The economic viability of micro units in New York City : when the market wants to build big

Abstract

Micro-Units are tiny apartments which are currently being discussed, developed, or prototyped in several major American cities. This thesis examines the assumption underlying the push to change regulations to allow micro units: developers will want to build them. To do this it looks at how price/square foot changes with unit size across New York City. Two data sets are used: NYC Multifamily Building Sales Transactions from 2003-2012 and Condo Sales data from 2003-2012. Together there are 69,976 usable data points. Linear regression analyses find, unsurprisingly, most Manhattan neighborhoods place a significant premium on large units. It does not find a parabolic shaped function either; there is no premium also placed on small units in most Manhattan neighborhoods. There is, however, such a premium in many Brooklyn neighborhoods, suggesting some neighborhoods in the outer boroughs may be a more economically viable location for micro units. It also cautions an as-of-right allowance of small units could spur these developments in unanticipated neighborhoods, with unintended or possibly unsafe results. Last, and perhaps most significantly, it plainly captures the runaway trend of luxury building in Manhattan that has been spurred primarily by global, second home, and investment buyers. The demand for micro-units will probably be ubiquitous; the problem will not be finding people to live in the apartments, but rather finding somewhere they will not be outbid by luxury developers. If policy changes are not made, Manhattan and perhaps all of New York may not be attainable to any but the richest of residents.