In New York City, there’s always the Next Hot Neighborhood. It’s been Bushwick, Sunset Park/“Sunset Park West”, East New York, and even Midwood—and that’s just in the past few years. As prices continue to rise throughout the city, the hunt for affordability has never been more pressing. To assess where certain “hot” neighborhoods are in the gentrification cycle—because let’s be real, that’s what we’re talking about here—NeighborhoodX has crunched some data on neighborhoods like Astoria, Sunset Park, and Brownsville.
Including the neighborhoods above, NeighborhoodX’s graph charting price-to-rent ratio also explores Hamilton Heights, Ridgewood, Crown Heights, and Bed-Stuy. According to NeighborhoodX chief Constantine Valhouli, the thing that indicates how far along a neighborhood is in its gentrification cycle is the relationship of the neighborhood’s purchase price and rent price per square foot (ppsf). As the purchase ppsf becomes a high multiple of the rent ppsf, it indicates that deals are vanishing throughout the neighborhood as owners are moving in to capitalize on the area’s current lifestyle (rather than simply holding the properties to sell at a higher price later.)
"Purchase price per square foot gives a sense of what someone is willing to pay to own in a neighborhood. If people are willing to pay more to live in a neighborhood, it suggests that there is potential for housing prices or rents to increase, or that it is simply a very desirable place for an owner-occupant to live," Valhouli says.
When the ratio between purchase price and annual rent is low, as it is in Brownsville, it indicates that a neighborhood is still under the radar. It’s at this point, when the prices are low and rents are modest, that similar areas become attractive to investors. (No wonder that, as of December 2015, Brownsville, St. George, and Ridgewood topped the list for best neighborhoods for investors.) Valhouli notes that real estate in these areas is priced in a way that’s appealing to those willing to hold it as a long-term investment, rather than move in, in hopes that the neighborhood will gentrify.
On the flip side, when the purchase price is a much higher multiple of the rent, the building’s new landlords are getting much less in rent against the purchase price. This is true in neighborhoods like the East Village and Tribeca, where it makes less sense to purchase an investment property versus a place to live. (It is worth noting, however, that these numbers are imperfect owing to the rise of rental concessions. The actual rents may be less than the asking rents used as data here.)
According to NeighborhoodX’s numbers, Astoria and Sunset Park are much farther along in the gentrification cycle than Crown Heights and Bed-Stuy (though the price for single-family homes in Bed-Stuy has tripled since 2004.)
The graph below gives off more information on each neighborhood when it’s hovered over.
- Price/rent ratio for February 2016 [NeighborhoodX]