Real eState

The ‘prophet of urban doom’ says a 1970s-style ‘doom loop’ is here for New York City, and it’s just the first inning of the ballgame – Fortune

Published

9 months ago

February 25, 2024

As nicknames go, Columbia Business School professor Stijn Van Nieuwerburgh has a doozy. The gray lady herself, The New York Times, dubbed him the “prophet of urban doom” last year for his forecasts resulting from his years of research on the economic impact or remote work on real estate and public finance.

Now, he tells Fortune, he sees an “event horizon” for a 1970s-style downward spiral known in the economics profession as a “doom loop.” And it’s just the first inning.

Everyone knows office buildings across the country have taken a beating from Covid and the rise of remote work. Perhaps only San Francisco is a better example than New York City, where the amount of offices collecting dust is at a record high: almost 20% are sitting empty, hemorrhaging money and shrinking the city’s tax base.

More economists than Van Nieuwerburgh say that the effects could reach far beyond just the real estate sector: Without drastic changes, he says, NYC could be headed for a self-perpetuating “doom loop” that will affect everything from housing values to public services budgets to the crime rate. The most famous example is the 1970s, when “white flight” and a fiscal crisis sent New York into a slump that it didn’t kick for over a decade.

It’s a simple equation, Van Nieuwerburgh said in an interview with Fortune, “Governments cutting spending means less money for transportation, less money for education, for sanitation, for all the things that make cities attractive.”

Van Nieuwerburgh, who joined Columbia in 2018, just a few years after winning an award for his research on shocks in the housing market affecting the macroeconomy, sees the “event horizon” for this doom loop coming soon. As federal grant money runs out and delayed tax effects kick in, he says New York is in the “first inning” of what could spiral into a legitimate urban crisis.

“Over the next three to five years, we’re really going to start seeing this. This cycle is out of control.”

Delayed effects

Remote work has upended the traditional market for urban office space. Studies show that about 30% of paid days are worked from home, a number that trends even higher for more urban sectors such as tech, media and advertising. Commercial property owners are struggling to break even as demand for office spaces has fallen, hurting rents and property values.

The kind of offices that companies want are changing, too. To entice workers back in person, companies are seeking out smaller, newer offices with more amenities and benefits, Fred Cordova, CEO of real estate consultancy Corion Enterprises, told Fortune. That’s putting pressure on the middle-ground (and newly vacant) office buildings that have for years been the backbone of the urban commercial real estate sector. The timing couldn’t be worse.

“A lot of these buildings were purchased after the great financial crisis, in 2013 and 2014. Most of those loans were 10-year loans. So there are almost a trillion dollars of loans coming due,” said Cordova. “There’s no way to refinance … most of them probably can’t pay their debt.”

On top of that, the federal money that poured into the sector to prop it up during Covid is starting to run out, which could usher in a string of defaults. And because of gradualism built into the tax code, comptrollers are just about to start feeling the full effects of the wave of defaults that started a few years ago, said Van Niewerburgh.

That’s what has city budget watchers so worried. Falling commercial property values are already lowering building owners’ tax payments. But struggling commercial owners not being able to pay off their debts—or, potentially, their taxes—could send shockwaves far beyond the real estate sector. New York City generates a little below 10% of its tax revenue from commercial properties, and any meaningful decline to that revenue source would hurt budget expenditures across the board, Van Nieuwerburgh said.

Sending shockwaves

The banking sector, which has high exposure to commercial property, is also under pressure from beleaguered property values. The biggest banks are mostly safe, but much of New York’s commercial property debt is held by smaller regional and local banks that lack the capital to hold on for much longer if vacancies rise and property values continue to fall. Van Neiuwerburgh said that banks own about half of the $6 trillion in commercial real estate debt in the United States—but of that half, 70% is owned by small, regional banks.

“Some of the local banks, the community banks that are overexposed … they’re going to get killed,” said Cordova.

The crux of the “doom loop” theory is that it’s self-perpetuating. If vacancies rise and property values fall, cities can’t collect as much in tax revenue and overexposed banks have to cut back on lending. That means less public spending on things like transit, sanitation and public safety, and less investment in small businesses. A dirtier, more dangerous and less accessible downtown is less likely to attract companies and remote workers, meaning vacancies will rise even more and property values will fall further. Wealthy residents could throw in the towel and move their families (and tax dollars) to low-tax states like Texas or Florida. And thus, the cycle repeats itself.

“The money is now running out, or it has run out. This is the first year where we don’t see extra federal dollars anymore. That’s beginning to bite…[And] the vacancy rate is already at an all-time high,” said Van Nieuwerburgh. “That combination packs a pretty severe punch.”

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Real eState

Greater Toronto home sales jump in October after Bank of Canada rate cuts: board

Published

1 day ago

November 6, 2024

Anne Joseph

TORONTO – The Toronto Regional Real Estate Board says home sales in October surged as buyers continued moving off the sidelines amid lower interest rates.

The board said 6,658 homes changed hands last month in the Greater Toronto Area, up 44.4 per cent compared with 4,611 in the same month last year. Sales were up 14 per cent from September on a seasonally adjusted basis.

The average selling price was up 1.1 per cent compared with a year earlier at $1,135,215. The composite benchmark price, meant to represent the typical home, was down 3.3 per cent year-over-year.

“While we are still early in the Bank of Canada’s rate cutting cycle, it definitely does appear that an increasing number of buyers moved off the sidelines and back into the marketplace in October,” said TRREB president Jennifer Pearce in a news release.

“The positive affordability picture brought about by lower borrowing costs and relatively flat home prices prompted this improvement in market activity.”

The Bank of Canada has slashed its key interest rate four times since June, including a half-percentage point cut on Oct. 23. The rate now stands at 3.75 per cent, down from the high of five per cent that deterred many would-be buyers from the housing market.

New listings last month totalled 15,328, up 4.3 per cent from a year earlier.

In the City of Toronto, there were 2,509 sales last month, a 37.6 per cent jump from October 2023. Throughout the rest of the GTA, home sales rose 48.9 per cent to 4,149.

The sales uptick is encouraging, said Cameron Forbes, general manager and broker for Re/Max Realtron Realty Inc., who added the figures for October were stronger than he anticipated.

“I thought they’d be up for sure, but not necessarily that much,” said Forbes.

“Obviously, the 50 basis points was certainly a great move in the right direction. I just thought it would take more to get things going.”

He said it shows confidence in the market is returning faster than expected, especially among existing homeowners looking for a new property.

“The average consumer who’s employed and may have been able to get some increases in their wages over the last little bit to make up some ground with inflation, I think they’re confident, so they’re looking in the market.

“The conditions are nice because you’ve got a little more time, you’ve got more choice, you’ve got fewer other buyers to compete against.”

All property types saw more sales in October compared with a year ago throughout the GTA.

Townhouses led the surge with 56.8 per cent more sales, followed by detached homes at 46.6 per cent and semi-detached homes at 44 per cent. There were 33.4 per cent more condos that changed hands year-over-year.

“Market conditions did tighten in October, but there is still a lot of inventory and therefore choice for homebuyers,” said TRREB chief market analyst Jason Mercer.

“This choice will keep home price growth moderate over the next few months. However, as inventory is absorbed and home construction continues to lag population growth, selling price growth will accelerate, likely as we move through the spring of 2025.”

This report by The Canadian Press was first published Nov. 6, 2024.

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Real eState

Homelessness: Tiny home village to open next week in Halifax suburb

Published

2 weeks ago

October 24, 2024

Anne Joseph

HALIFAX – A village of tiny homes is set to open next month in a Halifax suburb, the latest project by the provincial government to address homelessness.

Located in Lower Sackville, N.S., the tiny home community will house up to 34 people when the first 26 units open Nov. 4.

Another 35 people are scheduled to move in when construction on another 29 units should be complete in December, under a partnership between the province, the Halifax Regional Municipality, United Way Halifax, The Shaw Group and Dexter Construction.

The province invested $9.4 million to build the village and will contribute $935,000 annually for operating costs.

Residents have been chosen from a list of people experiencing homelessness maintained by the Affordable Housing Association of Nova Scotia.

They will pay rent that is tied to their income for a unit that is fully furnished with a private bathroom, shower and a kitchen equipped with a cooktop, small fridge and microwave.

The Atlantic Community Shelters Society will also provide support to residents, ranging from counselling and mental health supports to employment and educational services.

This report by The Canadian Press was first published Oct. 24, 2024.

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Real eState

Here are some facts about British Columbia’s housing market

Published

3 weeks ago

October 17, 2024

Anne Joseph

Housing affordability is a key issue in the provincial election campaign in British Columbia, particularly in major centres.

Here are some statistics about housing in B.C. from the Canada Mortgage and Housing Corporation’s 2024 Rental Market Report, issued in January, and the B.C. Real Estate Association’s August 2024 report.

Average residential home price in B.C.: $938,500

Average price in greater Vancouver (2024 year to date): $1,304,438

Average price in greater Victoria (2024 year to date): $979,103

Average price in the Okanagan (2024 year to date): $748,015

Average two-bedroom purpose-built rental in Vancouver: $2,181

Average two-bedroom purpose-built rental in Victoria: $1,839

Average two-bedroom purpose-built rental in Canada: $1,359

Rental vacancy rate in Vancouver: 0.9 per cent

How much more do new renters in Vancouver pay compared with renters who have occupied their home for at least a year: 27 per cent

This report by The Canadian Press was first published Oct. 17, 2024.

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