Editor’s note: The second-home or vacation-home market is a booming niche that’s vastly different than the market for primary homes. Many foreign buyers are playing a larger role in second-home purchases in the U.S., while many domestic buyers are crossing the border for their second homes. In this three-part series, we examine the fast evolving second-home market, looking at the trends of foreign buyers coming to the U.S., U.S. buyers looking outside the borders, and how booming second-home markets impact affordability for everyone else. (See Part 1: Florida says ‘cheerio,’ ‘hola’ to international real estate buyers and Part 3: Baby boomers spark second-home surge abroad.)
When Roy Flanders moved to Nantucket, Mass., in 1975, the population was mostly “a bunch of old hippies writing stories and painting paintings,” living on $200 a month. As recently as 10 years ago, an entry-level home cost around $200,000.
Flanders, a Realtor with Pro Buyer Associates of Nantucket, said today the median price of a home is $1.5 million. Gas is $4 a gallon. A quart of milk costs 40 percent more than it does in neighboring communities. And many of his artist friends have moved to Vermont, New Hampshire and Maine.
“They call it the Nantucket Factor,” Flanders said. “It gets to a point where it feels almost obscene.”
Second-home investments, while a boon for the wealthy, can be the bane of people with modest incomes who live in towns where prices skyrocket thanks to the second-home market. Often, longtime residents must decide between being renters forever, commuting long distances to work – or leaving altogether.
Second-home investments have driven up the prices, not only of real estate, but everything else in Nantucket, a town that is also an island in the state of Massachusetts. “It has made the housing inventory here totally beyond the grasp of the ordinary person,” Flanders said.
It’s easy to understand why those rich enough to afford summer homes in Nantucket – some of whom include Sen. Teddy Kennedy, D-Mass. – chose the island.
Nearly 40 percent of Nantucket is protected conservation land – another factor driving up real estate prices. The island has wide sandy beaches, fishing and boating, and one of the finest docking facilities in the world.
But as “these nifty Greenwich housewives with their SUVs, cell phone in one had, Evian water in the other, steering with nothing more than their imaginations” and their spouses have bought pricey summer homes, ordinary people have been priced out, Flanders said.
There are no entry-level homes, Flanders said. Nurses, teachers, construction workers and other blue-collar workers drive to work on the island from adjoining communities; they can’t afford to buy gas there, much less homes.
“We’re in a league with Aspen, maybe the high end of the Hamptons,” Flanders said, mentioning two other areas known for their second-home markets and elite population.
“It didn’t really go crazy until 1994 or 1995,” Flanders said. “It has driven away a lot of our professional people, or they don’t come here.” Two years ago, Flanders said, during a building boom, around 700 craftsmen were flown to the island from New Bedford, Cape Cod and Hyannis to work on the houses, making media headlines, “because there wasn’t enough labor in Nantucket to do it.”
“CEOs and celebrities live here,” Flanders said of Nantucket. “The ‘other half’ doesn’t exist – or they have to go over a causeway to paint your house.”
Flanders said few American cities are on a par with Nantucket as to house prices and high demand. One of the other towns he named was Aspen, Colo., where soaring house prices caused by second-home buyers have wreaked similar havoc for the common buyer.
“Glenwood Springs is 45 miles or so from Aspen. On the other side of Glenwood Springs are Silt and Rifle, and a lot of the blue-collar work force will live as far as Silt,” said Hood.
This is because there is a ripple price effect radiating out around Aspen, she said.
“A lot of second-home owners who wanted to pay a million dollars for something in Aspen would be very disappointed in the product available for a million dollars,” Hood said, “and would look in the Basalt area 15 miles away. So that’s now driving up the prices in Basalt.”
This means that second-home buyers move further and further down the corridor, heading west toward Glenwood Springs, Hood said – and driving the prices up in the process.
The median price of a home in Aspen was $3.6 million at the end of the third quarter of this year, Hood said. The median price of a home in Basalt, which serves as a bedroom community to Aspen, is $575,000.
“The socioeconomic gap has widened,” Hood said. “Downtown has changed from boutique little shops and the quaint little things. Fewer local businesses have shops downtown. Instead, there’s Louis Vuitton, Gucci, Prada, all these high-end stores you see in London, San Francisco, a lot of other areas, are coming to our little resort.”
As a result, Hood said, the rents and property taxes have increased in the downtown area, driving out local businesses.
Another change works against local residents as well – the fact that gradually, over the last 20 years, second-home owners are spending more time in Aspen.
This means they are bringing in their own support people, “their personal assistants, their chefs, their housekeepers, they’re not looking to the local workforce for that. Jobs that might have been available in the past to locals are not available to them any more,” because the second-home owners are spending more time in the town year-round, Hood said.
Though prices haven’t skyrocketed quite as high, resort town Tahoe City, Calif., also dominated by second homes, has seen effects similar to those in Nantucket and Aspen, a local Realtor said.
In the past five years, the prices have gone ‘way up, driven by the second-home market,” said Tim Hauserman, a Realtor in Tahoe City. “The locals haven’t been able to buy a home because the prices are so high. Many of them are moving out of town.”
The average price of a home in Tahoe City, which is close to Lake Tahoe, a popular destination known for its pristine lake, is $700,000 or more, Hauserman said. “About five years ago, it was half that.”
People from the San Francisco Bay Area buying second homes for vacation homes are behind the price jumps, Hauserman said.
“This has affected our schools. My daughter’s high school has lost about 10 percent of its students because people have moved away,” the Realtor said.
“Businesses that cater to second homes do better, businesses that cater to locals have more of a problem,” he said. “High-end home furnishings, for example, would do well, but the low-end wouldn’t do as well.”
Restaurants “do fine” when second-home owners and tourists are in town, but not so much on the off-season, he said.
“The biggest effect on the locals is that it’s hard to find employees for businesses,” Hauserman said. “Teachers – unless they have lived here a long time, they can’t afford to buy a house. They move to communities that are less expensive nearby.
“We have people commuting from Reno 45 miles away,” the Realtor said.
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