As remote as it may seem right now, with the national drop-off in housing construction, a steadily growing U.S. population and new policies in Washington to help spur the residential market, some analysts are worried the country may be mixing a cocktail for a new spike in housing prices.
Richard Posner, a judge on the Seventh Circuit U.S. Court of Appeals in Chicago and a University of Chicago Law School professor, argued in a recent blog post that having the federal government bail out borrowers “will set the stage for a future housing bubble.”
Since that blog post, Congress has passed legislation aimed at keeping homeowners in their homes. Now Washington is hashing out proposals that include allowing bankruptcy judges to modify principal mortgage amounts.
However, experts predict that regardless of what happens nationally, New York City does not easily lend itself to another bubble.
For one, although the city’s population is expected to continue growing, many believe it will shift toward a larger lower- and middle-income base. That would result in less money available for luxury condominium purchases and a greater willingness to live in smaller spaces.
The Department of City Planning estimates that the population in the five boroughs will hit 8.69 million by 2020 — up from an estimated 8.4 million in 2010. By 2030, it projects the population will exceed 9.1 million. City researchers do not believe that the current economic downturn — and the corresponding contraction of Wall Street — will change those estimates.
But more growth does not necessarily mean the city will experience the same pressure on apartment prices as it did in the past decade.
As the population expands, experts say, it will likely change, too, with some wealthier people leaving and lower- and middle-class immigrants moving in.
“The growth pattern is primarily due to immigration,” said Jonathan Miller, head of appraisal firm Miller Samuel. Miller anticipates a market recovery at some point in the near future, after all the new inventory gets sold and as the economy picks up. But, he said, “I don’t think the stage is being set for a spike in housing prices, specifically for Manhattan.”
For housing prices to increase substantially, “you need population growth and you need income,” said Andrew Beveridge, a sociology professor at Queens College. Even before prices started dropping in the wake of the credit crisis, he said, the city’s general population did not have the means to sustain skyrocketing housing prices in the long term.
“The median income wasn’t going up very much, but the housing prices were going crazy,” Beveridge said. “There was some small segment of the population that was doing very well.”
With Wall Street laying off thousands of people and bonuses being slashed, it is unclear what the industry will look like when it emerges from the credit crisis.
Beveridge doesn’t believe the city’s prices have reached a bottom yet, and once they do, it could take some time for them to recover.
“New York is kind of a one-crop economy with the finance sector,” Beveridge said. Going forward, he said, the federal government will probably regulate the industry more heavily, making another era of massive bonuses and rampant excess unlikely.
While some disagree about Wall Street’s dominance over New York City’s economy, researchers generally believe that a new era of relative frugality will come to the city. At the same time, they see the city becoming more affordable to people who in recent years were priced out. Young adults will be more inclined to move in with their parents. More first-time home buyers will be able to access the housing market.
In terms of inventory, there is still a large pool of new housing developments in neighborhoods such as Downtown Brooklyn and Long Island City that will shortly flood the market. “It’s going to take years and years to eat up all the excess housing development that’s still coming online,” Beveridge said.
Miller estimated that it will take several years to sell out the current new inventory. Once all the new apartments are sold, new developers will presumably start applying for new projects if financing is available. But those projects will likely have a different look from the ones of the past five years. Rather than focusing on building large apartments aimed at wealthier residents, Miller expects to see “more broad-based, low- to mid-income housing.”