A New New York: The Future of Housing is in Overlooked Neighborhoods
It’s almost always safe to assume that a landscape with quickly shifting values will translate to quickly shifting real estate priorities. For generations, enormous New York City real estate wealth has been created in areas that are rich in transit and accessible to Wall Street and Midtown, the primary central business districts (CBDs) in Manhattan. This map from 2015 demonstrates beautifully how prices per square foot have been sky-high in the core of Manhattan; dropped slightly in Western Brooklyn and Queens, which is a nice walk across the bridge or a quick hop by subway or ferry; and fell precipitously further out.
Thanks to the pandemic, Envelope expects that central business districts (CBDs) like Midtown and Wall Street will take years to transition from hollowed out, vacancy-filled husks of their former selves to vibrant communities that are more relevant for the 21st century. If we’re right, the real estate value of NYC’s priciest residential neighborhoods like Tribeca, Chelsea, Soho, Nolita, and the Upper West Side will suffer. Divorced from the requirement to be close to these economic centers, the convenience of these close-in neighborhoods may actually become a liability, pushing prices to sink farther and faster than the less-tony neighborhoods in the boroughs.
We expect these neighborhoods to recover, somewhat. There are enough wealthy owners, beautiful housing stock, high quality schools, parks, and other features to keep their sheen as they fight their way back. However, they may never again have the citywide primacy that they had pre-pandemic.
While these previously-desirable neighborhoods find a new equilibrium, there is a world of surprising new value in the farther-flung neighborhoods that may have charm, walkability, and ample local amenities, but that had been price-capped pre-pandemic by their lack of quick access to the CBDs.
Practically overnight, we flipped from a CBD-oriented city — where long-haul commutes were commonplace and Manhattan’s population doubled during working hours — to a loosely interconnected City of Villages, where each neighborhood is evaluated and priced primarily on its own unique character, shops + restaurants, parks, schools, and places to work — rather than its relationship to economic centers, or even transit.
Untethered from the shackles of CBD-accessibility, developers can cast a much wider geographic net to find these swathes of future value. Happily, there’s a lot still to be found in NYC, which is nowhere near fully built — by our calculations there are nearly 1.2b square feet of unused residential development rights in medium and high-density sites with 2.0 FAR+, with 33 distinct NYC neighborhoods *each* having more than 10m square feet of unbuilt additional potential.
Envelope force-ranked all NYC neighborhoods by unbuilt capacity under today’s zoning. In other words, without any upzoning, existing zoning laws allow for significantly more development throughout the city. While some of the more traditionally-thriving neighborhoods still have room to grow (BedStuy, Harlem, Chelsea, UES, Greenpoint), many more seem to have been overlooked by developers. Some of these have the bones of a 15-minute neighborhood, and the potential for significant land value growth with a bit of attention from policymakers and developers. We chose a few examples that matched these criteria, below, totaling 145m square feet of unused rights, or about 145k new dwelling units.
There are, of course, many forces at play in determining desirability of neighborhoods — quality of schools, existing housing stock, green space, walk- and bike-ability, cultural institutions, thriving commercial streets, reliable transit, developers who care about the neighborhood, and more. Breaking the bonds of our commute allows us to start exploring the potential of new neighborhoods with fresh eyes and a much lower cost basis. The future of NYC is bright, and far more affordable.
