COVID Takes a Toll on New York City’s Real Estate Market

The pandemic has had an impact on New York City’s housing market, according to a study released Thursday, leaving more vacant homes on the market in the city than before the pandemic. As city residents relocated to the suburbs, homes in the New York metro area are in greater demand, the study found.

The report, conducted by the New York City’s Department of City Planning and Zillow Inc., a real estate listing website company, was presented last Thursday on Zoom with a panel of city planning officials and Zillow economists. The panel discussed the study’s complex findings that showed that New York City and the greater New York metro area are undergoing a shift with more people opting for homes in the suburbs and leaving apartments in the city empty. The experts believed that one of the reasons that this was happening was because companies opted for employees to work remotely during the pandemic.

April 13, 2021. Higher-tier rentals like luxury apartments have been impacted more than lower-tier rentals during the pandemic. (Photo by Sarah Chung for NY City Lens)

Many in the industry expected these market findings as a result of COVID’s impact, but Thursday’s study further narrowed and centralized the diverging views among real estate experts.  The findings were supported by large data sets of home listings from Zillow only and intra-regional analysis.

“The vitality of our metropolitan region has historically relied upon the symbiotic relationship between the city and our suburbs and we’ve seen that balance shift back and forth throughout the last half-century,” said Dara Goldberg, assistant director of the NYC Department of City Planning.

The Zillow team also pointed out that many of the residents that remained in the city lived in lower-tier rentals. The market for these more affordable apartments, consequently, remained steady. Some of the panelists argued that the city needed to address the inequities inherent in that situation.

“With each area making important contributions to the region’s overall housing supply, shrinking inventory, increased demand, and rising prices are a sign that we are not flexibly and equitably accommodating the housing needs of a diverse population,” Goldberg added.

In 2020, according to the study, there were fewer homes available in the greater New York City metro area–about 19 percent less than the year before the pandemic. But the opposite trend prevailed in the city itself, where there were about 7 percent more homes available compared to the year before.

In 2019, about 85 percent of the new unit in the entire tri-state area were being built in New York City and in northern New Jersey.  Growth of a million jobs had also been concentrated in New York City, so demand in the city for housing was high compared to the suburbs.

But with COVID, everything changed—the demand for housing shifted from the city to the suburbs, driving prices in the suburbs up.  And an existing mismatch between housing availability and job growth projections could not keep up with shift, said Goldberg. Lagging new construction had also been a huge factor in the disproportionate housing needs of NYC and its suburbs, she argued. In that sense, the pandemic exacerbated the availability—and affordability—of housing in these areas, according to Goldberg.

April 11, 2021. Office spaces have remained to stay empty as many companies opt to stay remote. (Photo by Sarah Chung for NY City Lens)

In fact, New York City had 7% more homes available for purchase and 19% fewer homes available for purchase than the rest of the NYC Metro, according to the study.

Overall, home sales in  New York City and its surrounding regions dropped during the pandemic.  NYC experienced the steepest decline, but the drop in home sales in the greater metro area dropped less precipitously.  The city’s home sales dropped 24 percent compared to the year before, whereas the suburbs only dropped six percent, according to the study.

Not surprisingly, the New York City housing market was not the only area in the country affected by the COVID pandemic.  The inventory of available homes for purchase fell by 27 percent in the United States as a whole, said the study, while sales showed no significant change.  In New York City and the greater metro area, however, new home sales experienced a cut back of six percent compared to 2019.

Rentals in New York City’s most expensive neighborhoods also declined during the pandemic, said Alexandra Lee, an economist for Zillow. Her explanation: the growing number of employees working remotely who opted to leave the city.   Perhaps, she argued, they were not willing to pay the premiums to live near city amenities such as theaters and restaurants since they were not accessible during the pandemic anyway, according to Lee.

Not every metro area had been affected in the same way, however, said Lee. Expensive markets like New York and San Francisco encountered softer demand for homes, and, consequently, witnessed a greater supply of vacant homes. In more affordable urban areas, such as Kansas City and Cleveland,  the opposite was true.

“This boils down to the relative affordability of urban versus suburban areas in different metros,” said Lee.

The rental market also revealed that there was a greater impact on vulnerable populations in many urban areas like New York. Rentals held steady in less affluent neighborhoods in the city whereas more affluent neighborhoods showed a steep decline, according to Trey Manhertz, another team economist at Zillow.

“We might attribute this to the fact that lower-income renters tend to have jobs that are less remotable,” said Manhertz.  And so they’re less likely to have the ability to leave the city,” he added.

How all this will shake out in the months to come is still unclear and depends on how the pandemic will unwind, many of the panelists agreed. “You know, I think that we’re eager to see how widespread vaccine distribution, and as the economy stabilizes, and as people sort of return to these core cities, what that recovery will look like,” said Zillow’s Lee.