August 25, 2003

Architectural Notes

I was reading through The Wall Street Journal's distinctive-property guide yesterday and have thus become convinced of two things. First, that a fool and his money are soon parted; and second, that there are a great many fools designing and purchasing high-end homes these days.

I always enjoy reading through this section of the WSJ. Being me, I am inflicted with a peculiar genetic strain that prevents me from actually ever considering purchasing a similar home -- or most high-end products -- some day. Rather, I gain enjoyment from reading the advertisements themselves, and content myself from that. This may sound odd but I can assure you that it is much cheaper than actually buying things. Besides, most of these things are depreciable, which means that the people buying them are trading their hard-earned cash for some silly cachet. That may, I would suspect, sometimes be the case for high-end homes too -- the really high-end homes. There's a limited market for such things, and the markups on them seem a bit absurd.

I mean, really. It's almost embarrassing to think that people who have a real command of finance would throw down that kind of money for a residence. True, most of these folks pay cash, so it's not as if they'll face mortgage payments the size of yours and my annual incomes. But still -- I saw a beautiful beautiful estate listed with the not-so-beautiful price tag of about $9 million, and it wouldn't have surprised me if the owners had only paid $5 million. One could say the same for any of the truly high-end homes on the market these days -- their asking price is much higher than their intrinsic worth, if you ask me.

A few points from all this:

* WHY do people build hideously-outsized mansions on tiny lots? Now I can understand this phenomenon in California, I suppose, where land is hideously expensive and no one has a yard. But Gad! Still. What would cause someone to build a 7,000 square-foot home on a tiny lot? And a craptacular 7,000 square-foot home at that? I mean, is it too much to ask that there's a little style to the whole thing?

Back when I lived in Venice, Calif., I saw this phenomenon up close when I would go for a walk from my apartment down to the Venice Pier. The shore was packed with million-dollar homes and along that walk, all save one of them were architectural monstrosities. Even worse, because the homes were all jam-packed together, one would find some converted cottage next to an overbuilt condo next to some hideous pastel monstrosity. All of these things would have been fine ... but only if they had been next to similar homes. There's something to be said for a bit of continuity in a neighborhood.

* WHY do people insist on having more bathrooms than bedrooms in their homes these days? Doesn't that seem a bit excessive? For instance, one of the homes listed had seven bedrooms yet for some insane reason had twice as many baths. If one considers that some of these are actually half-baths, then it becomes even more ridiculous.

I mean, I don't know about the rest of you, but it seems to me that if one is going to have lots of folks over all the time, it would make sense for one to build a guest house with two beds and two baths, and leave it at that. Otherwise, let 'em share a bathroom. They'll get over it.

* DOES anyone actually use the servant's quarters for actual servants? After all, this is 2003, not 1903. Through my work, I've had the opportunity to have been in a few of these fancy high-end homes, and not even those people had servants -- at least not that I could tell.

Again, I suppose the California exclusion would apply. There, market conditions make it affordable for the wealthy to have servants. But even then, are they out-sourced these days? Forced to pay their own rent and make a hideous daily commute like the rest of us, only to slave away in some styleless manse while their masters welch on paying them Social Security? In a way, that would seem to make sense. Besides, you could use the servant's quarters for your hapless brother-in-law who can't hold a steady job.

One thing I have decided for sure is this: when it comes time for me to buy a nice home in 20 or 25 years, I'm holding out for a reasonable colonial.

Posted by Benjamin Kepple at August 25, 2003 08:48 PM | TrackBack

Good points. Personally, I can't wait to get out of apartments and into a respectable house. If you do things correctly, your low-end home can be more comfortable, useful, and inviting than one of those "high-end" homes.

I'll probably do what my parents do: just have a cleaning woman come once a week or twice a month.

Posted by: Kevin White at August 25, 2003 11:49 PM

Get this, Ben: Here in the suburbs of D.C., there is hardly any open land anymore. In the past ten years, land owners have been packing up and selling to builders. The houses going up in this area cost anywhere from $400,000 to $700,000, and while this does not compare to the million dollar homes, it's still way out of my price range. And the homes are much larger than what I need. (I mean, really, how many different rooms do you need in one house... a sewing room, a media room, an art room, a dressing room, etc.)

Here in my county, they've promised to put window air conditioning units into every classroom. And, believe me, they need them with school getting out at the end of June and restarting in August. The school conditions are terrible. But to pay for all these window units, the county has passed the cost along to all the builders of new homes, and they have in turn placed a $10,000 surcharge on ALL new homes. I guess what's a measly $10,000 on a $700,000 home. A mere drop in the bucket. But I'm pretty sure it's one of those annoying extra costs that buyers are unaware of during the closing process.

Posted by: Allison at August 26, 2003 11:06 AM


An entertaining post as always, although a bit disingenuous, as you already know all the answers.

In southern Nevada, our single family residences come in two flavors: tract homes and custom homes. Having purchased the former, and assisting my parents in building the latter, I'll borrow the famous line and say "I wish I didn't know now what I didn't know then."

Tract homes usually cost between $80 and $140 per square foot, depending on age, neighborhood, special features (pool, golf course frontage) and community. New custom homes typically sell around $250-325 per square foot. Most homeowners like large lots, but obviously, "liking" and "willing to pay" are different.

Most custom homes here are built on 'spec' by builders or by homeowners partially dependent on mortgages and construction loans. That means that building must be 'saleable' first and 'tasteful' second.

Furthermore, one cannot economically justify a custom home outside a large gated community (with rare exception).

Inside your nicer communities in southern Nevada 0.5-0.75 acre lots cost approx $250k and golf course frontage lots are roughly double. A $450k lot needs at least $1.1 million in house above it. At $175 in housing construction cost that would suggest a 6,500 sq foot structure (not including 4 car garage, patio, driveway).

Those are the economics, plain and simple. Why does land cost so much? Are communities marking them up a lot? Well, yes and no. If you read through Pulte's annual reports and 10-Ks (parent of Del Webb), you'll notice that land achieves a modest gross margin. Unfortunately, acquisition costs, zoning issues, grading, electrical, all add up in a high labor-cost country.

But what about taste? Why build something ugly? Most 'spec' builders don't think in terms of nice or ugly, but want 'saleable.' Secondly, your master plan community will dictate color, ratio of 1st floor to 2nd floor coverage, window style, frontage, types of trees, etc. Typically lot owners receive a 40 page single spaced book of rules to follow. Houses outside of gated communities have to consider zoning commissions, which can be arbitrary and nasty too. Thank our attorney friends and the side effect of 'view ordinances'.

As Allison points out, hidden costs also bloat the price. In addition, since "planning costs" and "effort" are not linear with the size of the house, professional and intelligent amateurs will build bigger. In southern Nevada, skilled labor is lacking, so your flat plain finish is impossible to achieve, for example. Little matters like that add up too.

In the end, the market will decide. But as I suggested in the beginning, you're being a bit disingenuous, since you know that capitalism and incentives go hand in hand.

Posted by: Jason Hirschman at August 26, 2003 01:33 PM

"I mean, really, how many different rooms do you need in one house..."

Four bedrooms -- my bedroom, the guest bedroom, the home theater/video game/HDTV/hi-fi room, and the study/computer room/library.

Then a living room with mostly places to sit and recline and talk, with a 20" LCD TV but no other electronics.

Then a combined den/kitchen/dining room.

Then two full bathrooms. And a laundry/utility room. And a two-car garage with all the amenities.

And a good sized grassy backyard plus a driveway/patio that enables a respectable game of hoops.

Posted by: Kevin White at August 26, 2003 03:53 PM

"John Markle, a coal operator who made an enormous fortune in the New River and Pocahontas coal regions of West Virginia, disliked being fenced in and had built to his order a thirty-two-room apartment on a duplex plan on New York's Park Avenue. It was too small by far. Two years later, in 1928, he moved into a co-operative apartment on Fifth Avenue with forty-one rooms and fifteen baths. He had a private telephone switchboard installed with twenty-six extensions and a round-the-clock operator. This was before large numbers of extensions were a commonplace, or the Princess handset had been dreamed of. A black and white staircase of tessellated marble connected the two floors of the duplex at a cost of $25,000. When an impertinent newspaper reporter asked how he could use fifteen baths at once, Markle snapped, 'It's nobody's goddamned business.' "

(Lucius Beebe, "The Big Spenders", 1966, Doubleday & Co., ch. 15, "Fun With Real Estate", p. 373)

Posted by: Billy Beck at August 28, 2003 11:28 PM

Having had two great-grandfathers who worked in the coal mining industry, and only one who survived it, I must say that I had hoped Mr Markle lost everything in the crash and that he was reduced to complete and utter penury, and forced to work his remaining days as a bootblack. Sadly, this did not happen, but at least the man kinda-sorta atoned for his sins. Also his money now funds think-tanks.

Posted by: Benjamin Kepple at August 29, 2003 10:51 AM

Oh, actually, spend some time over at the Markle Foundation. Look on with amazement in the history section, and see how this trust established to help medical research got perverted back in the Sixties. Now it focuses on "mass communication."

Posted by: Benjamin Kepple at August 29, 2003 10:54 AM

Well, kind of focuses on mass communication. 'Kay, I'm going to just shut up now.

Posted by: Benjamin Kepple at August 29, 2003 10:58 AM

Ben? Markle might have been your demon from the pit of hell, but America was once a free country: Your forefathers were free to find another way to make a living.

That's what my forefathers did when they left Germany to come here.

Posted by: Billy Beck at August 29, 2003 02:44 PM


Don't worry. They eventually did. They eventually did!

Posted by: Benjamin Kepple at August 29, 2003 03:20 PM