Since the emergence from last decade’s collapse, Manhattan and the boroughs have thrived with sale prices and rents that overshoot the majority of the country.
The boroughs — once an economical compromise for those who wanted access to Manhattan without having to keep pace with the steep housing prices — are now expensive in their own right.
Yet that hasn’t stopped throngs of residents from flooding inward and plenty of those who are native to the area from staying put.
New York has been a magnetic beacon of residential opportunity for centuries, and a wholesale change on that score isn’t likely.
However, a shift in both thinking and supply could potentially stem the residential tide in the years to come.
“It really first became noticeable during the third quarter of 2015,” Johnathan Miller, president and CEO of Miller Samuel Inc. told Brokers Weekly.
Miller handles Douglas Elliman’s residential research and recently released a study on recent suburban growth
“In the middle of last year, we started to see a bump up in sales activity in the outlying suburb areas of New York City,” Miller continued.
Miller called the housing market outside of the boroughs “robust” and said that the rising housing market within the city limits is prompting residents to look elsewhere.
Miller has found that suburban neighborhoods nearest the metro area are seeing a swift increase in pricing. In addition, farther-out suburbs are holding their own at a modest clip.
“What we’re seeing across the suburbs as a general pattern is a sharp increase in sales,” he said. “In the outlying suburbs, the general inventory is sliding to rising very slowly and we’re seeing flat to very modest price growth. The (partial) driver of this is the rental market in New York City.”
Miller said that first time buyers are more likely to buy in the suburbs, opting for lawns and driveways to coincide with the high prices that the Greater New York Area demands.
But while Miller said the draw of urban life may not be as all-consuming as it has been in recent years, he doesn’t feel that an all-out switch to urban sprawl is on the menu for the near future.
“My theory is, this is not a zero-sum game,” he said. “This is not coming at the expense of the city.
“It’s over capacity,” he continued. “It’s a pot of water that’s spilling over at the edges. You’re seeing this continuation of an outward radial push from homebuyers. Homebuyers are seeking out greater affordability.”
Miller suggested that more residents choosing to distance themselves from the core of NYC isn’t a sign of weakness. Rather, the bright lights of the city are stronger than ever and demand can outreach itself.
“The problem with the urbanism trend is that it’s been wildly successful,” said Miller. “From a pricing standpoint, the supply being created to meet demand tends to skew towards higher end properties.”
While those seeking an entry level condo in Manhattan can easily find themselves paying $2 million or more, the main borough is not the only one that has seen an increase in upper-tier housing.
When finished, 9 DeKalb Avenue in Brooklyn will be a 73-story apartment building. The property will reach 1,066 feet tall, nearly double the second highest structure in the neighborhood.
Aleksandra Scepanovic, managing director of Ideal Properties Group, feels that this is only the beginning for a borough that was once second-fiddle to it’s neighbor to the west.
“I don’t think any one of the boroughs, especially Brooklyn, will have that luxury to really take it easy and completely slow down with the development,” said Scepanovic while commenting on the balance between supply and future demand. “The reality is, the demographics of the city, the U.S. and the world are so much that they’re just going to continue to grow.”
Scepanovic said that she expects the demand to stay so strong in Brooklyn that if developers were to significantly slow their pace, a housing crisis would ensue.
“We’re never going to reach a phase where the building just stops.”
David Amirian, founder and president of the Amirian Group, disagrees and says that the coming years could find the development community holding the bag.
“Development sites specifically have gone down 82 percent year-over-year from last year to this year in the first quarter,” Amirian told Brokers Weekly. “Now that can be attributed to three things. Number one is tighter banking regulations, number two is (the uncertainty surrounding) 421a, and number three is the slower pace of absorption of apartments in the condo sector.”
Amirian pointed to the 12,613 building permits that were issued in 2015 and suggested that perhaps that amount of new supply could outpace even the currently stellar New York demand.
With affordable housing’s incentives currently an unknown, the already expensive proposition of building in the city could now be potentially much more costly.
“Of course development is going to be hurt. I don’t think we’re going to see the slow down of new development for two years,” said Amirian.
But the scars may already be apparent. Amirian pointed to homes that fall in the $5-10 million range.
“In Q4 of 2014, those apartments were selling 66 days after they were listed,” he said. “In Q4 of 2015, they were selling in 144 days.”
Amirian said that some developers already sense that there is too much stock to choose from, despite the high demand. He also suggested that some underestimate the nearby, rural competition.
“When we’ve reached the height of the market, people have said ‘That’s it, we’re moving to the suburbs,” said Amirian. “When people can no longer afford to be in (or around) Manhattan, they’ll say ‘Okay, we’re not going to force it. We’re going to move to the suburbs.’”
Miller agrees. “I think that what people forget is that suburban and urban markets are competitors,” he said.
“You’re trying to balance affordability, lifestyle, access to employment,” he continued. “The city’s growth has been more successful than anybody would have imagined. At some point, it comes down to affordability and I think that’s the key driver. I think we’re at some sort of an affordability threshold.ˮ
Likely, all three experts are correct. While the demand may not ever significantly cease for housing in the five boroughs, there may still be a growing number of potential residents who find higher value and a slightly longer commute more palatable than they are used to.
