ITHACA, N.Y.—On one hand, it’s nice that Ithaca and Tompkins County are in demand. But that blessing is also a curse. High demand and a dearth of supply threatens to push less wealthy homebuyers and even many existing lower-income homeowners out of the market and out of the area.
That’s the message the Ithaca Board of Realtors (IBR) had for Tompkins County legislators at the county’s Housing and Economic Development Committee last week. Realtor Brent Katzmann, who heads Government Affairs for the IBR, was present with Executive Office Sarah Wisdorf to give a presentation to the committee, accompanied by a Q&A session.
“The good news is that there continues to be a strong, ready, willing and able buyer community despite the recent increases in interest rates,” said Katzmann. “Clearly it (the rise in interest rates) has priced some people out, but there is still residual interest as well as some cash buyers who are interested to come here.”
“The bad news is, there really isn’t anything to buy,” he continued. “A lot of the deeper pocket buyers are having success, but those in the middle-market are not.”
For many of The Ithaca Voice‘s readers, saying the market has more demand than supply is like saying water is wet; not exactly groundbreaking information. However, it’s important to demonstrate the disparity with evidence, and explain why the market has become as unbalanced as it is.
Quick side note for the record, the presentation focused on residential properties in Tompkins County. Commercial and larger multifamily properties have their own sales channels outside the tracking of the Ithaca Board of Realtors.
As far as the number of properties on the market goes, the number has consistently declined year-over-year, discounting the blip caused by the Spring 2020 COVID-19 pause. According to Katzmann, the number of annual listings before COVID in smaller residential properties was about 1,200; now, it’s about 900 per year. After a 20% decline from 2021 to 2022, property listings have already declined another 7% this year versus the same period last year. The number of houses in Tompkins County didn’t suddenly drop because of some disaster or outside factor; there are just fewer homes being put up for sale.
“There’s just a real lack of inventory to sell,” noted Katzmann during the presentation. “There’s a lot of speculation about why that is; part of that is that a seller who sells has to also be a buyer, and since it’s a difficult market to transition locally, that locks up housing.”
In other words, if that young family looking for more space or the older couple who wants to downsize can’t find anything reasonable on the market, they stay put in their current homes, and their current homes don’t go up for sale.
With a lack of choices but motivated buyers, the current supply on the market, based on number of properties for sale and the average time they take to sell, is about one month. A healthy market, per Katzmann, is a 5-6 month supply. The supply had been about three months at the onset of the COVID pandemic, and never recovered. Back then, the typical property sold in 2-3 months; that fell to 2-3 weeks in late 2021 and 2022. Since then, it’s recovered to about one month from listing to going under contract, but there are fewer properties available, so the market supply, being the amount of time it takes to fully deplete the market, is down as a result.
With the continued unbalanced market towards sellers, buyers have had to sweeten the pot. The number of all-cash sales has jumped from about 20% of buyers to 33%. It doesn’t help that older local homes with extensive deferred maintenance don’t qualify for some mortgages because of their poor condition, so they’re then scooped up by generally wealthier all-cash buyers to do as they please with it. Secondly, while a typical healthy sales price is 95% of list-price, last spring and summer it was around 105% due to competition between buyers; an average-condition house listed for $300,000 would sell for $315,000. That has since softened slightly to around 100%, meaning the typical sales price is about the same as the list price. Arguably, that’s more a function of rising interest rates taking some buyers off the market, rather than genuine loss of interest.
Of course, probably the most obvious impact of a lack of supply but persistent high demand is a jump in sales price — from $291,804 in the IBR’s tracker in 2020, to $354,513 in 2022, a 22.7% jump in only two years. The skyrocketing prices aren’t limited to Tompkins towns either; the overflow effect is causing prices to rapidly rise in communities that border Tompkins County, particularly those that offer somewhat easier commutes to Ithaca. Even raw land prices have shot up in the past two years, from +35% per acre for <5 acre plots of land without municipal services, to +85.5% per acre for those <5 acre lots with water and sewer.
The average monthly home mortgage for a home sold in 2021 in Tompkins County was $2,135. In 2022, it was $2,966, largely due to rising prices and increased interest rates. The long story short is that as of 2022, the median household income in Tompkins County can no longer afford the median house cost. What modest chances there were for middle-market buyers a few years ago, are practically gone now.
To be fair, blaming the loss of more affordable home ownership all on “supply” would be inaccurate. Affordability in housing is impacted by interest rates, property taxes, flood insurance (especially as the FEMA maps mandate it for 500+ homeowners who previously didn’t need it), by the difficulties in regulation (zoning, Ithaca Green Building Policy) and logistics (labor, materials costs) in bringing new homes to market, by infrastructure limitations. Katzmann noted that in many parts of the county, to build a 1,000 square-foot house costs now $400,000-$500,000.
While the discussion up to this point focused on for-sale housing, rental housing is not immune. Even with the number of units that have been completed or are under construction, there is still much more demand than supply. That gives landlords big and small the a lot of leeway to raise prices and pass on any increased costs from inflation or taxes. Compounding the issue is that many frustrated home buyers continue to rent as they seek their new home and hope to ride out this housing-scarce market.
As for help from the state level, don’t count on it. Renters hope for some kind of increased tenant protection or even rent control, but efforts have been halted by state courts; meanwhile, a proposal by state lawmakers to shift Medicaid costs to counties would increase the typical property tax bill in Tompkins County by 3%, which comes out to a sudden increase of hundreds of dollars on the typical home beyond increases from rising property assessments.
There is no magic wand that will fix this situation. There has to be a flow of new supply to meet demand, and demand is going to have to be met or otherwise cool until supply and demand are more balanced. The problem is, no one knows how high prices will go before balance happens; the less supply, the higher that “balanced” price point is. Right now, it’s either a majority of Tompkins residents lose out on the ability buy a home, or quality of life suffers enough to drive away buyers; neither of those are pleasant options.
One thing that might help, though it won’t solve the problem, is tighter regulation of Short-Term Rentals (STRs) like AirBnBs. Currently, there are about 1,200 active, unique listings in Tompkins County, a number that’s held steady recently, and 653 of those are AirBnBs that occupy an entire residential structure. Using the Town of Ithaca’s regulation as a model example, similar regulation across the whole county would reduce AirBnBs by 40% and push owners to use the unit/structure for other uses or put it up for sale. Much of that 40% taken off the STR market would be in the City of Ithaca, potentially returning 150 or so units to long-term rental and sale markets.
Not surprisingly, Katzmann and the IBR advocate for the construction of more middle-market owner-occupied housing, both from a professional standpoint (more business for realtors) and from a community benefit standpoint. Legislators acknowledged that the lack of for-sale is an issue.
“It sounds like the number one thing we could do, and we’re not going to change zoning, is provide more water and sewer, and eliminating septic and well builds,” said legislator Mike Sigler (R-6th District). Sigler asked Katzmann what other options could be considered, to which hw suggested some kind of tax deferment for vacant properties while homes are being developed for and built on them, so that less of the initial tax burden is wrapped into the listing price. Katzmann also suggested streamlined zoning or reduced permit fees, and more areas where middle-density townhomes or condos were allowed so that infrastructure and land costs could be split among more buyers.
“A couple of years ago, this committee looked at condos and townhouses, what would be helpful, what were the barriers…maybe that’s something we could take up again,” said legislator Anne Koreman (D-5th District). Koreman said they should consider consulting Saratoga County, which has had some success promoting middle-density, middle-income development, while County Planner Megan McDonald cautioned that legal regulations in New York State often make smaller condo developments cost-prohibitive.
Tompkins County Housing Planner Eliot Benman summarized the gist of the committee’s sentiments. He acknowledged the affordability issue has no easy fix, but the county can’t afford to just sit back.
“The challenge is bringing all these things together,” Benman said. “Zoning reform, a focus on middle-density housing, infrastructure and so forth. Bringing all that together in the same time and the sample place. There may be a role for the county to work with municipalities in areas they want to spur development.”