Yes, There Is a Brooklyn Real Estate Bubble, But It Isn’t Bursting
Over the last few years, the Brooklyn housing market has been the subject of close scrutiny by real estate analysts and speculators alike. Aside from being interested in the meteoric rise of property values, rents and the socioeconomic transformation of the borough, analysts are concerned about a possible housing bubble and how likely it is to burst in the near future.
In 2016, two reports by respected real estate firms have pretty much confirmed that Brooklyn is in the midst of a real estate bubble, but this does not mean that it is about to burst. There is evidence, however, that the housing market is getting close to being saturated, which may suggest that a downward adjustment could be experienced in the future.
Lots of Small Apartments
The first report was published in March by GFI Realty Services, part of GFI Capital, and it contained a few interesting highlights that support the idea of a bubble. The GFI report explains that the Brooklyn has been one of the most active American housing markets in terms of new construction. This being Brooklyn, new construction means that multifamily buildings are going up, and the new units are getting smaller.
The current apartment building schedule in Brooklyn suggests that 22,000 new apartments will be completed by the end of this decade. The problem is that demand for these new units, which are comparable in size with the tiny flats of Paris and Amsterdam, seems to be headed in a downward direction.
Lower Monthly Rent Payments
Another sign of a saturated housing market was delivered within a report published by respected real estate firm Douglas Elliman in August.
The Elliman report shows that median rental prices are down a full percentage point in a year over year basis. In the most luxurious buildings, prices have dipped as low as three percent since the summer of 2015, which marked a historical high for Brooklyn.
With more than 2,400 rental housing units on the market, current Brooklyn vacancies are beginning to resemble 2008, the year when Wall Street crashed due to the bursting of the housing bubble and the subprime mortgage meltdown.
While there is a correlation between lesser demand and lower rents, it is too early to forecast that the bubble will burst. After all, economic prospects and the labor market remain solid, and these two factors tend to be stronger than real estate speculation.
Elie Hirschfeld is a real estate developer in NYC.