Apartment Deliveries, Construction Starts Decline As Demand For NYC Apartments Dwindles
New York's supply of new housing was on the decline before the coronavirus pandemic and matters are only expected to worsen.
Ongoing construction projects are waning and starts have dwindled, but a study that shows apartment deliveries declined by more than 10% this summer from 2019 means the declining demand for new units in New York City had begun long before the spring.
“It’s nice as human beings to try and say it's all related to the pandemic,” said Doug Ressler, manager of Business Intelligence at Yardi Matrix, a property management software company. “We see the pandemic having very little impact on this, it’s really to a larger business and economy model that says supply and demand.”
Yardi projected about 16,000 market-rate units will come to market by the end of 2020, an 18% drop from 2019’s 19,300 units, according to a report released last night. But construction has been slowing for over a year.
“We actually saw a decline in new construction beginning in 2019 … developers were pulling back on an immense number of deliveries over the course of the last three years,” Ressler said. “There were periods where a lot of the metro areas were saturated and developers are pulling back to see, ‘Is it going to absorb?’”
The number of units currently under construction in the city is nearly half its peak in 2016, said Adam Couch, a market analyst for RealPage, another property management software company that collects local-level data on multifamily construction.
In Q2 2020, New York City had 21,500 units under construction, according to RealPage. Four years earlier, that number was at 40,374. And while construction is an essential business and multifamily has been considered one of the more resilient asset classes, it is unclear if all of those projects will come to fruition.
“The question in terms of how many of those units will actually deliver is pretty interesting,” Couch said. “We’ve seen developers pump the breaks and take a wait-and-see approach, and there’s been some delays in construction."
Between the delays prompted by the shutdown and the uncertainty of the market, the pandemic has had an impact on construction starts as well.
In February, construction starts were down only 1% from the year prior, according to an analysis Dodge Construction Data & Analytics conducted for Bisnow. Multifamily construction starts fell 63% year-over-year in both April and May at the peak of the coronavirus’ wrath and the city’s full shutdown.
In June, construction starts were down 78% from 2019, even as the city began to open up. By July, however, the year-over-year decrease in construction starts narrowed dramatically, to only 8%, Dodge found.
“When we see changes in the data, they are related to logistical changes resulting from COVID and not necessarily related to demand three years from now, because folks just don’t know what it is going to be like,” National Multifamily Housing Council Vice President of Research Caitlin Walter said.
The Northeast and West saw a decline in construction permits this year, while the South and Midwest saw an increase, Walter said, with the decline directly correlating to where shutdowns were most stringent, like in New York.
“Particularly in this environment where we are seeing a lot of COVID-related restrictions on not the development side, but on the economic side — so tenant protections, rent control — things that can have very damaging consequences to the investment potential of development of apartments is really going to start to factor in to a lot of those construction numbers in certain geographies,” said Paula Cino, NMHC vice president for construction, development and land-use policy.
Cino said construction starts are picking up in areas that have “low barriers to development,” such as in the South and Midwest.
“It really comes as no surprise that we may already be seeing or may start to see some drawback in some high barrier to entry markets like New York and certainly California,” she said.
However, developers are beginning to understand how to navigate a new world, Cino said, leading to more stabilized numbers in New York and elsewhere.
“We are quickly turning a corner there, where many of our members, as well as the jurisdictions we are working in, have really figured out the new normal in at least the construction space,” Cino said. “So we’re not really seeing the barriers in permitting or actual delays related to those kinds of earlier shutdowns.”