Even as residential real estate sales and development around much of the country sputters to a halt in the face of a lukewarm market, New York City continues to exceed the expectations of real estate market-watchers.
Metropolitan New York, an area that includes northern New Jersey and western Long Island, had the third-largest number of new housing permits issued from 2004 to 2006, at an annual rate of 61,689 permits. Of these, 29,245 were permits issued in New York City.
Only Atlanta (on average 71,711 per year) and Houston (63,326 a year) bested metro New York, according to the U.S. Census Bureau.
New York clearly led against all other U.S. cities in the number of permits issued for multi-unit buildings. Over 92,900, or 50.1 percent, of the permits issued in the metro area were for buildings with more than five units.
Living up to their reputations as sprawling, low-density centers with plenty of traditional single-family homes even within city limits, only 18 percent of permits in Atlanta and 19.5 percent in Houston were for multi-unit buildings. The only metro area approaching New York’s penchant for building residential towers is Miami, where 50.4 percent, or about 64,000 units, were in multi-unit dwellings.
The slowdown in the residential sales market seen in most of the rest of the U.S. — but not in New York — means the city could be uniquely positioned going forward from a development point of view, brokers say.
“New York is probably the best market in the country right now,” said Andrew Gerringer, vice president of Prudential Douglas Elliman’s real estate development marketing group in Manhattan.
After the top three, the metro areas where the most building permits were issued, on average, in each of the last three years were Phoenix (57,235 a year), Dallas (54,862), Chicago (49,390), Riverside-San Bernardino-Ontario (46,853), Miami (42,252), Las Vegas (36,453) and Washington, D.C. (34,252) (see chart). Despite their much-hyped residential markets that made them seem epicenters of the building boom, Miami and Las Vegas didn’t finish at the top of the list — placing eighth and ninth, respectively. Still, that’s not to say that those markets aren’t in fact overbuilt, as the current fallout in those cities seems to show, experts say.
All of these areas, and many of the country’s 25 largest cities, are beneficiaries of a national revival in central-city construction, said Frank Braconi, chief economist with the Office of the New York City Comptroller.
“There’s a certain amount of renewal of interest in urban living, partially because cities have gotten safer,” he said. “They’ve gotten better fiscally. Economically, they’re a little more vibrant than they were 20 years ago, and I think that’s reflective in people being more willing to come back and live in them.”
Braconi said he was surprised that the data show this trend has been so strong outside of New York City.
“We’re not alone,” he said. “A similar pattern appears to be happening in the other larger, older cities, as well. In a sense it makes us less special, but in a sense it’s reassuring, because we’re part of a broader national trend.”
The data also show a clear trend towards constructing more multi-unit residential buildings. Indeed, in 2004, 21.5 percent of permits in the 10 largest metro areas were for buildings with more than five units. Multi-unit buildings include condos, co-ops or rental properties. In 2006, the percent leapt to 28.6, according to the U.S. Census.
The conclusion that real estate developers might take away from the data is that the apparent explosion of development in New York City is not just a result of any national housing bubble.
“Our initial purpose was to see if this building boom we’re seeing in New York is simply part of a national housing bubble, where interest rates go down, money flows into housing, and you get a lot of construction,” Braconi said of a recent report by the comptroller’s office that looked at building permit numbers among U.S. cities. “It turned out to be more than that. There’s something else going on in the large cities. It’s more interesting and more structural than just a housing bubble.”
Braconi also pointed out that while older cities are seeing a boom in housing growth, they aren’t necessarily building more housing than the newer, so-called Sunbelt cities in the South and West.
While several Sunbelt cities have greatly scaled back on new development, they are still constructing a huge number of residential units. Phoenix has seen the sharpest slowdown in residential construction after reaching high levels of building activity. From a high of 65,259 units in 2004, construction dropped last year to 44,280. Residential permits in Miami also dropped sharply between 2004 and 2006, from 46,084 to 35,110.
But among flagging markets, more than Sunbelt cities feel the effects of a cooling in the housing market nationwide. Cities like Boston and Chicago have also slowed down, real estate brokers said. And some southern areas, such as the Carolinas and major markets in Tennessee and Texas, are doing very well.
“The areas that are very strong right now, aside from New York, are places with strong job growth,” said Pam O’Connor, president and chief executive officer of Leading Real Estate Companies of the World, a network of real estate companies nationwide based in Chicago. “These areas are booming, and they were also undervalued for a long time.”
Other areas, like California, Florida and some of the Northeastern markets, have been hit hard by the subprime mortgage phenomenon, she said.
“People’s adjusted-rate mortgages are coming due, and their houses haven’t appreciated, so affordability is an issue,” O’Connor said.
Manhattan first for development sales
Manhattan topped U.S. metropolitan markets for the dollar volume of land sold to developers for residential buildings, with $3.6 billion worth of turf changing hands over the past 2.5 years. That is followed by Phoenix at $1.4 billion and Atlanta at $1.3 billion, according to data from Real Capital Analytics, which tracks real estate sales. However, Manhattan only had 97 transactions, while Atlanta topped the list with 155 transactions and Phoenix had 113.
That pushed up Manhattan’s price per buildable square foot to $324, followed by Florida at $172 and Los Angeles at $170.
Manhattan’s small transaction volume was due to there being fewer building sites available — though developers are still finding ways to put together developable parcels, of course, said Dale White, Jr., a real estate analyst for Real Capital Analytics.
“Developers are buying buildings that are small from an acreage standpoint, but they’re paying a premium to buy land to do assemblages and add on to the adjacent parcel,” he said.