These are troubling, bleak times for the national residential construction
industry. Financial analysts expect the sub prime mortgage crisis to
push approximately 2.4 million homes back on the market, crippling the demand
for the construction of new homes. Lennar, the nation's largest home
builder, saw its profits dive 73% in the last quarter. The
secretary of the treasury warned recently that we have “yet to see the
bottom” of the housing market.
The supply side of the picture looks equally bleak. Usually, a sharp
drop in the demand for new homes like the one the sub prime crisis ushered
in would lead to a reduction in the prices of building materials. As
oil is expected to soon top $100 dollars a barrel, and the dollar is expected
to continue to lose value against all major currencies, most economists do
not expect building materials to decline in price significantly.
The contrast between the national and New
York City residential construction
industries, however, is a textbook example in the power of financial regulations. The
powerful New York City housing co-ops, which make up 85% of all apartments,
have strict rules concerning the credit of those that can move in. So,
the co-ops have effectively layered an extra level of financial regulation
on to the city's housing market, thus mostly sheltering it from the sub prime
crisis.
This extra layer of protection against lending market irregularities has combined
with increased demand for apartments in New York City to create a steady and
growing a demand for new residential buildings. Spending on
new residential construction is expected to grow approximately 14.3% from $4.9
to $5.6 billion during 2007, according to the New York Building Congress (NYBC). Though
that figure is expected to fall to $5.2 billion by 2009, it still represents
a significant uptick in residential construction spending, and one that can
be held in sharp contrast to the dismal predictions concerning the national
residential construction industry.
Most of the new residential buildings will come in the form of condominiums. Predictions
of significant numbers of co-ops converting to condominium ownership structures
have not panned out. However, analysts and new home builders are nonetheless
expecting demand for condos – a considerably more liquid asset than the
partial ownership of a co-op – to continue to far outpace the relatively
limited supply of condos that New
York City currently offers.
About the Author
Elika Associates is New York City's premier real estate buyers broker.
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