Back in 2018, the number of new development apartments for sale in Manhattan was so high that there were reports that the oversupply of new development was going to tank the real estate market. Of course, that didn’t happen and, after the events that unfolded over the last few years, we are in the exact opposite situation.
We now expect that the number of new development apartments for sale in Manhattan New York in the next few years will be low (especially in prime neighborhoods) causing a supply constraint, and, as a result, putting upward pressure on housing prices from the supply side.
There are six major factors that have or will have an impact on the supply of properties for sale in Manhattan.
First, record home sales in 2021 and into 2022 depleted much of the excess new development inventory. While 2020 was a bust for New York City property sales as Covid took hold here first, once vaccines came out and developers lowered their prices, everyone wanted a home in Manhattan. Accordingly, condo sales, and new development sales, in particular, exploded.
Second, since Covid, there have been much fewer land sales even though land prices in New York NY dropped 50% since the market peak in 2018, so there is not much in the potential pipeline based on land sales.
Third, the law expired that allowed 421a, 421g, and J-51 tax abatements, which encouraged development by significantly reducing property taxes for developers and/or individual buyers. The expiration of these abatements make it more expensive to build. There is just no political will in NYC to provide any incentives to developers to build condos or rental buildings. Recently, we have seen projects proposed with 30% affordable housing rejected by leftist local city council members, where members are asking for a 50% (Project One45) and even 100% (World Trade Center 5) affordable housing requirement. In this environment, don’t expect much to be built in NYC.
Fourth, rental-to-condo conversions disappeared after, on August 1, 2019, New York state adopted onerous rules that penalized building owners in an attempt to protect tenants. Currently, there are virtually no condo conversion projects in the pipeline due to these new rules and none expected in the future unless the law is amended.
Fifth, the rapid rise in costs because of supply chain disruptions caused by Covid and the rapid rise in financing rates are huge headwinds for the creation of new development inventory. Only true ultra-luxury and super-luxury projects will have enough margin to cover potential double digit increases in costs and non-luxury segment inventory just won’t get built until inflation settles down. The rapid rise in financing rates will also put a damper on developers plans.
Finally, the Fed's war on inflation has led to the fastest increase in residential mortgage rates in history. Homeowners who purchased or refinanced in the last couple of years when rates were unusually low now have a golden handcuff mortgage, tying themselves to their properties for many years. It is hard to justify abandoning your 2.5% mortgage rate on a two bedroom apartment for a 6% mortgage rate on a three bedroom apartment. This is bound to contribute to future low supply and reduce mobility.
Given how long it takes for new development to come to market in NYC and all the headwinds against development these days, including political headwinds, Manhattan will have an inventory crunch starting within the next 5 years, especially in its most prime neighborhoods.
Diving into projects that have had their offering plans approved by the NY Attorney General (some of which are ready for occupancy and others won’t be ready for 2-3 years), as of August 1, 2022, one can see that there are not very many projects or units coming on the market in prime areas. There were only 6,000 developer units that are not in contract in Manhattan, down significantly from 2018.
In the chart below, the dark purple line represents the unsold inventory by neighborhood. The light purple represents the in-contract units by neighborhood. Out of approximately 6,000 developer units in Manhattan, 500 are in-contract, and 5,500 are available for sale.
In the current inventory, ten buildings make up 40% of the total available for sale, so much of this inventory is concentrated in a few big buildings. After the below listings of New York Apartments for Sale Manhattan, we discuss the condo inventory in the pipeline for select neighborhoods.
Added condo stock will be especially good for gentrifying neighborhoods like the Financial District, Two Bridges, Clinton, and the Lower East Side. Combined, these districts have 34% of the inventory in the pipeline. These neighborhoods, however, haven't traditionally drawn many local New Yorkers.
Across Manhattan there are certain neighborhoods with a perpetually low supply of new condos, like the West Village, Tribeca and Carnegie Hill, which combined, have only 246 developer units available. Stripping away one or two buildings out of each neighborhood and one can see that there are not too many options for new development. Even the Upper West Side and Upper East Side neighborhoods have a dearth of inventory. And we don’t expect the situation in these prime neighborhoods to get much better.