Land values in New York City are outpacing housing prices, and that has many industry leaders concerned about the future of real estate development in the city. The profit margins of developers are becoming increasingly thin as they struggle to recoup their investments in land on Manhattan. Experts are calling this the “point of no return” – the point at which developer investments become unsustainable.
In a market with such high land values, luxury condos seems to be the only building projects that are still able to turn a reliable profit for developers. If the luxury market becomes saturated with housing options, this could be bad news for developers.
Even in Brooklyn, where land values have historically remained relatively low, prices are climbing at an alarming rate. In just 5 years, between 2009 and 2014, land values in Brooklyn rose by a whopping 96 percent. In contrast, condo prices during this period rose only 67 percent.
The rising prices in Brooklyn have driven many developers to Queens, where land values are now also on the upswing. Thus far, the Bronx and Staten Island are the only boroughs that aren’t experiencing the trend of rapidly rising land values.
Some banks in the region are understandably worried about the impact of ballooning land values as well. Jordan Ray, managing director of Mission Capital Advisors, expressed these concerns in a recent interview with The Real Deal. “There are concerns about the long-term sustainability of condo prices, which would in turn affect the land prices.”
It remains to be seen how the market will settle out in the wake of the last five years’ remarkable land value growth. Stay tuned for more updates from Robert Khodadadian of Skyline Properties.