What to Know
- Economists from Rutgers University actually determined how much the land value of the Big Apple is actually worth, CityLab reports
- In 2014, the developable land in Manhattan was worth an average of an average of $1.74 trillion, similar to the GDP of Canada
- To determine the cost, researchers traced the increase in the value of Manhattan’s land since 1950 by looking at the cost of vacant parcels
Modern times has the island of Manhattan pegged as having some of the most expensive costs of urban land in the country — if not the world.
Real estate in Manhattan is expensive, and it is just getting worse, according to a recent study. But, just how expensive is the island of Manhattan?
Economists from Rutgers University determined how much the land value of the Big Apple is actually worth, which turned out to be as much as the GDP of a North American country, CityLab says in citing the study.
To determine the cost, the researchers traced the astonishing increase in the value of Manhattan’s land since 1950 and found that certain factors contributed to the excessive real estate cost.
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The forthcoming paper in Regional Science and Urban Economics estimates that in 2014 the developable land in Manhattan — which does not include roads, parks and highways — was worth between $1.54 and $1.95 trillion, for an average of $1.74 trillion, CityLab says. This value is more than the combined market capitalization of the world’s three largest corporations that year and similar to the economic output of Canada — the 10th largest economy in the world.
Researchers arrived at that number by analyzing the prices of vacant parcels of land in Manhattan. The researchers looked at the vacant parcels to conclude the land value without having to worry about the value of the structure sitting atop of it. Using this information, the researchers compiled a data list of vacant land transactions from 1950 to 2015 to showcase a land value index that represents the change in Manhattan’s land value over the years, adjusted for inflation, CityLab reports.
Over the span of those 65 years that were analyzed, the value of Manhattan land grew at an annual rate of 5.5 percent (adjusted for inflation). However, the researchers identified three major real estate cycles in Manhattan that are anything but linear.
The value of Manhattan land was relatively flat during 1950s and ’60, which coincided with the period of the great suburban boom. It then plunged during New York City’s fiscal crisis of the mid-70s, which reached the lowest point in 1977. Over the course of the first real estate cycle, from 1950 to 1977, land values actually shrank at an annualized rate of -3.1 percent, the researchers determined.
Land values were back up by 1980 and increased to a high in 1988. The land values were then leveled by the economic downturn of the early ’90s — a time when the city’s crime rate was at an all-time high. During this second cycle that ended in 1993, land values grew at a rate of 6.5 percent annually, according to the researchers.
Since the mid-1990s, the value of Manhattan land skyrocketed before the economic crash of 2008 and, subsequently, dropped a bit during the Great Recession only to surge back up by the end of 2014, the researchers determined.
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During this third and most recent complete real estate cycle, from 1993 to 2009, the value of Manhattan land grew 17 percent annually, a significant increase in land values compared to the previous two cycles.
According to the Rutgers study, Manhattan is now in the midst of fourth real estate cycle, which has shown similar growth rates so far.
The researchers also determined that, since 1993, land prices have increased at a much faster rate than the population or the employment, at an average annual rate of 15.8 percent.
The study also found that corner lots are more valuable than lots in the middle of blocks. Lots in close proximity to Broadway also have higher values.
The researchers attributed the new increase in land value to the overall employment rate in New York City prompted by the back-to-the-city movement of jobs and people given that over the past couple of decades, Manhattan has seen a high demand for its land as affluent people and corporate headquarters move back into the city.
In addition, startups and established technology companies have also decided to set up shop in New York City. Google has become one of the largest landowners in Lower Manhattan. Recently, the tech giant purchased the renowned Chelsea Market for $2.4 billion.
Today, Manhattan trails only San Francisco as high-tech startup location.
Additionally, the past decade has seen an increase in the number of foreign capital into Manhattan real estate, which has also contributed to the skyrocket in land value.