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Three Cents Worth: $3,000 is the new $1,500 in Manhattan

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[This week, real estate appraiser, Curbed graph guru, blogger, and podcaster Jonathan Miller addresses the age old question: co-ops, condos, or new development?]

Given all the hype about new development product entering the listing-starved Manhattan market over the next couple of years, I thought I'd take a look at the market share of co-ops and condos over the last decade (the boom and bust era), but in a different way. For the uninitiated, Manhattan co-op housing units outnumber condo units 3:1 (i.e. 75 percent v. 25 percent market share).

I trended the market share of co-op (pink) and condo (purple) listings (whose intersection resulted in a Rorschach diagram) with an overlay of new development sales market share (blue). I think this week's chart turned out to be more of an infographic since much of the narrative is already in the post.

Some top line observations:

2003-2006: Condo market share surged as new development activity jumped to more than 50 percent of all sales, initiating the onset of shadow inventory as prices peaked in 2007-2008 and sales volume fell.

2007: Product entering the new development pipeline essentially ended as construction lending dried up. Lehman marked the contraction of consumer credit to buy individual units.

2009: The pipeline containing roughly two years of product ran dry (I'm exaggerating a bit) and shadow inventory was eventually absorbed through re-pricing and re-purposing over the next two years.

2012-2013: New development activity begins to ramp up again, but this time it's different (I know, I know). The current product is much larger and higher end than the last new dev boom, which means a smaller number of overall units that are roughly targeting the top 10 percent of the market ($3M+). However, that means it won't provide inventory relief to the remaining 90 percent of the market unless something changes in a big way.

To describe the upcoming new development boom: $3,000 per square foot is the new $1,500 per square foot. Ten years ago I remember the magic average number for a new development project's viability was around $1,500 per square foot early on. Because of the cost of development sites, land owners have doubled down and now the number is closer to $3,000.

In each successive new development boom (1980's investor, 2000's family, and 2010's super luxury) the target income demographic has risen because assemblage costs were higher. If this becomes another new development boom as it is shaping up to be, I'm not sure where we go from here, since we've seemingly reached the top of the new dev income demographic.
· Matrix [matrix.millersamuel.com]
· Three Cents Worth archive [Curbed]