I’m still chewing on Ryan Avent’s (the Economist) tweet about foreign real estate investment: “Housing in New York, London is attractive as an investment for outsiders because it’s scarce!” My read of his words, all else follows from the assumption that too much land use regulation makes the rent too damn high. Tim Logan (the Los Angeles Times) unwittingly retorts, “What draws Chinese investment? It’s simple, says foreign capital expert: Direct flights to China and a Top 25 university.” Said “foreign capital expert” doesn’t have to toe the line of the libertarian rejection of zoning and urban planning. Said foreign capital expert doesn’t have to assume the why of the where for foreign real estate investment. She can forgo ideological posturing and do actual research. Chinese money prefers a top-notch university nearby and easy access to the homeland. Housing supply restrictions are irrelevant.
Emerging from this debate between housing supply and demand is a geography of global neighborhoods. A Silicon Valley anecdote:
“There’s something very new going on,” said Henry Bullock, founder and chairman of Menlo Equities. “In the past, for these big foreign investors, ‘core’ meant central business districts in major cities — Hong Kong, Tokyo, Paris, London, West L.A., New York City, and maybe downtown San Francisco. It’s not all the core buyers, but there’s a subset that now view Palo Alto, near the Caltrain station, around the Baby Bullet stops, as core properties.”
The various restrictions on real estate supply are not new. Regardless, the investment geography shifts within the same regions attractive to foreign buyers. Like millennials, global money follows transit access. If you want to know where real estate will flow, don’t pay attention to zoning regulations.
For decades, wealthy foreigners have snapped up residences and office space in world cities. Economic change begets new geographies of gentrification:
In recent years, the mushrooming digital economy has further moved these new districts – the so-called nano core – towards the centre stage of the modern city economy. These former-industrial districts are now among the fastest rising locations for office, residential, shopping developments in the global cities. More companies are moving to these edge-of-CBD locations, creating new office hubs, and bringing the workplace closer to where their younger staff live and socialise. This helps in employee retention and satisfaction rises up the corporate agenda.
“Nano core” neighborhoods do not require a world city host. But the bankrolled investors only know where they go. As off-the-mental-map locations between the U.S. coasts lure in the wealthy foreign born for education and health care, gentrification will follow. Whatever the zoning code in these locations will matter little.
