Why NYC Will Lag In A Slowdown

Posted by urbandigs

Mon Feb 20th, 2006 10:33 AM

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A: Amid all the housing bubble talk and numerous new blogs devoted to discussing the impending crash of the housing market, I feel it is important to briefly discuss why New York City Real Estate differs from other speculative markets across the country; such as Miami, Los Angeles & Las Vegas.

1. Business Capital of the World: New York City is the business Capital of the world. A place where fortunes are made every day! The amount of money that is being made by the people who work in this city is astounding! Even Dog walkers can pull in over $100K a year, pure cash. Between the financial mega-twins of the NY Stock Exchange & NYMEX, countless law firms, hedge fund and real estate trusts, and thousands of other small to medium sized businesses this is where you go to make big money. There will never be a shortage of people looking to live and work in Manhattan. The #'s are just too big. With that said, there will ALWAYS be demand for New York City housing.

2. Real City-Lifestyle: This city is huge with so many different neighborhoods that offer its own unique culture and feel. Almost every type of personality out there can find some part of Manhattan to feel comfortable in and call home! With the best restaurants in the world serving every type of meal imaginable, to the museums, parks, & broadway shows the fun in this city never ends! What other city is as diverse as NYC both in activities and its people; guess that's why they call this city the Melting Pot!

3. 75%of New York City is Co-op: This is a biggie when looking at home ownership in New York City. 75% of the city is made up of Co-op's. As we all know, Co-ops are private corporations that sell stock in the company rather than real property (as Condo's are) when a transaction takes place. We also know that Co-ops have board policies that restrict who can and cannot buy and live in the building. The reason is that the current shareholders of the company (the building itself) must protect their interests by limiting the type of person that buys into the corporation. With these restrictions in place, buyers must meet financial and personal guidelines to be approved by the board. Financially a buyer of a co-op usually needs to show a stable job, high salary, and siginificant liquid assets. Personally a buyer of a co-op must show that he/she intends to live in the unit, not use the unit as a pied-a-terre, and follow guidelines for subleasing. While all co-op boards have their own set of guidelines (some tough, some more lenient) the fact that NYC is mostly co-op puts a blanket of protection over the housing market here in whole. The reason is that it protects against speculators buying and/or someone buying that really can't afford to buy. Markets such as Miami and Las Vegas are ripe with speculators leading to a much more unstable housing market in a slowdown.

4. Speculative Markets Hit First: Continuing from above, most would agree that in a slowdown the highly speculative markets will get hit first and the hardest. Again, markets such as Miami, Phoenix, Los Angeles, & Las Vegas are ripe with speculation and investors buying with the intention of flipping. As the housing market cools down and buyer demand dries up, these speculators are forced into a very tough situation where they will be competiting with each other to sell their holdings. I am NOT saying NYC is immune to a slowdown, rather just pointing out that NYC doesn't have the level of speculation that other markets do.

5. Manhattan is an Island!: No big surprise here. There is a shortage of land available to developers here in New York City. Sure there is talk now of Governors Island and Roosevelt Island, but its not the same. Manhattan is an island and livable space is hard to come by. With the restriction on supply and the never-ending source of demand, housing in New York City will always hold its value more than most cities!

So, what does this all mean? It means that NYC real estate is simply more valuable than real estate in other cities across the US. As prices in the city come down, buyers will be there to scoop up the value before someone else does! Its hard to think that other cities have as deep a buyer pool as New York City does. For the long term investor who intends to buy and live in their NYC apartment for the next 15-30 years, disregard ALL talk of a housing bubble and all the blogs out there talking about a housing crash and know that you are buying in the best city in the world!