Demographics, Reason for NYC Housing Recovery

(Save the date: RealShare Apartments East comes to the Hyatt Regency Miami, Florida on February 26^th, 2013)

NEW YORK CITY-As 2012 ended and the government teetered on the first of multiple fiscal cliffs, the housing market in the northeast and across America continued its recovery. In New York City, where the vacancy rate is 2.1% and rents were up 3.9% for the year, investors are paying record prices for multifamily housing and development sites that have been barren since the financial crisis started in 2007, which are now being developed, and the price of development rights are again escalating. Moreover, this trend is not just in New York City but nationwide where the apartment vacancy rates have fallen to 4.5% from 8% a few years ago.

Decreasing vacancy rates are no longer an aberration limited to some markets and the most luxurious properties in Manhattan, but throughout New York City. People who, a few years ago were able to afford apartments in Manhattan and then decamped for areas of Brooklyn and Queens that were close to the East River are now finding themselves closer to the Nassau County line. The singlefamily market has strengthened but has not yet been accelerating as quickly as other segments of the market, but that has more to do with the paucity of mortgage money and that prices have not yet recovered to the point of being higher than the debt, but the acceleration of the single-family market is coming as a result of the loss of thousands of homes in Superstorm Sandy. Moreover, condominium projects that had moribund sales for five years are now having the units going to contract and closing at an ever increasing rate, leading many investors to seriously consider converting other housing to condominiums to take advantage of the strengthening market.

The interesting question is how can this growth be happening at the same time as taxes and housing costs increase, there is uncertainty as to how  New York, the northeast and the United States will deal with the fiscal cliffs to come, a slowing economic recovery, a weak dollar, problems with the balance of trade, arguments over social issues, a country split right in half on most issues, and an atmosphere of incivility in Washington making it unlikely that there will be a consensus reached on any issue?  The answer is that no one cares. All of the above issues have become background noise and most people are focusing on their own lives after having lost faith in the government's ability to solve problems. 

So what is causing the housing market to recover?  Demographics! In 2006, when the US population hit 300 million, it was reported that by 2050, 37 years from now, the US population would grow to 400 million (a 33% increase) and New York City is expected to have one million additional residents by 2025. The housing is needed by aging baby boomers, who are not retiring to Florida and Arizona, their children, who are having children, and immigrants. We are at the beginning of a population explosion and, of course, there just isn't enough housing. 

Stuart Saft is a partner at Holland & Knight in New York City. He can be reached at stuart.saft@hklaw.com. The views expressed here are the authors' own.