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What will New York real estate look like next year?
ONE in five New York City tenants did not pay rent in September, by one estimate, and there is growing concern of "an eviction tsunami".
As apartment vacancies climb, sale prices and rents are falling, but nowhere near the magnitude needed to compensate for scarce affordable housing options.
And while the flight of affluent residents to the suburbs appears to be overstated, major companies are downsizing and fewer people are commuting, setting the stage for a new reckoning over personal and business priorities.
Real estate is everyone's business in New York City. The industry generated nearly US$32 billion in taxes last year, 53 per cent of the city's tax revenue, and it employed more than 275,000 people, according to the Real Estate Board of New York and labor statistics.
An inveterate source of obsession, envy and frustration, real estate colours the aspirations and agendas of countless people, companies and policymakers. To assess what might happen in the next year or two, The New York Times interviewed nearly 50 people, including former senior city officials, real estate executives, affordable housing advocates, urban planners and brokers.
When will the real estate market recover, and what will it look like in terms of supply, demand, and prices? Will New Yorkers be more open to development in their neighbourhoods, or will they be even more resistant? How will housing, transportation, retail and commercial real estate be affected in the broader New York region?
The outlook is daunting. Unemployment in New York City is still 14 per cent, after hitting 20 per cent in June and July. The hotel occupancy rate is 39 per cent, down from 95 per cent this time last year, according to research firm STR. Roughly one-third of the city's 240,000 small businesses may never reopen, and iconic retailers like Neiman Marcus are closing.
Residential real estate sales plummeted 40 per cent in July, and 57 per cent in August, compared with 2019, according to the New York City Comptroller's Office. Commercial sales were down 28 per cent and 43 per cent in July and August, compared with last year.
What will happen to the market?
Rents and sale prices will continue to drop in the next year, significantly so in some areas, but likely not for the people who need relief most. Rents in the New York metro area are projected to drop 7.7 per cent to 11.3 per cent by the middle of next year, from the first quarter of 2020, according to Andrew Rybczynski, a managing consultant with CoStar Advisory Services, a commercial real estate data provider.
After the 2008 recession, rents fell nearly 10 per cent in Manhattan because of high unemployment and rising vacancies, said Nancy Wu, an economist with listing website StreetEasy.
The median rental price in Manhattan, including concessions, was US$3,036 a month in September, according to brokerage Douglas Elliman. That is an 11 per cent drop from the same period a year ago, but still far beyond the means of most New Yorkers. Citywide, the median rent last year was US$1,467 a month, according to the New York University Furman Center.
Rents will continue to drop citywide, in the absence of a vaccine, Ms Wu said, but that trend masks affordability problems in several neighbourhoods hit hard by the coronavirus. In an analysis of neighbourhoods with the lowest rates of infection rents dropped 1.9 per cent from February to July, largely because of rising vacancies.
In the hardest-hit neighbourhoods, rents have actually increased 0.3 per cent in the same period, and a disproportionate share of Black and Hispanic renters, many in the service industries, have shouldered that burden.
"New York has been a tale of two cities - not just in terms of the pandemic, which is known, but also with rent affordability," Ms Wu said, noting the dearth of options on the lower end of the market.
In sales, the boroughs beyond Manhattan are expected to recover sooner, because they are relatively less expensive, and proximity to midtown is no longer a top priority.
In August, Brooklyn exceeded the pace of sales recorded the same time last year, and Queens is on a similar but slower trajectory, according to StreetEasy.
It is less clear what will happen in the saturated new-development market. Out of more than 20,000 condo units citywide that have come to market since 2018, nearly 60 per cent remain unsold, said Kael Goodman, chief executive of Marketproof, a real estate data company. That represents US$33 billion of unsold apartments, and about 2,000 of those units have not yet even begun sales.
So far, the glut of new luxury inventory has not resulted in many distressed sales, in which units may be sold in bulk to investors at deep discounts. To avoid foreclosure, some scenarios could involve converting condos to rentals, or restructuring loan obligations. Industry observers expect to see more of these actions in the months to come, as developers run out of options to satisfy lenders.
What happens to real estate's political clout?
In recent years, the real estate industry's clout has waned as local legislators have leaned increasingly to the left, and campaign contributions from the Real Estate Board of New York have shrivelled.
In July, progressive challengers, like Zohran Kwame Mamdani, a housing counsellor, toppled incumbents viewed as too moderate. City and state legislators are mulling an apartment vacancy tax and other measures to discourage speculative investment, while opponents warn of a "death spiral", in which over-taxation could scare away the wealthy.
The highest-earning 1 per cent of New York City residents generated 43 per cent of city income taxes and 51 per cent of state income taxes collected from individuals living in the city as of 2016, according to the Empire Center for Public Policy, a fiscally conservative think tank.
But more than any statistic or legislation, the most consequential factor for real estate is what will happen on June 22, 2021. That is the date of New York City's next primary election, and it will be the most consequential since 2013, when Bill de Blasio, bolstered by his "tale of two cities" campaign, swept into office.
Now, with term limits forcing out a deeply unpopular Mr de Blasio as mayor, along with most of the City Council, a wide-open battle for the city's leadership is underway. And real estate interests say the stakes have never been higher. The city's next mayor will need to address urgent land use and housing issues that have dogged the current administration even in a time of prosperity and freewheeling spending. A US$9 billion budget shortfall looms.
What happens to affordable housing?
The Department of Housing Preservation and Development, which funds and maintains much of the city's affordable housing stock, suffered a deep cut this summer, when the city agreed to decrease its capital funding by 40 per cent over two years.
Rachel Fee, executive director of the New York Housing Conference, a policy and advocacy nonprofit, estimated that could translate into 21,000 fewer new and preserved affordable housing units and 34,000 fewer jobs, mostly in construction and related industries. The cuts could delay or derail a number of once-assured projects. NYTIMES