The city has released some new figures on the New York City residential condominium market, while analysts at the private firm Portfolio and Property Research (via WSJ and Crain’s) have released some projections for the metro-area office-building market. Taken together, the new numbers likely mean more bad news for the city budget.

The salient points:

  • Since 2003, the average residential-condo price increased by more than 150 percent, while the price of single-family to three-family homes increased just(!) 73 percent.
  • In 2003, condos were 17 percent of all city (not just Manhattan!) residential real-estate deals. In the first half of 2008, they represented nearly 30 percent of all such deals.
  • Filings to build new condos or convert old apartments into condos, in recent years, began to outpace, and then to far outpace, sales (see chart below).
  • The commercial-office vacancy rate could reach 17.6 percent in the NYC metro area (including six suburban counties), up from 12 percent today.

The possible implications of this data? First, there is a near certainty that New York will be faced with a continued glut of condos on the market in the coming years. Some developers may continue to try to turn their units into legal rentals or not-so-legal hotels in the coming months. But such options are more difficult as the rental and the not-so-legal-hotel markets dry up, as well.

A condo glut means inevitable foreclosures, both of buildings and speculatively purchased units, and falling prices. Further, falling prices likely will extend to the co-op market. Despite tighter regulations for co-op purchases (i.e. high downpayments), prices for apartment-sized units over the past few years have been set at the margin, by the condos. And, those big downpayments required by coops were made up of play money provided by unsustainable Wall Street bonuses, anyway.

Further, prices could fall precipitously, not gradually. Over the past five years, it’s fair to say that buyers purchased condos and co-ops across all price levels not for their intrinsic value or long-term appreciation but for expected double-digit percentage gains every single year. Those expected gains now must be “priced out,” just as we’ve seen future gains priced rather unceremoniously out of the stock market in the past year.

On the office-tower side, there is a near-certainty of, well, much the same thing: more foreclosures and sharply lower valuations.

As for the argument that New York’s office market won’t suffer as badly this time around, compared to the early 90s, because it didn’t see the same level of speculative office-building? First, New York saw something just as dangerous this time around: speculative valuation of towers, and lending against those valuations, based on outlandish projections of future office rents. Second, as Wall Street continues to shed jobs, recent construction, including that of the Bank of America tower on Sixth Avenue and the Goldman Sachs building downtown, may look speculative in retrospect. A half-empty building is a half-empty building, no matter how it got that way.

In one way, falling condo prices and office rents are a good thing for New York. A re-pricing of homes across the board will open more of the city up to middle-class and upper-middle-class residents previously priced out, while a re-pricing of office space will do much the same thing for non-financial businesses seeking to come to New York City.

But in the short term, it means bad news for the city budget. Between fiscal years 2000 and 2008, class 2 condos (the vast majority of condos) and office buildings, representing nearly 30 percent of the city’s billable property-tax values, had increased in terms of those billable values by a whopping 63 percent. These sharply higher valuations pushed overall property-tax collections up by 67 percent over the same period.

The city expects property-tax collections to be up another 19 percent, cumulatively, over the next three years.

It’s hard to see how those increases will happen, since reassessments are inevitable in the face of sharply lower valuations.

Even stagnant property taxes would add another $2.6 billion annually to the city’s already substantive ($5 billion-plus) expected future-year budget deficits.



You may also like

Budget Deal Slows Medicaid Growth But Plants Seeds for Future Spending

The growth of New York's Medicaid spending is projected to slow but not stop as Governor Hochul and the Legislature effectively split their differences over health care in the newly enacted state budget. Read More

Albany Lawmakers Push a $4 Billion Tax on Health Insurance

Legislative leaders are proposing an additional $4 billion tax on health insurance plans in the upcoming state budget – but withholding specifics of how it would work. Read More

Hochul’s ‘Straight Talk’ on Medicaid Isn’t Straight Enough

Arguably the biggest Medicaid news in Governor Hochul's budget presentation was about the current fiscal year, not the next one: The state-run health plan is running substantially over budget. Read More

New York’s Medicaid Spending Is Running Billions Over Budget

New York's Medicaid program ran billions of dollars over budget during the first half of the fiscal year, adding to signs of a brewing fiscal crisis in Albany. According to the fro Read More

As migrants flow to NY, so does red ink 

The influx of foreign migrants to New York could cost the state $4.5 billion more than expected next year, Governor Hochul today warned.  Read More

The Bill Arrives: NY Faces $9B Budget Gap Next Year 

New York’s outyear budget gaps, the shortfall between planned state expenses and state tax receipts over the next three years, has exploded to more than $36 billion, just-released documents show.  Read More

NY school spending again led US, hitting all-time high in 2020-21

Public elementary and secondary school spending in New York rose to $26,571 per pupil in 2020-21, according to the latest Census Bureau data Read More

A Tale of Two Levies

New York school districts are getting record levels of state aid. But how many are using it to cut taxes? Read More