the top in previous years—including Lisbon and Malaga on Spain’s Costa del Sol—are seeing declines…

Americans typically play a niche role in Southern Europe’s luxury second-home markets, which tend to be dominated by sun-hungry Northern Europeans. But they have traditionally made themselves more conspicuous at the very top of those markets.

This is different than Americans looking for relatively inexpensive places to retire; this is about finding real estate to invest in and profit from in the long term in desirable locations. This is an opportunity to make money in locations where prices have decreased, in contrast to numerous markets in and around big cities where prices have increased for years. Homes are places to enjoy and to invest in, as sociologist Brian McCabe argues. Being wealthy and staying wealthy can depend, in part, on buying real estate when it is available and then profiting later.

All of this is an opportunity that most Americans do not have or could not even dream about. A second home in a foreign country? The ability to travel there regularly? Being able to sell this property later and/or pass down profits to heirs? Just as those featured on HGTV’s International House Hunters are a select group, those who can take advantage of a European buyer’s market are limited.

Out with vacation McMansions but keep going with pricey, exclusive, luxurious homes

An article about a popular new development in Park City, Utah suggests millennials do not want McMansions but the rest of the text suggests they are not giving up on having nice homes:

https://www.benlochranch.com/

What Benloch Ranch represents is a collision of trends in real estate and demographics. Millennials of homebuying age are rejecting the sizes of their parents’ homes, so-called cookie-cutter McMansions. And the second-home market, hastened by COVID and the same millennial-buying population, is booming. The pandemic has forced buyers to value outdoor spaces and activities more than ever before. Benloch Ranch currently has a waitlist of 175 for its single-family lots…

The development’s amenities include more than 20 miles of trails, a ski hill, a skeet shooting range, an ice skating pond and 900 acres of open space…

A lot of millenials don’t want these big houses anymore. We’re redefining the size and scale of the house and altering the price point so it’s more affordable.”

According to data released by the Park City Board of REALTORS, the median price  single-family home rose roughly 26% year-over-year to $2.5 million. Benloch Ranch offers single-family homes starting at $695,000.

The pitch is an attractive one: lean into the terrain and the idea of sustainability, feature interesting architecture, provide amenities, be close to an exciting scene and in at the start of a new development. This is a shift to new preferences of millennial buyers. The vacation homes of today and the future may look different and there is money to be made.

At the same time, this is about vacation homes in a wealthy community. This development has potential because millennials with resources can afford a vacation home starting at $700k. Sure, there are no more McMansions with all of that wasted space and tacky design but this kind of life is only available to those who can buy into it. The price for these homes would be beyond the reach of many residents of the Salt Lake City region, let alone many residents of the United States.

Does this mean the McMansion vacation homes of an older generation will not find buyers? This will be worth watching, both for vacation homes and regular homes. If McMansions go out of style, this could be reflected in lower prices or modifications – imagine multiple units – or even redevelopment.

Touring the most expensive American homes on YouTube

There is an appetite for seeing the homes of the rich and famous. See the popularity of showing these homes on YouTube:

Photo by Pixabay on Pexels.com

Mr. Yilmazer, 31, isn’t a wealthy buyer, nor is he currently a real-estate agent. Rather, he is one of a handful of real-estate YouTubers, amateur video hosts and producers, who are bringing regular people, via their laptops or cellphones, inside the mansions of the megarich. With more than 820,000 subscribers on his YouTube channel, Mr. Yilmazer’s videos rack up millions of views and inspire tens of thousands of comments…

In some ways, real-estate YouTubers like Mr. Yilmazer are providing today’s answer to the MTV Cribs phenomenon of the early 2000s, offering the masses a rare glimpse at how the 0.1% really live. But rather than getting a peak through the eyes of a movie star or a suave celebrity real-estate agent, like on shows such as Bravo’s “Million Dollar Listing,” they’re seeing these houses through the eyes of a regular guy just like them…

Mr. Yilmazer said he is bringing in between $50,000 and $100,000 a month in revenue from his YouTube channel in ad revenue alone, putting him on track to bring in more than $1 million this year if the growth of his channel continues at its current pace. Those are just the revenues provided by YouTube for allowing their automated ads to stream on the channel without any effort from Mr. Yilmazer’s own small team. On top of that, he and his team can make money from dedicated sponsorships—Mr. Yilmazer will personally feature a particular company’s brand in his videos for a fee that runs in the tens of thousands of dollars—and the money real-estate agents offer him to feature their listings on his channel. He said he often won’t charge if a property is particularly spectacular and will drive viewership to his channel. If a property is less impressive, he charges a fee, which typically runs into the five figures…

Still, not everyone is sold on letting YouTubers have free rein in their properties, since some agents believe that prospective buyers would prefer that their future homes not be splashed all over the internet.

It is the Internet, expensive real estate, and making money all in one. What could more American than that in 2021?

The money angle is very interesting to consider. The owner of the big expensive home could benefit from more exposure (though the article notes that not all big home owners think the YouTube views benefits them). YouTube gets original content that plenty of viewers want and they can monetize the content through advertising. The presenter can develop a brand and bring in a good income. Does anyone lose here?

One potential downside: how Americans view homes. If people consistently see large luxurious homes on television, as sociologist Juliet Schor argues in The Overspent American, or on social media, does this ratchet up their expectations about what they should be able to acquire? The biggest homes are out of the reach of almost everyone yet some of the individual pieces or features might find their way to a more attainable range.