The Key Issues Plaguing New York City’s Real Estate Market
New York’s real estate is often viewed as a pillar of the nation’s real estate industry and a market many view as a trendsetter. However, this is not a piece glamorizing the city's real estate market; in fact, we need to discuss how the Empire State’s overestimated real estate industry has taken hit after hit. The dark cloud looming over the city’s real estate market wasn’t solely caused by the pandemic: While COVID-19 itself was tough, its impact pushed one long-term issue to the surface while creating smaller fissures that threaten to rupture the city.
Top Three Issues NYC Faces
New York City has a multitude of underlying problems to fix, however there are three main issues that need to be addressed immediately as they effectively halt the efficiency and morale of the city:
These issues might seem obvious, but the lack of solutions to these problems is concerning.
Since 1994, New York City has seen a net decline of nearly 150,000 rent stabilized apartments, either through deregulation or conversion to co-ops or private use. The impact of increased regulations started to present itself as fees and higher taxes, which have driven investors out. New regulations hit not just the billionaires of big real estate, but also the smaller property owners who run older buildings on already slim margins. It’s important to note that taxes from real estate provide more than half of the city’s budget, delivering a blow to the city’s core.
As real estate property prices in the city began to rise drastically, so did the development of high-end luxury apartments and condos. Trying to recreate the glitz and glam that was so appealing about New York City eventually priced everyone out of living there, leading to people and companies moving out of the city or to a new state entirely.
Public Transit System
Before the days of the pandemic, New York’s approach to its consistent growth over the last half-century has been a cycle of building huge corporate offices in Manhattan, improving transit to move the millions of commuters into and out of the city for work, then rinsing and repeating the process. While this worked well into the ‘90s, this system quickly broke as subways and commuter lines grew beyond capacity at all times of the day.
Now, this fractured system is in need of a major overhaul, but no one knows how to fix it. How does a transit system safely commute 3+ million people into Manhattan? New Yorkers have already begun buying cars to commute in to avoid public transit, leaving many wondering what their local leaders plan to do.
“We know what New York City looks like when people can’t or won’t use the subway, and some try to substitute car travel,” said Jon Orcutt, former policy director at the Department of Transportation. “The weeks after 9/11 saw lines of congested traffic reaching from Manhattan back to the Nassau and Westchester County suburbs. Same in the days following Hurricane Sandy. Our recent history should warn us of what may be coming.”
While New Yorkers wait on their leaders to determine next steps, it’s crucial to consider the other side of this issue: With so many working remotely, the need to commute into the office has changed substantially. Before COVID-19, ~80% of the commutes into Manhattan were taken on public transit. The Long Island Rail Road, once known as the “Route of the Dashing Commuter”, currently carries just a quarter of their normal daily load.
The sudden shift to working remotely has caused a collapse in fare and tax revenue, ripping open a $12B fiscal wound in the New York Metropolitan Transportation Authority. Fares typically make up $6.5B of the department’s annual $17.2B budget - and, without ~$12B in federal aid, they project furloughing 8,000 employees and cut service in half on New York subways, buses, and railways. If the Metropolitan Transportation Authority can’t secure more aid, the possibility of a carmageddon (the “scenario in which New Yorkers opt for cars over mass transit”) is high, which could jeopardize air quality and further exacerbate the city’s traffic issues.
Reopening the City Post-COVID-19
Though the pandemic continues to hit large portions of the state, Governor Cuomo looks to begin the reopening process. He has updated the standards for new restrictions on businesses and places of worship that can only kick off once hospitals are nearing their crisis capacity and urges the state to emphasize bolstering its strained economy. With so many residents fleeing the city for safe havens in the northeast and down south, a solution needs to be figured out quickly. The city has missed out on $1.2B just from lost sales in the real estate market just in 2020, feeling the impact of the big city exodus.
Cuomo has drawn up plans with New York lawmakers to reduce state spending by as much as $8B to combat the state’s expected drop in sales and income tax revenue, though it’s unclear how successful these efforts will be.
The future of New York City is uncertain, but New York City certainly needs a new model to address its affordability crisis, public transportation woes, and reopening plans. Some experts see Manhattan breaking into small clusters of certain sectors of business living within walking and biking distance, resulting in less crowded commuting. However, even this causes negative implications for businesses like hotels and restaurants in Manhattan.
One solution that could benefit both businesses and individuals, would be converting vacant commercial spaces into affordable housing. As commuters gradually return to the city, NYC should have enough time to create a plan and execute before too many individuals either return or leave altogether.
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