The buzz in Chicagoland has been about the newly redesigned Chicago Spire. The Chicago Plan Commission recently approved this new design. Architecture fans are gushing over its sleek, winding, glass superstructure, politicians are fawning over how it will add to the sky line and the city's marketability for the Olympics, and your average citizen is wondering why the silhouette of the building resembles a popular sex toy. More importantly, the people of Streeterville living in the immediate vicinity of the future 150 storey structure worry about the building's impact on traffic and public space.
However, I think the biggest roadblock to the project is simple economics. I'm going to assume the popular estimate of the project costing $2.2 billion to be accurate, though I'm sure cost overruns are going to push it higher. The biggest folly is the fact that it's going to be mostly residential with some retail shopping on the ground floor. No mixed-use, with partial office space: it's pure condo.
Since I work downtown, I've witnessed many new condo and hotel constructions planned and under construction. Also, more than a few office buildings have been converted to condo as well. The market is clearly saturated. If you don't believe me about the Chicago housing market having too much supply, these numbers on housing inventory back me up. All these condos are going up downtown, but the amount of office space is proportionally going down. You need high paid workers to live in all these fancy luxury condos.
So what do these other condos have to do with the Chicago Spire? The Chicago Spire will be competing against all these other condo developments. Given, the Chicago Spire will be the tallest building in North America when completed, I'll give it that much. However, a simple calculation based on the projected costs of the project ($2.2 billion) against the number of units for sale (1200), reveals a very disturbing statistic. In order for the project to break even, the average price of each condo will have to be $1,830,000. A quick search on ziprealty shows that you can get yourself a mammoth greystone rowhouse from the 1880's for that price fairly close to the city center. To each his own.
Let's take a different approach to that condo price though. Traditional methods of calculating housing affordability suggest that one should not spend more than 30% of one's income on housing payments. Another way is to multiply your household income by 2.5-3.0 to determine how much house you can afford. Let's be generous and assume a multiple of 3. This means to be able to afford living in this glass and steel phallus you must make about 610,000 a year. How many people make that kind of money? According to the latest US census data (2005) only 31,506 households make more than 200K a year in Chicago proper. The number making more than 600K a year is probably a fraction of that. That's not a lot of high-rollers go to around. My educated guess is that they will try to find more value for their money, like an all-stone Victorian mansion.
But never fear, the mainstream-media says all is well! National Public Radio interviewed some economic experts for us and broke it all down. The first person, a Realtor®, stated "if we're able to get a totally different and new group of buyers into the marketplace they're going to create more demand... it will help push up pricing especially in the premium buildings in the city". He thinks the key is to sucker foreigners who don't know any better to buy up our overpriced property. Expert number 2 from the Trump International Hotel and Tower says that Chicago can definitely handle the higher prices, because we have more luxury projects in the works (i.e., more supply of expensive condos will mean more demand for expensive condos). And of course, the baby boomers will swoop in and save the day! The pulverizing logic of faith-based economics has won me over. It's all good, build away.