COVID will end, but land uses will be changed forever

Here to stay: The pandemic will eventually end and the booming seller's market might not last, but COVID-19 will have lasting effects on regional land-use priorities, according to attorney Michael Sahn.

The pandemic is dramatically changing the real estate market across Greater New York and the nation, with long-ranging (and long term) impacts on infrastructure, land use and economic development.

For starters, the pandemic has convinced many city dwellers to seek the suburban lifestyle. COVID has supercharged single-family homes purchases in traditional suburban subdivisions and created a seller’s market on Long Island, where demand exceeds supply and prices are skyrocketing.

Meanwhile, the New York City real estate market is collapsing, with declining sales prices and rents, wide-spread vacancies and decreased investment in new projects.

From a historical perspective, the suburban landscape surrounding NYC – single-family homes in planned subdivisions – is rooted in the development of Levittown after World War II. Levittown became the model for planned communities for returning servicemen and their families, “bedroom communities” for people who worked in the city.

This led to new infrastructure that served these suburban communities – regional railroads, arterial highway networks, school districts and other special districts focused on retail, commercial development, water conservation, sanitation and more.

Michael Sahn: Changing landscape.

Before COVID, New York City and other urban centers enjoyed strong real estate markets. The appeal of the city lifestyle, with its social and cultural opportunities and lack of long commutes, has always fueled demand in NYC’s real estate markets.

Suddenly, people are seeking the single-family lifestyle outside of cities, in less-dense communities, with space to spread out and accommodate remote work from home.

The National Association of Home Builders reports that COVID is influencing housing decisions across the country. Over the third quarter of 2020, according to the NAHB, 13 percent of Americans were considering a home purchase over the next year, a rare year-over-year increase; other sources note a multigenerational push to buy, with Millennials out in front.

Prospective buyers also have greater interest in new homes compared to existing homes. According to NAHB, for the first eight months of 2020, national single-family home-construction permits increased 6.9 percent over 2019, while sales of new homes in August increased at an annual rate of only 4.8 percent.

This while Long Island home prices jump into record-setting territory and monthly closed sales across LI rise fast.

There are bidding wars for homes. Limited inventory is convincing buyers to purchase houses in need of serious renovation. Also increasing are rentals of single-family homes, with rent prices on the rise.

These trends may not last. But they still have significant implications for land-use planning and other economic-development considerations.

Spiraling home prices and rents may become big obstacles to many buyers who cannot afford the higher prices. On Long Island, given our already established higher prices, the rising demand and prices are magnifying problems we’re already very familiar with. In the long run, the lack of sufficient housing choices combined with higher prices will drive younger people away and make it more difficult to keep a talented workforce employed. It may also have the unfortunate consequence of increasing income differentials in our communities.

People fleeing the city after COVID will increase local tax bases, but will also require more services and infrastructure, straining already tight municipal budgets that need to overcome shortfalls in federal and state aid caused by the pandemic – and still comply with Albany’s tax caps. Nassau County has seen only small population growth over the last five years; Suffolk has recorded an overall decline. An influx of new residents will dramatically change these population dynamics.

Since real estate tax assessments are based in large measure on market sale prices, increased assessments inevitably lead to more tax challenges. So, price spikes may only exacerbate the cycle of assessment increases, challenges and refunds – further stifling long-range economic-development policies.

And consider this unintended consequence of a suburban migration: decreased Long Island Rail Road ridership and less use of public transportation. This is all going down with the Metropolitan Transportation Authority pushing ahead on its LIRR third-track project; the MTA has already borrowed huge amounts to make up for the pandemic’s decreased revenue, and it is already planning layoffs and fare hikes.

Municipalities will need to consider new zoning laws and relaxed land-use restrictions to create more of a housing-market mix – single-family homes, mixed-use developments, transit-oriented developments, workforce housing. This requires study. Zoning changes may be appropriate, but lawmakers must be careful not to alter the character the draws people to a community in the first place.

In the long run, a strong Long Island real estate market at the expense of a weak NYC market isn’t desirable. We are an interconnected economy. The city has to rebound in tandem with a strong Island market. Together, they create strong employment, commerce, investment and regional growth opportunities.

Ultimately, we need a comprehensive plan to deal with pandemic-driven real estate markets. And the sooner we collectively address these issues, the better for all.

Michael H. Sahn, Esq., is the managing member of Uniondale law firm Sahn Ward Coschignano, where he concentrates on zoning and land-use planning, real estate law and transactions, and corporate, municipal and environmental law. He also represents the firm’s clients in civil litigation and appeals.