Smaller Manhattan Apartments Keep Getting More Expensive

This week, real estate appraiser, Curbed graph guru, blogger, newsletter writer, and columnist Jonathan Miller looks at how much it costs to "trade up" from a starter apartment.

A lot of time and energy has been spent writing about one of the biggest challenges to the New York City housing market in recent years: affordability. One of the primary observations of the purchase market has been the lower number of first time buyers, both locally and nationally. Tight credit, slow household formation, and a creaky economy have been a root cause of keeping their participation muted, but it's also the disproportionately higher price growth over the long term for smaller apartments. Here's my attempt to illustrate this trend, using data from the last 25 years.

Using the annual median sales price data from 1989 to 2014, plus 1Q 2015, I wanted to establish how large the leap was between size categories. Each of the four charts represents a 25± year window of trade-ups, i.e. the difference in median sales price between two adjacent apartment sizes: studio to one-bedroom, one-bedroom to two-bedroom, two-bedroom to three-bedroom, and three-bedroom to four-bedroom. The data was inflation-adjusted to extract a more reasonable comparison over time.

The largest gap was clearly seen in the first step of the trade-up process, the starter apartment. For the first quarter of 2015, the median price difference between a studio and a 1-bedroom after adjusting for inflation jumped 160.3 percent since 1989, the highest differential of all comparisons made. The one-bedroom to two-bedroom trade-up was 60.2 percent more expensive, the second largest jump. However, the bigger apartment categories saw only modest changes in the additional trade-up cost over the 25-year period.

Since the late 1980s, a limited amount of smaller apartments like studios and one-bedrooms, and even modest sized two-bedroom apartments have been added to the owner-occupied housing stock, despite the growth in population. The last two booms have seen plenty of three-bedroom and four-bedroom units being added to the mix, but not very many smaller apartments.

So, yes, Manhattan is getting more expensive, but even more so for smaller apartments.
· All Three Cents Worth [Curbed]
· Miller Samuel [official]