Can New York Ever Have A Normal Housing Market Again?

I've been spending the week in the area of Sarasota, Florida, and since I can't help myself I've been sizing up what the housing market looks like.   Of course the big historical event in the market here -- as in much of the rest of the country -- was the overbuilding up to 2006, followed by the bust of 2007.  According to this HUD report from 3Q 2013, the rental vacancy rate in this area was 10% as recently as 2010, but had dropped steadily to about 4% at that time.  New construction has resumed at levels more modest than at the peak.  Look on real estate web sites for homes either for sale or rent, and you find availability at all price points.  What look like decent rentals can be had for as little as $1 per square foot per month (about $750 per month for a decent-sized one-bedroom apartment) and quite nice ones for $2 psf/mth.   For condos, there are plenty available around $300 - 400 psf (that's around $500,000 for a nice two-bedroom), and $1000 psf gets you a premium high floor place in one of the top areas or at the beach.

And they got there basically by just letting the builders build.  OK, there was a contribution of Fannie/Freddie to the overbuilding, and that may still have some depressing effect on prices.  It's not possible to know exactly how much the depressing effect is, if any.  My own suspicion is not much.  Today, supply and demand are fairly well balanced.

And then we have the Manhattan market, with the extreme special case of the West Village.  We have rent regulations persisting on the majority of rental apartments, landmarking almost everywhere and vociferous neighborhood opposition to any attempts to build anything new.  Result: there has been minimal new construction literally since World War II.  Today, there is huge demand for apartments, but there are exactly two large condo buildings under construction in about a full square mile.  One is completely sold out, although still many months from completion.  The other is called the Greenwich Lane, at 7th Avenue and 11th Street.  Here is its website.  It's got at least a year to go to completion, but has limited availability remaining.  A modest 1000+ sq. ft. two bedroom over there will run you about $4 million -- $3500+ psf.  I hope you are not expecting a view for that price.

Of course even this one building has had to face strenuous neighborhood opposition.  Below is a picture of our new Mayor de Blasio at a rally back in 2013 when he was a candidate, protesting replacement of the predecessor hospital with this condo.  

At $3500 psf, almost nobody can afford to buy these things.  With severe artificial supply restrictions, they have priced just about everybody out of the market.  But our local housing geniuses think they have the answer, which is "affordable housing."  The big news in the past week is that the City has a 25,000 sq. ft. lot available up at 11th Avenue and 39th Street (about a mile plus North of the West Village).  At current values it could be sold for market rate development for about $250 million.  But instead the local Community Board wants to require "affordable housing" to be built on the site, and instead of just selling the site to the highest bidder, they will "designate" a developer to build the "affordable" building.  With luck a couple of hundred families will get these apartments at a subsidy of around $2+ million per family.  The City will be very lucky if it gets even a small part of the $250 million it could so easily have.  

Meanwhile, look around for a rental apartment in Manhattan, and you will find that no market exists except for the very top end.  All the rent regulated apartments are claimed for life by the current occupants, and never become available.

UPDATE March 17:  Crain's New York Business reports today on a speech given yesterday by Carl Weisbrod, de Blasio's Director of the Department of City Planning.  Weisbrod of course stood up for de Blasio's plan to build 80,000 "affordable" units over the next 10 years, but also took the position that the real problem is cutbacks of federal money:

"For all our effort, even if we hit all our targets, we won't fully solve the housing crisis in the next decade unless there is a radical change in federal housing policy -- sadly an unlikely occurrence," he said.  Over the long term, the federal government has made cuts to several housing programs used by the city to create affordable housing, including funding to the New York City Housing Authority.

Funny, but in the Soviet Union they had a full-court-press effort to build nearly "free" apartments for the masses, and after 70 years of that they had 25 year waiting lists for tiny apartments.  Over at NYCHA we have hideous eyesore permanent slums housing half a million people.  A twenty year waiting list for the apartments never moves, and if you're "lucky" enough to get in you are trapped in the place in poverty for life.  And the buildings have a multi-billion dollar backlog of maintenance, and no money to pay for it because nobody pays much rent.  And all Weisbrod can think of is, more of the free federal money for more of same.  Hey Carl, how about the solution of just letting the builders build.  Sure works in Sarasota!

Full disclosure:  I actually had Mr. Weisbrod as a client 20+ years ago when he headed something called the New York State Urban Development Corporation.