Preventing a Global Condo Bubble Collapse - and Slowing Inequity

By Suzanne H. Crowhurst Lennard, Ph.D.(Arch.), Director, IMCL

The rapid profusion of high-rise investment condos around the world is widening the gap between rich and poor and leading to a worldwide housing bubble, according to economists.

Global billionaires are demanding sky-high properties as safe real estate investments to store their surplus dollars. As of March, 2014, New York still looks attractive to investors. As Jonathan J. Miller of the real estate appraisal firm Miller Samuel explained in the New York Times on November 4th, 2013, “We’re building the equivalent of bank safe deposit boxes in the sky that buyers can put all their valuables in and rarely visit.”

432 Park, New York

Nancy Packes, a real estate consultant and marketing executive airily stated in the New York Times on October 16th, 2013, “Price really has no relevance . . . High net worth individuals look at real estate today not as a place to live, but as an investment . . . It’s more stable than currency, bonds or stocks.” In the same article, Jonathan Miller asserted, “Height is where the profit is . . . The higher you go, the higher the price you can get.”

Luxury condo towers are going up in cities around the world. In the high-rise condo waterfront area of Coal Harbour, Vancouver, BC, up to one in four condos is empty, according to UBC planning professor Andrew Yan. In downtown, there are so many empty condos that if you put them all together, they would make up 35 towers, each 20 stories high. 

Coal Harbour, Vancouver

In some investment condo buildings, 75% of the units are absentee owners. This jeopardizes the economic viability of grocery stores and other businesses dependent on a local residential population, further risking the neighborhood's livability.

Investors are not investing in the life of the host city, preferring instead to maintain anonymity. Their buildings throw the street into darkness and may cast a half-mile shadow across an adjacent park or children’s play area – places that constitute city residents’ "common wealth." Investors are unlikely to use these places, but their investments diminish quality of life for city residents. 

At a Vancouver, BC, conference, Sandy Garossino, a former crown prosecutor and community advocate, described how the purchase of high-rise condos as foreign investments drove up the cost of housing for all, making it unaffordable for lower income groups, especially in downtown Vancouver and Coal Harbour.

In Manhattan, 30% to 40% of all condo buyers are now estimated to be foreigners. Likewise in Vancouver, BC, the plethora of high-rise condos has been spurred in part by foreign investors from Mainland China and especially by immigrants from Hong Kong. Dan Altman, chief economist at Big Think suggests that Mainland Chinese purchasers in Vancouver, New York, and elsewhere are seeking the highest available returns through safe property in the Western world.

Forbes magazine noted that “luxury and super luxury condo towers geared toward cash-flush global buyers . . . are getting even taller” and the phenomenon is worldwide. This speculative scenario appears to be spreading.

Meiron Rothschild Condos, Tel Aviv, Israel

Adding to their status, many of these buildings are designed by global brand “Starchitects” such as Robert A. M. Stern, Frank Gehry, Norman Foster, Jean Nouvel, Richard Meier, or Renzo Piano, to name a few.

Increasing Polarization

The phenomenal profits made by developers of these high-rise "condo-investment-banks" rapidly jack up the price of adjacent land. Future developers then have to build to similar heights to cover the inflated land purchase price, driving out affordable housing.

According to the New York Times on May 19th, 2013, “The growth in high-end projects in Manhattan comes as housing for the working and middle class is in increasingly short supply in the city. These buildings are proving so profitable that they are warping the local real-estate market . . . As a result, the luxury building trend is driving up the overall cost of land in the city . . . As with many of these buildings, only about a quarter of the units will be occupied at any one time.” In the same article, chief economist for the Fiscal Policy Institute James Parrott says  that although median family income in the city had fallen 8% since 2008, Manhattan’s super luxury condo boom and rocketing foreclosures in Queens and record homelessness “present an unobstructed view of accelerating polarization in this recovery.”

On October 16, 2013, in the New York Times, cultural historian at New York University Thomas Bender decried these towers as “a flouting of the social distribution of wealth around the world. ‘These are the kinds of buildings that robber barons built . . . but it’s also what you see in rapidly developing societies where billionaires seek to distinguish themselves in the midst of poverty’.”

Burj Khalifa, Dubai

Bender may be speaking of such places as New York, Dallas, Houston, Miami, Moscow, Bangkok, Riyadh, Kuala Lumpur, Manila, Mumbai, Beijing, Shanghai, Guangzhou, Shenzhen, Abu Dhabi, or Dubai. As Lila Allen reported, “behind the glitz and glamour of Dubai often lies a murky world of exploitation and an immigrant work force living on the breadline.”

Dubai Immigrant Worker

Increasing polarization between rich and poor is hastening the collapse not only of social structures around the world, but also of ecological sustainability.

Increasingly unequal wealth distribution is likely to cause a "precipitous collapse" of the global industrial civilization, according to a NASA-funded study, a collapse that cannot be avoided by increasing technological efficiency. Even the World Bank President, Jim Yong Kim, warned that a failure to tackle inequality risked huge social unrest. 

Failing Regulations

Some cities have removed all regulations limiting building heights. In other cities, existing height regulations may be as high as 475’ or 550’ in certain neighborhoods. When a city decides to encourage more development, it raises the height limits to allow developers greater profits.

Special bonuses and benefits are often made available to enable a developer to increase the building height beyond existing height limits. If a building owner (e.g. church or historic building) decides he will never build above the existing height, his “right” to build in the space above his building may be sold to an adjacent developer. This allows developers to build up to previously unthinkable heights. These programs are not always as successful as one might hope.

After working in the 1970’s with New York City to improve the public realm with pocket parks at street level in return for giving developers extra height, William H. Whyte reported years later that he deeply regretted the lack of true public access and the windswept, sunless, inhospitality of many of these open spaces, concluding the bargain on the whole had been detrimental to public well-being.

Warnings of a Global Housing Bubble

Economists warm that the inflated prices of luxury condos are causing a global housing bubble. Overheated prices at the top are raising prices for middle and lower income housing. The skyscraper index, developed by Andrew Lawrence, research director at Dresdner Kleinwort Wasserstein, indicates that the world’s tallest buildings have presaged economic downturns.

In Miami, already known for its plethora of high-rise luxury condos, 72% of which are paid for in cash, the market is booming again. Real Estate investment advisor Jason Hartman warns: “Miami
 represents one of the most notorious bubble markets
 in the United States . . . high-rise condominiums bore the brunt of Miami’s
 value free-fall.” He believes “investing in Miami condominiums is still problematic.”

Miami Condos

On October 14, 2013, the Huffington Post reported that American economist and Nobel Prize winner Robert Schiller, whose specialty is market price and asset bubbles research, was alarmed at the rapid rise in global housing prices. In June 2013, housing prices increased “up 12 percent in the last year . . . China, Brazil, India, Australia, Norway and Belgium, among other countries, were witnessing similar price rises.” This luxury housing bubble reflects a speculative attitude, warned Schiller.

Andrew Oswald, professor of economics at Britain’s Warwick University, agrees. As quoted by Reuters in the Financial Post: “We’re stoking up a huge bubble . . . We virtually ruined the Western world by having high house price inflation and now we’re determined to do it again.”

In February 2014, the Guardian reported: “Wealthy foreign buyers' desire for high-end London property is creating a real risk of a housing bubble in the capital, a highly-regarded group of economic forecasters has warned, as it calls for measures to cool down the market.” Despite this, 236 more skyscrapers have been approved for construction in London, of which, 189 will be luxury condo towers for wealthy foreigners. Finally – and perhaps a little too late – a petition of opposition has been signed by 70 eminent architects, planners, and others.

According to the Financial Post, the International Monetary Fund also expressed concern about Norway’s inflated property prices, which have risen 30% since the recession. Similarly, the German Bundesbank warned cities such as Berlin, Hamburg, and Munich that apartment prices were overvalued by 20%. “An analyst who spoke to the Wall Street Journal said apartment prices in Berlin are up some 80% between 2009 and 2012. Observers blame an inflow of international capital for the price jumps.”

The Bank of Canada has warned that overpriced condos, particularly luxury condos in Toronto and Vancouver, pose a risk to the economy and may cause the housing bubble to burst. Deutsche Bank warned in December 2013 that Canada’s housing market was 60% overvalued. When asked if there was overbuilding in the Toronto condo market, real estate analyst Ben Rabidoux, interviewed by Huffington Post Canada, said “Of course there is, there’s no question there is . . . You’ve got massive amounts of new condos about to be completing. It’s a potential disaster.”


According to Jesse Colombo’s January 2014 article in Forbes, “Low interest rates and soaring property prices create the perfect conditions for construction bubbles, which is what occurred in Ireland, Spain, the United States, and other countries from 2003 to 2007, and what has been occurring throughout Southeast Asia in recent years. Construction is a capital-intensive economic activity that benefits from cheap and easy credit, which is certainly the case in Southeast Asia.”

More than five years of record low LIBOR (London Interbank Offered Rate) has fueled global construction bubbles, according to Colombo. “Malaysia’s plan to build the tallest building in Southeast Asia, the 118-story Warisan Merdeka Tower”, is a “major red flag according to the Skyscraper Index.”

Singapore banks have also contributed to South-East Asia’s economic bubble by offering abnormally low SIBOR (Singapore Interbank Offered Rate) interest rates. Singapore, dedicated to high-rise construction, is now the world’s third most expensive residential property market behind Canada and Hong Kong. Residential property prices are 57% overvalued according to a 2013 study by The Economist. “Expensive homes contribute to Singapore’s economic gap between the rich and poor by putting more money into the developers’ pockets”, emphasizes Seah Chiang Nee, a veteran international journalist.

China’s Ghost Cities

The Forbes article reported that China’s government has encouraged the construction of countless high-rise cities and second-home investment projects to generate economic growth, resulting in soaring property prices. In Shanghai, for example, prices rose 15% in 2013. While there is a tremendous demand for affordable housing, what is being built is not affordable. Consequently, an estimated 64 million apartments stand empty in “ghost towns”, according to a 60-Minutes report. The economic bubble created incredible temporary wealth, much of which has been invested in luxury global property abroad, especially in Westside and downtownVancouver. When China’s bubble bursts, it will send shock waves around the world.

In what has been dubbed the China Syndrome, the Chinese government is “concerned about a bubble and the potential for social unrest as inequality over access to housing grows.” Hong Kong prices rose by 120% since 2008. Hong Kong now has the least affordable housing in the world.

Hong Kong Housing

As economic advisor Harry Dent sees it, “China bubble burst? Yes. And 2014 is the year that happens . . . A Chinese developer, Zhejiang Xingrun Real Estate Company just defaulted on $567 million of its debt to 15 banks, including 29% of it to China Construction Bank . . . Even worse, the most aggressive buyers bidding up real estate in the most bubbly cities — like London, New York, San Francisco, L.A., Vancouver, Singapore, Sydney, and Melbourne — are Chinese. That means we’re not just going to see the China real estate and debt bubble burst, but real estate and debt bubbles around the world.”

In March 2014, Chinese premiere Li Keqiang warned investors to prepare for a wave of bankruptcies and mass defaults by builders of ghost towns in China. As of March 28, 2014, according to Bloomberg news, this has begun. As prices are beginning to fall, angry homeowners are demanding money back. Wealthy Chinese are now liquidating offshore luxury homes in a scramble for cash.

China's Ghost Cities

Discouraging Speculation and Protecting Quality of Life

A housing bubble is created when low interest rates and exorbitant profit potential cause a construction boom – either horizontally in sprawling subdivisions or vertically in high-rise condos – that outstrips demand and affordability. There need to be mechanisms in place to restrain speculation and foster a more circumspect attitude towards the creation of realistic, sustainable urban neighborhoods.

Interest rates are crucial in controlling irresponsible speculation, but other actions offer powerful tools. Some can only be undertaken at national government levels, others can be undertaken at the local level by planning departments, but none of these mechanisms will succeed on their own. Indeed, in any one city, several actions may be needed concurrently to control the spiraling unaffordability gap.

In most US states, inclusionary zoning is a valuable tool that requires a certain percentage of new construction to be available for lower income persons. “Affordable housing” is a very successful program that has been adopted by the British government as a flagship government policy

Another innovative arrangement that assists those at a lower income level to buy a house at a percentage of the market rate, is called shared equity homeownership used predominantly in the UK. While a family lives there, they pay interest on the amount owing. If they sell, they receive their percentage of the selling price. In the US, the National Housing Institute promotes shared equity homeownership as a way of “Fostering decent affordable housing & a vibrant community for everyone”.

Condominiums tradable commodities, perfect for the speculatively inclined, need to be discouraged. Cooperatives, on the other hand, ensure that buyers are identifyable and responsible partners in the ownership and maintenance of the building, and thus encourage owner-occupiers.

Taxes: The online news outlet Quartz indicated that tax loopholes that make global investing in condos very profitable – such as Israel’s tax loophole, which has caused home prices to climb 40% since the recession – need to be reexamined. Money magazine in December reported that UK Chancellor George Osborne plans to introduce a Capital Gains Tax for foreign property owners, a tax British home owners pay but until now foreign investors were exempt from. Hong Kong now imposes a 15% tax on foreign investors buying Hong Kong property. Higher taxes for second homes also help curb speculation.

As reported by James Surowiecki in the New Yorker, urban planner Andy Yan suggests that “It might make more sense if the Vancouvers of the world simply charged foreign buyers a premium for the privilege of owning there.” 

Many European cities regulate annual property price increases. In Pankow, an affordable historic neighborhood in Berlin, property owners attempting to greatly increase prices by installing luxury improvements were prevented by a new law introduced in January banning such gentrification.

Residency requirements: Kyle Chayka in the Pacific Standard Magazine  recommends “residency requirements, forcing owners or tenants to actually occupy buildings rather than use them as commodities.” As Emily Badger  in the Washington Post points out, “maybe that revenue could be spent mitigating some of the consequences of international investment. What if cities used that money to create new affordable or moderate-income housing, as communities in London are considering? Or to help pay for a proposal like Mayor Bill de Blasio's $41 billion plan to ensure 200,000 affordable-housing units in New York? Or to support programs and infrastructure that benefit the residents who do live in town?”

Paris' Urban Fabric

Urban design controls: A city needs regulations that protect the quality of the public realm – the "common wealth." Previously active in many cities, these controls require protection of sunlight at street level and prevent the "canyon effect" of high-rise buildings on either side of the street. Regulations may specify that a human scale of 5-6 stories for building facades along the street must be maintained. Taller buildings must step back sufficiently so that they do not block out view of the sky from the sidewalk. Street facades must be active with many entrances and shop windows looking into cafes, restaurants, and retail spaces. Form-based codes should be considered.

Building height limitations: In many smaller cities or urban neighborhoods, building heights can be limited to human scale – 5 and 6 stories. This maintains the livability and walkability of the city for all, both poor and wealthy. Luxury condos can still be accommodated in stepped back floors to the 8th floor, but their prices are unlikely to reach the astronomical prices of skyscraper condos.

In cities where existing buildings are higher, a maximum height limit should still be imposed, determined by the heights of existing building or only slightly higher. This would prevent sudden disproportionate increases in building heights and property values.

Portland, OR: Step-backs help prevent the “canyon effect”

In neighborhoods where height limits cannot be reduced, the number of high-rise building permits allowed per year can be limited overall or by a closer examination of existing land use patterns.

Rethink incentives and remove bonus floor area ratios (FARs): Every city offers incentives for the kind of development they feel their city needs. Financial incentives can be offered without increasing building heights. Bonus FAR is used by developers to punch a building through the maximum height ceiling, and thus should  be strictly controlled or removed.

Prioritize low- and mid-rise developments: Toronto Planning Director, Jennifer Keesmaat, has expressed “serious concerns” about adding more luxury condo towers downtown. She asserts an alternative, more responsible way to increase density in the city is to increase the number of 4-11 story mixed-use projects in the Greater Toronto area. “I believe that gently adding density through mid-rise buildings is our best opportunity to transform Toronto’s single-use districts into vibrant places by bringing a variety of uses ‘in close’ . . . [so] we can better integrate our land use planning with our existing transit infrastructure.”

Mansion Style Apartment Building, London

The report, Housing London: A Mid-Rise Solution, launched in March 2014, criticizes new skyscrapers and luxury condos for harming both the street and social integration. The report urges a holistic, long-term solution that will help to support harmonious communities. Neighborhoods will only thrive, the report proposes, “if supported by well-functioning streets and transit services, along with easy access to green space and public amenities.”

These mechanisms for limiting disproportionate real estate profits by investors and developers are essential for two reasons: they can help to ensure that affordable housing is available for all (not just for the ultra wealthy); and they can help to prevent uncontrolled, inflated growth and a future global housing bubble.


Suzanne H. Crowhurst Lennard, Ph.D.(Arch.) is Co-Founder and Director of the International Making Cities Livable Conferences ( and author/co-author of 8 books, including Genius of the European Square, and Livable Cities Observed.