After a long and politically decisive battle, Amazon officially announced that they are no longer building their second North American Headquarters in Long Island City, New York. The sudden announcement sent shockwaves throughout both the political and business worlds. Pundits from both sides have both praised and denounced the decision.
While the fallout continues, one must ask how will this affect the NYC Housing Market? To answer the question, it’s important to look at the current state of the property market. In this blog, we’ll discuss top trends and how Amazon’s decision will impact NYC real estate market.
NYC’s Average Selling Prices are Declining
According to a recent real estate report, property values in NYC peaked in 2015. The report also states that the current average property price in NYC is about 10% to 20% lower than the previous highs of 2015. The data suggests that motivated sellers are offering deeper discounts on their asking prices. This is starting to create a “race to the bottom” among property owners and unfortunately the worst is likely yet to come. It’s predicted that prices won’t bottom out for at least a few more months, leaving many buyers waiting to see just how far the decline in asking prices will be. However, there are also recent reports highlighting positive price growth in Brooklyn’s brownstones and Central Park West’s high-end luxury properties.
Tax Reform Affecting the Market
Under President Trump’s new Tax reform plan, US residents are able now limited to writing off $10,000 worth of local and property taxes. In New York City, once a resident’s income reaches $110,000, their local NYC tax bill hits that threshold. This means that most people that can afford to purchase in NYC will no longer be able to deduct their property taxes. This may also mean potential buyers will be paying less in taxes and will also allow more buyer power. It will ultimately come down to a case by case basis.
Oversupply of Rentals & Increasing Vacancies
The construction rate of rental units in New York City is far outpacing that of the National average. New York City has over 60,000 units currently under construction. While this might seem like a good indicator of strong market demand, the situation is a bit more complicated than it appears on the surface. The report also showed New York’s current vacancy rate hovering around 2-4 percent. In a healthy market, a vacancy rate should be around 1-2% and it is predicted that it will be several years before the vacancy rate will lower back down to the 2% range.
How does Amazon fit into all of this?
The current housing and property market in NYC clearly isn’t quite as strong as many investors would like it to be. There are several factors keeping prices low and vacancies high. When Amazon announced that they were looking to make a major investment in a second North American Head Quarters, cities all across the US jumped at the opportunity to bid. New York State was one of several states that made Amazon’s “short list” of locations to build the new headquarters. In a somewhat controversial move, the state of New York allocated over $1.2 billion in tax cuts in order to secure the Long Island deal. Many had hoped that this massive tax credit would be offset by the massive investment Amazon would be making in the area.
More Jobs and Higher Wages
One of the top benefits of Amazon coming to Long Island City was that it would be bringing with it roughly 25,000 new jobs paying a minimum salary of $150,000 per year. Workers from around the World would theoretically be relocating to New York State for the first time. The number of new workers added to the region would have had a major economic domino effect. Collectively, they would all be earning roughly $3.75 Billion per year in wages alone. Everything from restaurants, Broadway, tourism, and even the real-estate market would be set to benefit. Not only would workers be moving into the Long Island City area, but also their significant others, their children, and even their pets. This massive influx of people would create massive demand for the housing market. It’s safe to say that the greater New York area could have profited from this with higher rents and higher occupancy rates.
What will it mean for the future?
Amazon’s decision not to move into Long Island City will ultimately have consequences for the New York property market. While it’s not fair to say that New York’s housing market was struggling, it definitely could have used a lifeline. Due to the highly political nature of the debate, it’s unlikely another large-scale company will come to New York anytime soon.
While the State of New York debates and decides what go-forward direction it wants to take, it seems that the housing market is going to more or less remain unchanged from its current direction. New York City may be the “City that never sleeps”, but there doesn’t appear to be anything on the immediate horizon that can get its property market to wake up.
What do you think? Do you think Amazon’s decisions to back out of Long Island City are going to have a dramatic effect on the property Market in NYC? Let us know in the comments section below.
For this and other updates, but sure to subscribe to our monthly blog updates!