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Three Cents Worth: You Think This Is A Development Boom?

[Special treat this week from our graph man Jonathan Miller: a look back at the 80's for some perspective on today's "condo fever." The graph below shows the total number of new Manhattan condos and co-ops (conversions and new construction) in each year from 1985 to 2008 (estimated figures in pink). The y-axis runs from 0 to 30,000 units. Click on the graph for a giant version.]

It seems that a new development is going up on nearly every other block in Manhattan these days. This observation, along with all the talk these days about a weakening real estate market, has caused some buyers to express concern. So, today I thought it would be interesting to illustrate the supply side of the supply and demand equation: How much new supply is there, and how does that new supply rank historically?

In the chart, I looked at the total number of new co-op and condo units that entered the market each year, whether by conversion from rental, conversion from commercial, or new construction. The results are startling. About five times more new units entered the market in the 80s than in the current decade.

The supply that came online 20 years ago was in the form of rental-to-co-op conversions and 421a-tax-abatement-incentivized condo developments. This new supply entered the market so quickly and in such large numbers that it took more than seven years to absorb. We live in a far different situation in 2005.

The key reason for the change is that the conversion market is much slower today, since much of the housing stock that made economic sense to convert was already converted. There has been a modest uptick in rental conversion to condo but today's numbers are largely new developments or commercial to residential conversions.
· Co-op and Condo Units Entering Manhattan Residential Market [Miller Samuel]
· That 80's Show: Rentals Going Condo [Matrix]