Construction continues at a breakneck pace on the many, many new developments throughout Brooklyn, including megaprojects like City Point and Pacific Park, but the high number of apartments coming onto the market has some wondering: is this pace sustainable? In a report in the Wall Street Journal, some real-estate experts have suggested that there's a "softening" of the Brooklyn market, with supply outpacing demand.
What happened? A few things: There are a lot of new developments being built in the borough, adding an unprecedented number of units to the market—more than double the number of units will be ready for occupancy in 2015 than were available in 2012. And in 2016, the number will get even higher: a whopping 4,990 units are expected to be available, surpassing the recent high of 3,282 in 2008.
There's also the issue of what types of units are coming onto the market. Developers in Brooklyn are focusing largely on luxury apartments, which, according to the WSJ, are "intensifying competition for the same pool of moneyed millennials, hip techies and so-called broken-hip-sters, empty nesters and baby boomers flocking to the urban core." (Oh boy.)
This means that demand for both non-luxury units, and units that would typically be at the lower end of the price scale, is up—which, in turn, drives rents up.
With the growth in supply coming at the luxury end, the entry level is seeing more demand-fueled rent increases, said Jonathan Miller, president of appraisal firm Miller Samuel. The median rental price for Brooklyn studios soared 15.4% in July over the previous year, he said. But for luxury units at the top 10% of the market, median monthly rent edged down 3.4% to $5,347.
Apartments have also been staying on the market longer—particularly in areas like Downtown Brooklyn and Red Hook, which traditionally have not been viewed as "attractive and accessible" to renters. It's kind of the perfect storm of issues for both renters and developers.
Predictably, Brooklyn boosters are spinning the overwhelming supply in a positive way. "The big-bang theory says the universe exploded from the center and continues expanding," Brooklyn borough president Eric Adams told the WSJ. "The same can be said of Brooklyn."
But other experts aren't quite as bullish: Drew Babin, senior research analyst at Robert W. Baird & Co., noted that developers "tend to overdo it," which could lead to trouble for developers and residents alike. "New supply can eventually kill rent growth, and you're seeing an overhang of new supply in Brooklyn."
UPDATE: Tucker Reed, the president of the Downtown Brooklyn Partnership, rebutted the claims in the WSJ's article in a statement, saying that it "paints an inaccurate picture of housing supply and demand in the borough and the city as a whole and warrants additional commentary."
First, the demand for housing in Downtown Brooklyn exceeds available supply, as evidenced by the most elementary data points—rising rents and land values. Further, nearly all of the 6,700 units built in Downtown Brooklyn since the 2004 rezoning have been absorbed, leaving negligible current inventory for buyers and renters looking to enter the market. If anything, we suffer from a lack of available product today.
While an additional 5,200 units in construction and another 7,700 units in the pipeline represent a significant increase in available housing coming online in the next three to five years in Downtown Brooklyn, there is no evidence of an imminent and significant leveling off of demand (these housing figures and more can be found in our most recent Downtown Brooklyn Real Estate Market Report). In fact, as the borough continues its ascent as a globally recognized destination, there are only a few neighborhoods in Brooklyn whose flexibility in zoning allows for significant increases in density, with the rich transit infrastructure to rationally support it.
Finally, Brooklyn, like the rest of New York City, is facing a housing crisis. In a report referenced in The Wall Street Journal on June 10, 2013, Columbia University's Center for Urban Real Estate estimates that New York City's population will grow by 1 million residents by 2030 – 35% faster between now and 2040 than from 2000 to 2010. This would translate to 5,500 new residents a month, every month, for the next 15 years. · Brooklyn's Possible Housing Glut [WSJ]