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Here's How a Trump Presidency Could Affect the City's Real Estate Market

By Amy Zimmer | November 15, 2016 4:43pm
 A view of Manhattan's east side, with the copper-tinted Trump World Tower a few blocks north of the United Nations.
A view of Manhattan's east side, with the copper-tinted Trump World Tower a few blocks north of the United Nations.
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DNAInfo/Amy Zimmer

MANHATTAN — A New York City developer will soon be in the Oval Office.

From his glass perch in Trump Tower, at Fifth Avenue and 56th Street, to other buildings like Trump SoHo on Spring Street and Trump World Tower near the United Nations, President-elect Donald Trump’s signature is stamped across the city skyline.

His son-in-law, Jared Kushner, who is reportedly playing a significant role on his transition team, is also a major developer here, with trendy projects like the Puck Building on Lafayette Street, Williamsburg’s Austin Nichols House at 184 Kent Ave., and Etsy’s new headquarters in DUMBO's former Watchtower building.

It remains to be seen, however, what having New York City developers in positions of national power means for the city’s local housing market.

While many developers based here may be looking forward to big tax cuts promised to the nation’s top earners, other ripple effects that could hamper a market that is already seeing a bit of a slowdown.

“If you’re in real estate development, you don’t believe it’s going to have a negative impact,” said Zach Ehrlich, CEO of Mdrn. Residential. “But the New York market is affected by currency exchange and market fundamentals,” he added, noting that the market here was already starting to slow down before the election and that the dollar had already started to rise, making it harder for foreigners to invest.

“We’re 7 years into an expansion, and the average expansion lasts 7 to 9 years,” Ehrlich believes.

Here’s what people are talking about when it comes to the president-elect:

1. Uncertainty about the market will likely linger.

During the run-up to the election brokers noticed a pause in the market, with sellers and buyers putting things on hold, as is often the case during time of political uncertainty, many said.

This might continue for a while.

“The uncertainty will remain into next year as policy changes continue to shake out,” real estate expert Jonathan Miller said.

“It's beginning to look like there will be a lot of deficit spending such as infrastructure,” he noted, which means that interest levels could rise to “more normal levels” up from the historic lows we’ve been seeing the last few years.

“In the short term that could slow volume and price growth,” Miller said. “In the long term it could help ease credit conditions which would help normalize the housing market.”

2. People were likely putting decisions on hold anyway.

Once we head into the holiday season, the real estate market typically slows down — which is why brokers often advise renters looking for deals to search in November.

“This time of year, you tend to stay indoors after work,” said Aleksandra Scepanovic, managing director of Ideal Properties Group, which specializes in Brooklyn neighborhoods. “You’re probably doing preparation for Thanksgiving and you’re more likely to be more of a homebody.”

The added layer of the election only compounds this impulse, she believes.

3. The rental market could see a boost as interest rates rise.

Interest rates — which have already jumped sharply one week post-election — might also change the “rent versus buy” calculus for many New Yorkers.

“Interest rates impact almost everything in real estate, including how much the owner must pay to also carry a mortgage, and how much buying power potential purchasers can bring to the table,” Lee Lin, co-founder of the online rental platform RentHop, wrote in a blog post. “When looking at the rent vs. buy tradeoffs, renting will likely seem better as interest rates rise.”

4. Foreign investment in real estate might dip.

Because low interest rates the last several years made it cheaper to borrow, investors saw a quicker return on investment, which in turn propped real estate values up, said Larry Link, president of the Level Group. 

But as rates jump, investors won't see returns as quickly and values will drop. Along with general fears about uncertainty, this is resulting in “caution” on the part of foreign investors, especially those who viewed New York City’s real estate market as a safe haven to park their money, Link said.

His firm’s team focused on the hospitality industry noticed an immediate pulling back of foreign investors in hotels the day after the election, he said.

“They are very concerned that the risk and uncertainty is not fully factored in, so they’re hitting the pause button,” Link said.

Having someone with such a "brash" style in the Oval Office might also create more “hostility” toward the U.S., Ehrlich said.

“There’s going to be a different dialogue with other countries,” he said, noting that could affect foreign investment.

5. Inflation could hurt renters and developers.

With Trump's promises of tax cuts and possible big spending on various projects — without concrete plans to balance the budget increase — many experts are predicting inflation.

That means the nominal rent is expected to go up, while wages tend to be “a bit stickier when the prices of everything else is increasing,” Lin said. “Bottom line, you are unlikely to get a raise at work that properly match your rent, healthcare, insurance, and food costs, so plan ahead.”

Also, if Trump is able to change international trade policies and increase tariffs on imports, it could drive up the cost of goods and labor here, Link said.

That could have a significant impact on the city ability to construct new housing, he believes, especially as costs for labor and materials have already been increasing.

“If you have increased protectionist policies, it can increase inflation and lead to lower real estate investment and development,” Link said.

6. Immigration policies could hurt the market, too.

Trump’s campaign promises to limit immigration could effect the construction industry, which relies heavily on immigrant labor, many say.

“Any job site in New York City, especially smaller non-union sites, there is a large proportion of new and recent immigrants,” Link said. “If there are policies aimed at blocking immigrants, or worse, of the deportation of law-abiding immigrants, it could lead to greater shortages of labor in construction and increase the cost of labor.”

But James Parrott, of the Fiscal Policy Institute, found that the growth of jobs in New York going to immigrants in the 1990s and 2000s has largely leveled off in the last decade. Even in the construction industry, native-born workers — including many second-generation New Yorkers — have been getting more jobs than immigrants, according to the data, he said.

7. People will seek comfort.

People seek comfort when faced with the unknown, and how this affects their real estate decisions remains to be seen, said Lynn Saladino, a psychologist who does wellness workshops for agents at Mirador Real Estate.

“Sometimes when things get a little uncertain, people gravitate toward things that are comfortable,” she said. “I don’t know how that will impact how people will move or not move, but a lot of times when people are fearful, they make sure they’re around friends and family.”

People, she said, want doughnuts in times like these.

Perhaps, we can expect more kitchen renovations.

8. Trump could prop up development.

Trump talked about investing in infrastructure on the campaign trail, which didn’t surprise many real estate experts.

“Once a developer, always a developer,” Scepanovic said, adding that besides focusing on infrastructure, “He’s sure to be sympathetic to developers.”