Tag Archives: wealthy

Supermarket chains suffering in wealthy countries

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Supermarkets in numerous wealthy countries are having a hard time competing with the wide range of choices offered to consumers:

As they scramble to maintain market share, the big four British grocers can take comfort from the fact that at least they are not alone. The global supermarket industry has its share of epic competitive scraps, too. In Europe alone, the discounters that have wrought havoc for Tesco, Morrisons, Asda and Sainsbury’s have an even more powerful grip on the industry. While Aldi and Lidl control around 8% of the UK market, according to figures from market research group Kantar the share controlled by discounters in France is 10% and in Germany – home of Aldi and Lidl – it is 37%. In the UK, two-thirds of the market is controlled by four players; this is the same as in Germany, while in France 56% of the market is controlled by the top four and in Spain just under 50%. A look at these markets, plus some of the biggest outside Europe, shows that every territory poses challenges for big grocers…

As in the UK, discounters and supermarkets in Germany are faced with shoppers who are less and less willing to drive out of town for their weekly shop, and more likely to do small, frequent trips in urban areas. In recent years, the trend has led to a revival in big cities like Hamburg and Berlin of the traditional Tante Emma Läden or corner shops, which have been able to be much more flexible in reacting to trends or food scandals than their bigger rivals…

Between the discount stores, supermarkets and hypermarkets there is a constant battle going on to woo the increasingly cash-strapped consumer. “Supermarkets are really the only sector [in Italy] where competition has worked out,” said Liliana Cantone of Italian consumer association Altroconsumo. “The players are doing their best to offer lower prices, and consumers can really benefit from this.”…

The market is far from impenetrable, however. Walmart, the only “everyday low pricing” operator in Japan, has forced domestic rivals to keep their prices low where it operates stores. Costco, with 20 stores nationwide, has proved a success, offering prices comparable to those found in the US. Tesco’s foray into Japan was frustrated, in part, by consumer idiosyncrasies.

Sounds like some contradictory forces at work. On one hand, increased globalization means food can travel all over the world. It might seem that such a global market would be controlled by some major players in the grocery industry who could use their size to their advantage. Yet, that same globalization allows other players to get into the game and gives consumers more low-priced options, usually something seen as a good in free-market economies. Throw in debates about subsidizing food production, getting healthy food to places that need it, and genetically modified food and you have a retail sector that is experiencing a lot of flux.

Just one quick thought: I’ve been in supermarkets in England, France, and Japan and they all seem more similar to each other than to the American version. Even not looking at Walmart or other big box stores with groceries, the American supermarket is an amazing size with tremendous variety. In contrast, stores in the other countries are smaller, something that may be cultural as well as economic due to higher rent and land prices.

Adding an observatory to an “otherwise ho-hum OC McMansion”

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Already have a saltwater pool, a four-car garage, and 6,000+ square feet? Follow the lead of one Orange County McMansion and add an observatory:

Behind the doors of this “custom,” yet seemingly cookie-cutter mansion in pricey, master-planned Laguna Niguel, lies a definitively unique feature: a “commercial-grade telescope” in a private observatory. The owners have spent “Over $450,000 in upgrades since 2010-11 to perfect an already gorgeous home,” according to the listing (via the LA Times), but a large portion of that probably went toward putting that star-gazing equipment in place. The 6,073-square-foot, four-bedroom house also comes with a saltwater pool with waterfall, a fire pit, four-car garage, wetbar, and built-in outdoor barbecue. The property last sold in 2010 for $2.75 million, according to Redfin; it’s now asking $3.188 million. There’s a potential sale in the works, but it’s still accepting backup offers.

And they say McMansions lack customization. I would guess that this family did not recoup their entire investment in this observatory though given the large population of the Los Angeles metropolitan area, there has to be one household that really wants an observatory.

Such a feature could be viewed by some as the sort of customization lauded by the Not-So-Big-House movement and other architects and psychologists who tout the fit of the home with the occupants. Yet, guessing again, I imagine more people would see this observatory as another garish symbol of the McMansion.

New York parking spots going for $1 million each

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A new development project in New York City includes the option to buy a parking spot priced at $1 million:

A new development, 42 Crosby Street, is pushing the limits of New York City real estate to new heights with 10 underground parking spots that will cost more per square foot than the apartments being sold upstairs.

The million-dollar parking spots will be offered on a first-come-first-served basis to buyers at the 10-unit luxury apartment building being developed by Atlas Capital Group at Broome and Crosby Streets, itself the former site of a parking lot. At $250,000 a tire, the parking spaces in the underground garage cost more than four times the national median sales price for a home, which is $217,800, according to Zillow…

The number of off-street parking spaces in the city was 102,000 in 2010, or about 20 percent less than in 1978, when there were 127,000 spots, according to the Department of City Planning. While scarcity is a factor in the price of parking, $1 million for a parking spot may still be a reach.

Last year, a private garage with space for two cars at 66 East 11th Street was listed for $1 million by the Manhattan real estate firm Delos. It is still available in conjunction with the sale of the building’s $50 million dollar penthouse. In April 2012, a parking space at 60 Collister Street, a loft condominium building in TriBeCa, sold for $345,459.

Over the past year, residential parking spots in Manhattan have been selling for an average of $136,052, according to Jonathan J. Miller, the president of the appraisal firm Miller Samuel.

Actually, that $1 million gets you a 99-year lease contingent on living in the building.

I understand some of the shock registered in the New York Times or at Slate, but at the same time, this is high-end real estate with the precious commodity of a parking spot. There are plenty of people who make the general argument that parking rates should rise in places like New York City to encourage more residents and visitors to use public transportation instead. Can one be in support of higher parking prices and then not like limited parking in this facility going for really high rates? Granted, there are lots of good things that could be done with $1 million – and even the Times article notes that this parking spot costs more than four times more than a median home in the US – but that could be said of a lot of consumer goods.

Growth sector: catering to the wealthy

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Here is one area for economic opportunity: providing goods and services for the wealthy.

Nathan Wilmers, a sociology Ph.D. candidate at Harvard, looked at how the growing impact of wealthy consumers is reshaping the economy and wages. Others have termed this phenomenon “the plutonomy,” or an economy in which earnings and spending are dominated by those at the top.

Consumer spending by the top 5 percent of households has grown 5.2 percent a year since 1989, while spending by the bottom 95 percent has grown at 2.8 percent, Wilmers said. In the past, economists have estimated that the top 5 percent of consumers account for nearly 40 percent of consumption…

Wilmers said that “the increased influence of these consumers sets up big rewards for businesses that create and sell the sorts of products the affluent want.” Specifically, he looks at salaries for butlers, wine producers, Realtors, lawyers and bankers and found that those who are best at their professions and excel at skills valued by the wealthy have the highest wages.

Even within the same industry—say, law or household staff—people hired by wealthy patrons make more than those that serve the middle class or affluent. Companies favored by wealthy consumers also have higher margins (as anyone who’s looked at Hermes profits in Birkin bags can attest).

A few thoughts:

1. At what point does the market become saturated with people and businesses trying to sell to the wealthy?

2. Some historical context would be helpful here. How much does this differ from previous eras? It makes sense that the wealthy consume more but is this significantly different than a few decades ago?

3. Isn’t this a reasonable outcome for a capitalistic system? If you want to make money, you want to find consumers who can pay for your products. Having smaller profit margins may provide for a need or exhibit altruism but a purely profit-motivated firm would seek out the wealthy.

Manhattan population increasing, affordable housing decreasing

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One of the wealthiest areas of the world continues to see a decrease in affordable housing and the population keeps going up:

The latest estimates put the population at more than 1.6 million people, up slightly from the 2010 census.

According to NYU’s Furman Center, in the last year alone, Manhattan lost nearly 3,000 rent-regulated apartments…

In many cases, those stabilized, often affordable homes are being replaced by “market rate” units.

From 2002 to 2012, the number of stabilized or controlled apartments in the borough plunged more than 19 percent. The number of “market” rate and ultimately significantly more expensive apartments soared more than 19 percent…

Nearly 29 percent of the borough’s population is foreign born, but experts say the wave of change could drive that number down even in traditionally immigrant neighborhoods.

“It doesn’t happen all at once; what happens is that neighborhoods change in pieces,” says City College of New York Sociology Professor William Helmreich.

The wealth flowing through Manhattan is incredible so it is little surprise that real estate prices are going up. This isn’t a phenomenon limited to Manhattan: the ultra-wealthy are developing and buying real estate in numerous big cities like London and Miami. The bigger issue is what happens to these cities. Do they become primarily the province of the wealthy or is there still space for average residents and immigrants? This discussion or struggle has been illustrated in recent years in San Francisco where actions by tech companies to bus employees to Silicon Valley has been met with resistance. The answers are not easy as many politicians need to keep and attract the jobs and wealth that help keep the city coffers full as well as look attractive to other firms. In other words, it is hard to fight growth machines.

Bill Gates could buy every home in Boston and still have $1 billion left

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Redfin suggests Bill Gates could purchase all the homes in Boston but not Seattle :

If Bill Gates took every dollar of his net worth (most of which comes from Cascade Investment, his investment firm, as well as Microsoft), he could afford to buy every home in Boston — and still be worth more than a billion dollars, according to a new report from the online real estate site Redfin.

For the report, Redfin calculated the combined cost of every single-family home, condo and townhouse in a city by looking at home sales between April 1, 2013, and April 1, 2014. These sales were used as a representative sample of all homes in a city. The combined costs were then lined up next to the net worth of billionaires on this Forbes list. (You can find more about the methodology here.)

So for Seattle, Redfin calculated that 241,450 homes in the city are worth a combined $111.5 billion dollars. Bill Gates could afford each of the 114,212 homes they included in the Boston calculation (total cost: $76.6 billion), but he couldn’t buy every home in Seattle. The Walton family that founded Wal-Mart could afford every home in Seattle, but only if they teamed up. They could also afford every home in a lot of other cities, including Miami, Dallas and Washington.

Using the combined home prices on this list, some billionaires could settle for purchasing a few smaller cities rather than picking up one of the pricier options. Mark Zuckerberg, who reportedly spend more than $30 million last year buying up homes near his Palo Alto house, could take his Facebook money ($28.2 billion) and buy every home in nearby Berkeley ($25.9 billion, according to Redfin). Or he could decide to buy up a few Zucker-bergs (sorry) across the country, purchasing Corvallis, Ore. ($9 billion), Punta Gorda, Fla. ($10.1 billion) and Oak Park, Ill. ($7.6 billion) with $1.5 billion left over.

See the full list of billionaires and cities they could buy here. The primary purpose Redfin gives for putting this together?

Given that the average American struggles to afford a home, we wanted to illustrate just how many homes the wealthiest among us could buy.

Certainly a stark comparison between the buying power of the typical American versus the wealthiest. So is Redfin pushing hard here to criticize the .01%? It doesn’t appear that way. There is no indication how the differences between Gates, the Waltons, and others might be evened out to provide homeownership opportunities for more Americans. Or, is this more about page-clicks and driving traffic to their website? This is a relatively easy way to leverage their data capabilities and capitalize on recent talk about inequality.

Wealthy Chinese seeking out McMansions

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The Financial Times suggests there is one primary reason more Chinese homebuyers are choosing McMansions: they are status symbols. One note: the McMansions hinted at in this article sound opulent beyond the average American McMansion.

Critics of McMansions would often argue a similar process is at work in the United States: McMansion owners want to impress others with their large house. While the price is not so much of an issue (much smaller pieces of real estate in desirable locations can cost much more), the homes show off through an impressive/ostentatious front, plenty of interior space, nice furnishings, and lots of stuff. On the other hand, I suspect a good number of owners purchased such homes because they say they need the space or got a good deal or liked the amenities of the home and neighborhood.

I’m not sure these are mutually exclusive arguments. Homebuyers can want a suburban experience and want to do it in a home that broadcasts their success. After all, the suburban single-family home represents middle- or upper-class success as well as expressions of individualism.

March existing home sales: slowdown for cheaper homes, increase for more expensive homes

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The March existing housing reports showed a slowdown in one part of the housing market and a rise at the other end:

Sales of homes under $100,000 fell nearly 18% from March 2013 and those in the $100,000-$250,000 range fell about 10%. But sales of homes over $1 million rose almost 8%, according to supplemental data on the NAR website. The median existing-home price — half were below the median and half above — was $198,500.

The West is seeing the sharpest plunges in sales of lower-priced homes and has been for some time. Compared with a year earlier, March sales of under-$100,000 homes fell 45% in the West, 18% in the Midwest, 16% in the South and only 3% in the Northeast.

What’s behind this trend? Inventories at the lower end of the market are tighter than a couple of years ago as the number of bargain-priced foreclosures and other distressed properties for sale has dwindled. Many of those homes were snapped up by investors, who bid up prices, accelerating that segment’s rebound from the housing bust lows.

This is a continuation of a bifurcated housing market after the economic crisis: people with financial means are able to buy and sell while those at the bottom end with fewer resources and less available inventory can’t do as much. This continued sluggish bottom of the market affects a lot of sectors including employment (whether people have the mobility to chase available jobs), personal finances (plenty of people stuck in homes in which they owe a lot of debt or at the least can’t make any money from), and economic activity and jobs (in construction, real estate, banking, etc.).

Fighting the “King of McMansions”

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Some well-known residents of Southampton Village, New York are opposed to plans for a new big house proposed by the “King of McMansions:”

What do commodities trader John Paulson, real estate tycoon Harrison LeFrak, CNN morning news show co-anchor Christopher Cuomo, and  President Dwight D. Eisenhower’s granddaughter Anne Eisenhower have in common?

They share an opposition to the “Farrelization” of their neighborhood in historic Southampton Village, where Joe Farrell has proposed building a 5,531 square foot house on a 1.2 acre parcel on Hill Street according to an article in Wednesday’s Wall Street Journal.

Dubbed “King of McMansions,” Farrell, who was profiled last summer in The New York Times is described as being “a local version of Donald Trump, without the history of debt, the lush hair or the insults.”

Mr. Paulson, Mr. LeFrak, Mr. Cuomo,  and Ms. Eisenhower are just a few of the 85 names who penned letters to a local village review board. The letter writers variously objected to “the size, scale, scope and ‘visual incompatibility’ of a speculative home” proposed for the vacant lot at 483 Hill Street—a neighborhood where ” nearly a dozen nearby residences are more than a century old and roughly half or a third the size.”

And who is this King of McMansions? A developer of big homes in the Hamptons:

But there is no surer sign that the big-spending ways that characterized the pre-financial crisis era have returned to the Hamptons than the blue “Farrell Building” signs multiplying across the pristine landscape here, along with the multimillion-dollar houses they advertise. It is a process some are calling “Farrellization,” and not necessarily happily.

“We’re as busy as we’ve ever been,” said Joe Farrell, the president of Farrell Building, during a recent interview and tour of his $43 million, 17,000-square-foot home here. The estate, called the Sandcastle, features two bowling lanes, a skate ramp, onyx window frames and, just for fun, an A.T.M. regularly restocked with $20,000 in $10 bills…

With a customer base composed largely of Wall Street financiers, Mr. Farrell has more than 20 new homes under construction, or slated for construction, at a time, making him the biggest builder here by far. He has plans for more, many of them speculative homes built before they have buyers.

Some of the biggest controversies about McMansions seem to take place in areas where residents have plenty of money. It is one thing when a teardown McMansion is constructed in an older neighborhood and less wealthy residents are pushed out as the housing stock becomes newer and more expensive. (At the same time, an influx of new big homes could also raise property values and give some options to cash out.) But, this is an example where everyone is pretty well off and it is more about the character of the neighborhood. Perhaps it is about old money versus new money, that an outsider is coming in with new plans and disturbing an area that others paid big money to buy into.

The “King of McMansions” is going to be a negative term for many people yet it also implies a level of success. I haven’t seen too many individuals tagged with such terms and even companies like Toll Brothers who were well-known for building McMansions didn’t necessarily acquire such monikers.

The migration patterns of the world’s millionaires

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Here are the top destinations for the world’s millionaires:

According to a report from New World Wealth, the U.K. was the top destination in the world for migrating millionaires over the past decade. Between 2003 and 2013, the U.K. had a net inflow of 114,100 millionaires (people with $1 million or more excluding their primary residence)…

Singapore, with its tax-friendly policies and security, ranked second in attracting the world’s wandering wealthy. It gained 45,000 millionaires between 2003 and 2013. The U.S. ranked third, gaining 42,400 millionaires.

So where were all these millionaires moving from? Mostly China. According to the report, China had a net outflow of 76,200 millionaires during the 10-year period. India was the next largest loser, with a net outflow of 43,400, followed by France, Italy and Russia…

The study said that overall, London has the most millionaires of any city, with 339,300. New York ranks second with 300,100, followed by Tokyo (226,500) and Singapore (225,000).

Follow the money. Even as these millionaires then move to certain cities, there are certainly patterns within these cities as to where they move and with whom they associate. All of these top urban destinations for millionaires have strong finance sectors as well as some of the world’s most expensive housing even as some of them also have relatively poor areas, sizable immigrant populations, and numerous social problems within a short distance from the residences of some of the wealthiest people in the world.