Nobody ever said buying in New York City was easy.
But for entry-level homebuyers, it’s becoming harder than ever. Data from Corcoran Sunshine Marketing Group shows that in the next three years, only 3 percent of new condos below 125th Street will be priced at under $1,800 per square foot, on average, a threshold for affordability. Those 43 units delivered annually is also 74 percent less than it was during the previous 10-year period.
Factors on both demand and supply sides have created this reality where almost all new development projects land in the high-end market.
Mortgage rates now hover around 7 percent, making the divide between cash buyers and those relying on financing even wider. At the same time, the stock market has soared for the last several years, compared to wage growth.
Every line item in development has risen: Land costs only go up, and tariffs and stricter immigration policies have hit material and labor spending as well. Developers find themselves in the same boat as homebuyers when it comes to increased financing: It’s expensive.
Blend that all together and the next crop of condo buildings looks like it will skew more heavily than ever before toward full-floor units, top-of-the-line appliances and dazzling amenity packages.
While ground-up new builds may not be coming back big anytime soon, other means of bringing cheaper homes to market have also disappeared. The Housing Stability and Tenant Protection Act of 2019 now requires 51 percent of existing tenants to vote for a condo conversion, up from just 15 percent.
One of the few new conversions, Related Companies’ rental-to-condo conversion in Yorkville, called the Strathmore, has been one of the best-selling projects in the city over the past year, with homes selling at around $1,700 per square foot. A relatively affordable Midtown condo, The Perrie, at 234 East 46th Street, which has one-bedrooms for under $1 million, became the first Manhattan building to accept Federal Housing Administration-financed loans and has sold over half of its 95 units since launching sales in 2024.
While first-time buyers have shifted more and more to the relatively affordable co-op market, those units often need serious work and come with the peculiarities of cooperative living. Part of the appeal of the starter condo is its plug-and-play nature.
Given some of the recent one-off successes, might more developers try to tap into a surprisingly deep market of first-time homebuyers? Or are they fenced in by market realities and will keep building for the deep-pocketed, dealing a death blow to New York City’s starter condo market?
PLEASE NO!
Nikki Thomas
Broker, Leventhal Thompson Team at Corcoran Group
There’s definitely fewer opportunities in neighborhoods where previously there would have been a chance for someone to buy new development. In Manhattan, the amount of new development has just really, really, really fallen off.
There used to be a time, when somebody had like a budget of $1 million to $2 million, they would actually have a decent number of new development options that were available to them in fairly prime neighborhoods. They might have to spend more money for a smaller space in a prime neighborhood. Now, for a lot of people, they don’t have that choice. It’s that lack of choice that’s contributing to pushing folks out of the market.
If they have their heart set on living in certain locations, they’re like, “No, I’ll just keep renting.” There are people who are still in the rental market who want to buy who should be buying, but they can’t for whatever reason, or are choosing not to because they don’t like what’s going on in the market.
If we had more people who were able to become homeowners, then that creates positive impacts for communities across the city. When you believe that you are going to stay somewhere for a long time, regardless of whether you are a renter or an owner, you tend to want to invest.
[The Perrie] is the kind of project that’s missing right now, or that could be a model for future new development where they took an existing building and upgraded it.They said, “You know what, we’re actually going to have one-bedrooms.” A lot of the developers out there are not really doing one-bedrooms, because that’s not what’s making money. The new developments out there are larger-format apartments, with really expansive layouts. That’s not necessarily a bad thing because it was missing from the New York City market for a long time — it’s just that the pendulum has swung a little bit far over in that regard, and now we’re missing some of those smaller units. There is absolutely a contingent of first-time buyers who want to live in a new development. They would be willing to pay a premium for a studio or a one-bed that has a new kitchen.
This is not me encouraging developers to be cheap, per se. There is such a thing as good quality, cost-effective materials that you can use that look good, that wear well, that last well, that would work well in more affordable new developments. People would absolutely go for that.
Not everybody needs to use the Carrera marble. Caesar stone is a perfectly lovely and reasonable material to use.
—As told to Jake Indursky
UNFORTUNATELY YES!
Yiannes Einhorn
Managing principal, Grid Group
Why can’t you deliver an efficient unit at $1,800 a foot? It’s really simple: land, construction, and borrowing costs are too expensive. That’s the breakeven number. Land is selling for $500 a net foot, and it’s costing you another $1,200 a net foot all-in, including hard costs, soft costs, interest, and carry.
The only people that are delivering product that sell for $1,800 or $1,900 a foot are either getting land inexpensively or building relatively cheaply.
That’s why you can’t deliver at $1,800 a foot. Those days are just gone. Why you’re choosing not to build a 600- or 700-square-foot one-bedroom starter apartment is a different equation.
Let’s not sugarcoat it. The people buying the kind of apartments we typically build, the larger ones, are writing a check. Or, if they’re getting financing, they’re using other means, such as borrowing against their stock portfolios at relatively favorable rates. That makes them less affected by mortgage rates, so you feel a little more secure knowing there’s a buyer out there who wants to own a piece of New York.
From a programming, planning, and construction standpoint, it costs me more to build six units per floor rather than two because you have more kitchens, bathrooms, and mechanical systems. That’s where you spend a lot of money: plumbing, HVAC, millwork, appliances, stone, coordination….everything costs a bit more.
Another developer friend of mine is building in Chelsea, near where our latest project The Myles is located. I told him, “If you can figure out a way to build and sell apartments for $2 million or less, I think you can knock it out of the park. There’s a tremendous number of people who want to be in Manhattan for $1.85 million or $1.95 million. If you can deliver a nice 800-square-foot two-bedroom, I think there’s a huge market for that.”
His response was, “Well, who wants to deal with the brain damage of that?”….essentially referring to the complications and expense of building quality smaller units.
The arithmetic of any condominium project basically starts the same: When you sell about 50 percent of the building, you pay back the bank. When you sell the next 30 percent, you’ve paid yourself back. Hopefully, the final 20 percent yields the profit.
If we’re going to deliver a beautiful product with 22 apartments, I know there are at least 10-11 people waiting out there who want a really well-executed four-bedroom apartment in Manhattan in the location where I’m building. With those initial 10 sales, I pay back the bank. If I had 60 apartments, which wouldn’t be impossible in that same 80,000-square-foot project, I would have to sell 30 or 35 units to reach that substantially de-risked point.
Construction costs have also skyrocketed, and apartment prices haven’t moved nearly as much. I have a strong hunch that condo prices will go up by 10 or 20 percent soon.
I actually think there’s an opportunity for purchasers right now, even though many feel like they’re getting priced out. Just wait a couple of years for the next wave of units to come to market. It’s going to be way more expensive.
