A recent article on northjersey.com, grabbed my attention with the headline…NJ homebuilding up 39 percent over 2012 pace.
But after reading the story and analyzing the numbers, the real headline should have been…Will new rentals sink Bergen County home sales?
Let’s look at some facts:
Multi-family construction is not the same as “homebuilding”, when you’re talking sales and construction figures. Yes multi-family units are housing in a true sense, but most of the pros like Case-Shiller, separate multi-family units form single family home sales. Media outlets such as CNBC, the New York Times and others also separate the two different types of housing when they’re presenting market stats.
- Multi-family rentals like the new high rise rental building shown here, is competition for single family home sales, because they take potential home buyers from the market for an extended period of time
As the Ms Lynn points out:
Through August, builders took out 15,842 building permits, compared with 11,364 in the same period last year. Multifamily construction accounted for about 59 percent of the activity.
“Multifamily construction is what’s driving the bulk of the expansion in New Jersey,” said Patrick O’Keefe, an economist with CohnReznick, an accounting and consulting firm with offices in Roseland. Multifamily rentals are in high demand as tight mortgage standards keep many households out of the purchase market. In addition, banks are much more willing to lend to builders for construction of rentals, rather than for-sale properties.
But here’s where this will most likely take a nasty turn, and cause home sales to decrease: Just under 16,000 building permits sounds great, but when you break down the type of housing, multi-family rentals accounted for almost 60% of the volume. One would have to imagine that 9,600 rental units will take a major number of would be buyers out of the marketplace. And in areas such as Tenafly and elsewhere in eastern New Jersey where large scale homes building has all by disappeared, (leaving only old and outdated homes to choose from)…the loss of buyers could have a devastating effect on future home sales for the coming years.
Will these rentals become a suburban market killer?
“People are becoming renters by choice,” said BNE Executive Vice President Jonathan Schwartz. “People want to be closer to the city, nearer commuter areas.” And many households are wary of buying a single-family home after seeing property values plummet during the housing bust, he said
BNE understands this all too well…the project mentioned in this article because their project in Fort Lee (the 316 unit Twenty50 building) was originally slated to be a for sale building. They obviously changed to rentals because the, for-sale-condo-market still hasn’t recovered in New Jersey, and most people are looking to rent rather than to purchase condos.
New rentals in Fort Lee:
- Twenty50….316 units
- The Modern….two highrise towers….900 units
- Hudson Lights…200 units
The ripple effect:
In these three projects alone (which sit next to one another in Fort Lee) 1,416 new rental units will come on the market by the end of 2014 (Twenty50 is already leasing units). Not only will these new rentals take buyers from the market, but it will also take renters away from the older high rise buildings in Fort Lee. Which in turn will cause those rents to decrease. And when you consider the thousands of new rentals that are coming on line in Edgewater, North Bergen, Weehawken, Hoboken and Jersey City the problem intensifies in the for sale market for the surrounding markets like Englewood, Tenafly, Cresskill and so on.