An analysis by the online real estate database company StreetEasy finds notable disparities among Lower Manhattan neighborhoods in the lengths of time that rental tenants would need to own the same apartment before breaking even.
The report, by Grant Long, StreetEasy’s senior economist, defines this “tipping point” as, “the point in time in which the benefits of owning a home exceed the benefits of renting that same home.” For the five boroughs of New York City as a whole, this median for this tipping point is 5.6 years, based on data from the first quarter of 2017. This is a full 12 months longer than the same period last year, a change that Mr. Long attributes to, “a combination of rising mortgage rates and higher home prices in many parts of the city.” For Manhattan as a whole, the time needed for a home purchase to pay off has increased by 18 months, to 7.7 years, Mr. Long finds.
But across Lower Manhattan, the news is both worse and better. For residents of the Financial District, the tipping point comes after 11.4 years, and for renters in Tribeca, the period is a full 20 years. In Battery Park City, however, the same turning point comes after only 4.3 years.
Why the disparities? The short interval for Battery Park City appears to be the result of several market distortions. First, the neighborhood has exceptionally high rental prices. A separate report, issued in May by the RentCafe real estate blog (using data compiled by RentCafe’s sister company, Yardi Matrix) found that residential buildings in northern Battery Park City (between Vesey and Chambers Streets) currently charge the highest average rents anywhere in the United States. The premium commanded by rental units in Battery Park City is likely driven by the unmatched quality of life available within the neighborhood, especially for families with young children.
Under ordinary circumstances, such high rents would inevitably translate into similarly inflated prices to purchase apartments. In Battery Park City, however, this appears not to be the case. One reason why may be found in the exotic nature of property ownership in the community, where homeowners, landlords, and developers do not own outright the land they occupy, but instead lease the space (through the year 2069), in exchange for yearly payments of ground rent, as well as so-called “payments in lieu of taxes.” Concerns about this arrangement have grown acute in recent years, as more residents have come to realize that, under the current terms of the ground lease, their homes will disappear in 52 years, as ownership of all the real estate in Battery Park City reverts to the Battery Park City Authority. For condominium owners, this will mean that their property is effectively confiscated, while renters will face the prospect of eviction. Both owners and tenants will be rendered homeless under this scenario.
For condominium owners (who have begun to struggle under the increasing burden of steadily rising ground rent payments), concerns about this arrangement are becoming acute. Although apartment values in Battery Park City have risen in recent years, the have done so less aggressively than the prices of comparable homes elsewhere in Lower Manhattan, for which the financial future is not clouded by the encumbrance of a ground lease.
This disconnect — between market forces that are driving up rental prices, but simultaneously hampering increases in purchase prices — appears to be one factor fostering such an anomalously quick “tipping point” of benefits for residents who choose to stop renting and instead buy an apartment in Battery Park City.
In the two adjacent communities, Tribeca and FiDi, however, market dynamics that usually march in lock step have not been decoupled in the way they have been in Battery Park City, and thus rents that are much higher than average for the City as a whole catalyze purchase prices that are similarly vertiginous. And this relationship gives rise to the longer times necessary to reach the tipping point cited by Mr. Long.
To read the original analysis upon which this article is based, please browse: streeteasy.com/blog/nycs-tipping-point/