(Note: this an expanded version of a series of instagram posts and blog piece that we first published in June 2024)
It seems that every decade or so, some version of an effort gets going to reconsider land use regulations and zoning code. Currently, East Hampton is 22 months into the most recent of these code change evaluation processes.
As a refresher: after nearly two years of awareness building and advocacy work beginning in 2021 by Build.In.Kind/East Hampton, including our April 17, 2023 "Open Letter" that has and continues to be signed by many hundreds of residents asking for change, in May, 2023, the East Hampton Town Board agreed to begin a formal process to reassess the town zoning code and to consider amendments for adoption.
As part of that, the Board voted unanimously to establish the Zoning Code Amendment Working Group (ZCAWG) with the mandate to undertake a deep review, assessment and analysis of the Comprehensive Plan, the existing code, the existing built environment, as well as recent/current construction trends, and to recommended code changes to the Board and the public for consideration. (N.B. I was asked to be a part of the working group, as one of 11 members overall, eight of whom work directly for the town.)
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It seems that every decade or so, some version of an effort gets going to reconsider land use regulations and zoning code. Currently, East Hampton is 22 months into the most recent of these code change evaluation processes.
I have much respect for Deputy Supervisor Rogers who was the Board member willing and wanting to take up and lead on this complex and often controversial issue. And I also recognize the Supervisor and the other Board members who have -- across a series of lengthy work sessions and public hearings -- engaged in interested review and deliberation regarding proposals. Along the way, when proposed zoning code changes have made it onto the agendas for discussion at Town Board meetings, members of the public have shown up to engage in the discussion, and the large majority have spoken to support -- and demand -- change that will make a difference, advocating especially for meaningful reduction to maximum house size.
So far, this initiative has yielded some adjustments...first, in October 2023, an especially rigorous updating of the "Purposes of Zoning" and...In December 2024, adoption of 10 of the 11 "loophole-closing" initiatives, with mostly a unanimous round of "ayes," was a strong outcome.
So far, this initiative has yielded some adjustments. In particular, first, in October 2023, an especially rigorous updating of the "Purposes of Zoning" (255-1-11 of the Town Code) to ensure -- as State and local law require -- they align directly with the EH Town Comprehensive Plan, including all the important additional plans that have been adopted into it over the past decade.
Second, a suite of 11 recommended code changes, primarily for the purpose of addressing and closing some key "loopholes" in the code, and looking especially at the question of which elements of a residence structure should be counted in the formal "gross floor area" measure of house size. This set of proposed amendments, first presented to the board and public back on May 7, 2024 and tweaked further on July 16, 2024, was the topic of three lengthy Town Board work sessions from May to October, a formal public hearing on November 7, and a final vote by the Board to adopt 10 of the 11 proposals.
Though the December adoption of 10 of the 11 "loophole-closing" initiatives, with mostly a unanimous round of "ayes," was a good outcome, the one proposal which failed to pass was the most interesting and most meaningful/material. That amendment proposed that a portion of finished basement living area would be counted toward the definition and calculation of the GFA of a house.
This rational proposal was put forth in direct response to detailed study of the real trend accelerating over the last five years that we have been witnessing in East Hampton: the ongoing growth and "supersizing," and aggressive marketing and pricing, of below-grade living areas that are finished exactly to the "luxury" standards of the first and second stories, and most often now, include one, two, three (or even more) additional bedrooms, increasing occupancy and intensity of use, often on small lots in the most-dense non-conforming neighborhoods in town.
Nonetheless, because of how lucrative this basement buildout has become to developers, builders and brokers, a small but influential group of real estate industry players fought vigorously against this proposal --and in no small part reflecting that opposition, Board members denied it 4:1 at the final vote.
As a core part of their push, that group made the diversionary claim that they do agree "mass and scale" has become a concern, but they preferred to see house size addressed more directly by making meaningful adjustment to the core "formula" that defines the maximum gross floor area (GFA) that can be built on lots of any and all sizes in East Hampton.
The Board members in large part also were not in favor of the-basement-counting effort, and in the same breath as voting "no" on counting a portion of finished below-grade living area, they called for an immediate start to a formal consideration of the formula, seeking a specific proposal from the ZCAWG to be delivered to the board and the public within two weeks.
The Board members ... in the same breath as voting "no" on counting a portion of finished below-grade living area, called for an immediate start to a formal consideration of the formula
As a side note, though I believe the proposal to count a modest part of finished below-grade living area towards the measure of house size has a lot of merit, I had always believed that the counting of below grade-spaces would be best considered in conjunction with above-grade size changes. As such, I was relieved and happy to hear unanimity of the Board members finally endorsing and prioritizing a need for adjustment of the maximum GFA allowance formula. I have always supported the idea that the formula should have been on the table and analyzed fully for reduction and rebalancing right from the beginning of the review process.
And that proposal was delivered by the ZCAWG promptly to the Town board for review and discussion at a public work session at the Town Board meeting on December 17, 2024. The specific proposed adjustment put forth, based on a year and a half of study, was to moderate the formula to "7% of lot area plus 1300 square feet" from the current formula of 10% plus 1600. The review and discussion in public by the Board of the formula proposal extended over two more work sessions in the new year on January 21 and February 4, 2025, and then the Board voted to notice a "compromise" 7% plus 1500 formula proposal for the formal public hearing on March 6.
Given the history of how these things go, it didn't really come as a surprise that the same "small but influential group" that had intoned a deep preference for meaningful formula change in lieu of counting a portion of lower level living area into GFA, sounded off in opposition to the ZCAWG formula proposal within mere milliseconds of it seeing daylight.
Given the history of how these things go, it didn't really come as a surprise that the same "small but influential group"...sounded off in opposition to the ZCAWG formula proposal...And immediately, they widened the real estate opposition from a dozen individuals to several thousands.
And immediately, they widened the industry opposition from a dozen individuals to thousands, launching a viral fear-inducing email in complete opposition to the Town's proposed formula modulation, proclaiming it to be "so extreme" it would somehow lead to the end of the real estate industry as we know it in the town of East Hampton. Painting the ZCAWG proposal as "too much" and "too extreme," they instead put forth their preferred "alternative" -- one that would ensure only a very marginal adjustment with minimal effect on current and future new construction house size, and one that will protect a status quo of excess.
For the most part, except for that dozen-person small but influential group, the real estate masses had been mostly dormant for the first 18-20 months of this code review process. But, as we entered these later stages, seeing how legitimate this process has been, seeing how seriously the Board has been engaging in and supporting the process, seeing that there is serious, thoughtful and credible advocacy effort having a very legitimate voice in the debate, seeing that a lot of residents are fully fed up with the overdevelopment ripping through neighborhoods everywhere around town and are highly motivated and deeply serious about standing up to demand necessary change, the broader industry -especially the brokerage firms - have been activated with a campaign and a concerted effort to convince Town Board members and other members of the pubic to oppose meaningful formula change.
For the most part...the real estate masses had been dormant for the first 20 months of this code review... But, as we entered the later stages of this process... the broader industry has been activated with a campaign and a concerted effort to convince Town Board members to oppose meaningful formula change.
In 2016, just 8 years ago, the Town attempted a meaningful and needed 23.4% weighted-average reduction in the maximum allowable house size formula, to move from "12% of lot area plus 1600 sq ft" to "10% and 1000." But, the real estate interests flexed their muscles, ensuring, in parat, that only a watered-down version made it across the finish line. Since that minimized amendment, house size has continued to balloon, not just on large lots in "estate sections," but on more modest lots across all neighborhoods, to the detriment of neighbors, natural resources, town infrastructure, quality of life, community character, livability, affordability and sustainability of our community.
Are we going to facing the same outcome yet again?
Through first-hand observation and the study of what has happened during prior attempts to revise zoning code, not just in East Hampton, but also across other municipalities near and far, we see that whenever there is any movement to consider modulating one or more of the maximum allowable zoning dimensions, particularly house size, the components of the real estate complex unite to oppose the effort.
In places like East Hampton, over the decades, historically this type of professional protest has proven to be politically powerful and effective at persuading elected officials to do very little at best.
And each time, the same two basic arguments comprise their pushback to block material change and support the status quo. The first of their arguments is generally a permutation of "don't tread on my individual property rights." The second is a blanket assertion that any change to land use code will tank property values and topple the local economy.
Whenever there is any movement to consider modulating...maximum allowable dimensions, particularly house size...the same two basic arguments comprise the pushback to block material change and support the status quo. The first of the arguments is generally "don't tread on my individual property rights." The second is a blanket assertion that any change will tank property values and topple the local economy...So, I took an analytical deep dive to understand if there is any real basis for this outcry.
It is human nature to look through the prism of self interest, so indeed, it's to be expected that many will focus primarily on what they believe is to be taken away from them (e.g. money and rights) rather than assessing the broader context and weighing potential benefits that might ensue from well considered and forward looking change and what might actually be gained, rather than lost, by residents and our community as a whole.
In the case of the real estate industry, it seems that when opposing moves towards moderation, there's an attempt to divert from any notion of economic self interest, positioning that opposing a zoning change is not for their own benefit, but instead they are speaking only on behalf of the community, in the interests of the young people trying to make a go of it here, as well a for the older, long-term local residents who are hoping to cash out and exit to warmer pastures. They say that they only want to protect the"regular guys" and their assets -- that they want only to ensure that local folks "nest eggs" -- their house/property values-- are protected.
It is likely true that for many local, long-term residents who own a house or a plot of land in East Hampton, our property could be our most important asset. And it is true that no one wants to see individual nest eggs crushed -- or even cracked -- by regulatory changes.
Planners and policy makers know that such impacts must be avoided. No Board, no working group, no advocacy efforts in the Town of East Hampton can or would support any change that would put people who live and work here and our local economy at risk. As in the past, when the potential benefits of change are being identified, proposed amendments are always evaluated with respect to all possible outcomes and scrutinized for potential negative consequences, including the unintended type.
No Board, no working group, no advocacy efforts in the Town of East Hampton can or would support any change that would put people who live and work here and our local economy at risk.
But, while on the surface, industry protestations against code change might be positioned as purelycommunity-focused, it is not without reason to conclude that the focus is not so much on other people's nest eggs as it is on protecting the special golden-egg laying goose.
So, to be prepared for the likely onslaught of opposition and the regurgitation of the usual opposition points, early in 2024, we took an analytical deep dive to understand if there is any real basis for these arguments .
Is it valid to decry that moderation of the maximum dimensional allowances specified in the zoning code will trample the rights of individual property owners and be unconstitutional and un-American?
Is it true that reducing maximum allowable house size will devalue a resident's property and/or limit any reasonable or robust appreciation into the future?
Could it be that the entire livelihoods of builders and architects and surveyors and building-related trades people and real estate brokers will be demolished by a change to the GFA formula --that they will never be able to sustain an adequate living if investors and developers can't continue to max out every lot, even though for decades everyone involved has made a lot of money and a living building to somewhat more restrained proportions?
Or, are these assertions just red herrings, promulgated to scare residents and pressure Boards into no action by a subset of interests who want to continue to maximize profits for themselves?
All in, in our extensive due diligence and multi-pronged analysis, we can find no actual basis for these recurring opposition points. In short, there is no evidence to be found to support that rights are being unconstitutionally taken or that property values and our entire economy will be shattered. What we find is that the real estate industry shibboleth is mostly myth.
Let's break it down.
Analyzing Opposition Point 1"But, my rights..."
We've addressed the need for appropriate balance between individual property rights and the legitimate rights of neighbors and the community several times in the past. As we wrote way back in our February 22, 2022 blog piece "Code Red" "...until these last few years, owners demonstrated the tacit understanding that building as of right comes with some responsibilities extending beyond their property lines. They seem to have understood that the value of their own property links inextricably to sustaining the town character and environment, and vice versa."
"...until these last few years, owners demonstrated the tacit understanding that building as of right comes with some responsibilities extending beyond their property lines. They seem to have understood that the value of their own property links inextricably to sustaining the town character and environment, and vice versa."
The concept of the “land ethic” – primarily attributed to the early 20th century American naturalist and philosopher Aldo Leopold -- does not deny or seek to nullify robust individual property interests. However, it compels the notion that ownership rights cannot be detached from stewardship responsibilities. It offers a set of values premised on caring for, rather than disregard of others; it asks that those individual rights and wants be balanced in the context of one's connection to the community and all its members. Importantly, the land ethic expands the definition of “community” to include not only humans, but all components of the land as well: soils, waters, flora and fauna.
But aside from philosophy, there is clear, rock solid, and long standing legal basis for pursuing and establishing balance between the rights of an individual and those of neighbors and the community. Though of course there are several important broad legal doctrines --among them substantive and procedural due process, equal protection, takings of property, and vested rights-- which protect landowners’ interests, overall, the established definitions and purpose of land use regulation and zoning laws refer first and foremost to the concept of "balance."
But aside from philosophy, there is clear, rock solid, and long standing legal basis for pursuing and establishing balance between the rights of an individual and those of neighbors and the community.
In a very detailed and substantial blog piece called "Whose Rights are These Anyway" we published on July 26, 2024, we dug deep into the history of property rights in America as well as the emergence of local zoning power that began in the late 19th century.
We address the opposition talking point related to individual property rights and how they intersect with the rights of others, as well as the interests, wellbeing and sustainability of the community as a whole. And bottom line, the oft-repeated blanket assertion that imposing or changing zoning code somehow infringes on individual property rights is without any merit.
For now, we will leave it to you to have a look at that research essay, and instead focus the rest of this piece on the question of if or how zoning code changes might impact property values, constrain overall development and "trickle down" to hurting the local economy and employment overall.
Analyzing Opposition Point 2: "But, my property values..."
Somewhere, back in a public comment period in May of last year, we heard one self-identified "spec"developer make an extreme and unfounded assertion that any movement to modulate maximum house size would render properties - even in desirable locales like the so called "Lanes" in Amagansett- "worthless." But aside from that, opposition point 2 "But my property values..." remained tucked away...that is, until just recently.
In mid December 2024, as Board members seemed generally amendable to considering a meaningful adjustment to the maximum GFA formula, and just as we were moving into final and most consequential phase of this code change review, as expected, the opposition onslaught kicked in hard. It seems as the industry was retrieving their boxes of holiday ornaments and string lights out of the attic, they also pulled the old zoning code change opposition playbooks out of moth balls.
A widely disseminated "blast" email letter, pictured to the left and below, penned by a local builder--one of the 12-person industry group who had been assuring the board they too were in support of a real change to the formula--brought us a text-book example of the "tried and true" trope that modulating house size will immediately and definitively bring construction activity to a screeching halt crash property values and destroy the livelihoods of hundreds if not thousands.
From what we understand, the author sent it to the head of every brokerage firm company in town, and in turn, the agency heads blasted it out to their entire broker networks, who in turn sent it to their rolodexes of clients. And simultaneously, the same letter was launched into the builder/construction pipeline to cascade with similar networking.
Once these oft-used opposition talking points made a return into email chains and the social media ether, it left the broader network of brokers and builders screaming "overreach" and "deny" by the hundreds. Within five days, it could have made its way to multi-thousands of people in town and beyond. And as a result, there was a swarming of the town board with attempts to swat down the formula change being considered now.
The letter contains all versions of fear making:"this change will result in reduced valuations of all properties"; "will result in significant decreases in construction and real estate business across our community"; "consequences will not stop at property values," "will create trickle down effect"; everyone and every business "tied to development and real estate negatively affected"; "change threatens to harm local business and overall economic health of East Hampton."
But all of these assertions of catastrophe were made with no shred of evidence provided to support them. And that's because, based on the research summarized below, there seems to be no actual evidence to support these claims. But there is plenty of analytical evidence, when looking at the questions such as is house price dependent only or primarily on increasing house size, and do zoning code changes have catastrophic impacts on property values, to debunk these claims in full.
All of these assertions of catastrophe were made with no shred of evidence provided to support them. And that's because, based on the research summarized below, there seems to be no actual evidence to support these claims, but plenty of analytical evidence...to debunk these claims in full.
Analysis 1: Investigating House Size Trends in East Hampton
Given that the real estate industry opposition argument revolves around an assertion that local property values (current and future) are dependent on increasing house size, and that any move to modulate the upper-end of the max allowable GFA formula will tank property prices and restrict future appreciation, we thought the best place to begin our systematic analysis is to study the data laying out house size trends over time in East Hampton
Easier said than done.
While the local real estate brokerage companies publish quarterly and annual data points on number of transactions, median/average sales prices, and total sales dollar volume, they do not report out, and we can find no East End database that tracks, square footage or a related metric of price per square foot consistently/systematically of all the houses for sale and sold here over time.
This dearth of data reporting by the real estate industry about house size is a "tell": if the --or even a -- core driver of the East Hampton real estate business and economy over time truly has been "house size," the industry likely would be reporting on it every quarter and every year, because "what counts gets measured." This is but one research observation that begins to discredit the opposition talking point.
This dearth of data reporting by the industry about house size is a "tell": if the --or even a -- core driver of the East Hampton real estate business and economy over time truly has been "house size," the industry likely would be reporting on it
Though there is no consistent data reporting regarding house size, over the years, there has been a generalized impression that there has been a trend toward bigger houses in some parts of the real estate market on the East End. Indeed, as part of our research, we did a close search of articles published over the years, and we found a number anecdotal observations from the real estate industry and the media starting in the late 1990s that in the "luxury" slices of the market, new construction house size had started and been trending upwards.
Searching archived articles, we are able to glean some movement in the Hamptons luxury market towards expanding house size sometime in late 1990s/2000. Here are excerpts from articles we found that included some anecdotal and individual generalized observations from industry pundits starting to note a move in the luxury house market from 2000-3000 sq ft homes towards 4000, 5000 etc, and also starting to identify a new "tear-down" trend.
A 1997 New York Times article"The Hamptons Real Estate Market is Surging" looked at the growth bubble of real estate revenues in the Hamptons coming out of the 1991 US recession "...The bottom of that cycle, about 1991, seems like a dim memory....Today's thriving Hamptons market -- fueled by low interest rates and the marathon bull run on WallStreet-- is at its highest since the frantic peak of the late 1980s...Vacant land is selling so fast that the big worry is how to slow it down -- lest the East End lose the fabled rural look and feel that made it popular."
In this article there is no actual mention of house size, but we cite it because we found what seems to be the first reference to the phenomenon of "tear downs" to make way for "dream" houses: "Another striking sign of the soaring demand is a new Hamptons trend known as tear-downs. Some buyers are acquiring older, modest houses only to demolish them to make way for their dream country homes....'People buy these incredibly expensive properties and take down the houses to do what they want to do,' said Christopher J. Coy, an architect at Barnes Coy & Associates in Bridgehampton. 'Ten years ago you would have seen people working with the house that's there. Now it's almost not a decision to demolish.'"
A 1999 article in the Los Angeles Times "The Hamptons: Choking on a Glut of Luxury" included the following: "Nowadays, 5,000 and 4,000 square foot homes are rising on one acre lots, and controversy has flared over plans by Ira Rennert, who made his fortune in junk bonds and heavy manufacturing, to build a 100,000-square-foot house on one of the last remaining fields near the sea in Sagaponack. With 33 bathrooms, 29 bedrooms and parking space for 250 cars, it would be the largest single-family home the Hamptons has ever seen." The article did not indicate how many 4,000 and 5,000 square foot houses "rising on one acre lots" were actually being approved and built in East Hampton or Southampton at that time.
A 2010 article in The Real Deal "Over Decade, Bigger is Better In Hamptons" noted the following: "Cozy beach cottages are so 2001. Over the past decade, East End homes have gotten bigger, more elaborate and more expansive, according to a 10-year market report released today by Prudential Douglas Elliman...'The increase effects the additions of homes to the housing stock,' said appraiser Jonathan Miller, president and CEO of Miller Samuel and the preparer of the report....'people were seeking larger homes in the country on larger pieces of property, and that became the new image of the Hamptons' Miller said.
"Judi Desiderio, CEO of East End brokerage Town & Country Real Estate, said she began to notice the shift towards larger homes in the Hamptons around eight years ago. 'Ten years ago, they weren’t buying McMansions,' she said. 'They were buying a reasonable home, maybe around 3,000 square feet, which they could enjoy with their family and friends. Then all of a sudden, people started to build bigger. Bigger was better....As the real estate boom raged, homes started appearing at 5,000, 7,000, and even 10,000 square feet,' she said. 'It was as though houses were on steroids,' she recalled. ....Much of the shift was driven by Wall Street bankers, lawyers and stock brokers building second homes outside Manhattan in the midst of the easy credit-days of the housing boom.
In 2016, a NewYork Times article "Underground and Over the Top in the Hamptons" featured a new trend of building thousands of square feet of living space below grade. "Finished basements have long been a cost-effective way to increase living space, but builders in the Hamptons say increased restrictions have kicked the trend into high gear...'The square-footage allowance on a lot of the lots out here is tight, and the demand for bigger and bigger houses was increasing,' said Peter Sabbeth, the founder of Modern Green Home, a construction firm based in Bridgehampton. 'The obvious place to give people that square footage was below ground.' ”
Although there is no one real estate industry data set that we can download and analyze to see exactly how house size has changed from year to year and how house size does or does not correlate with house prices, we have dug into some recent data with respect to new construction trends in more recent years.
First, analyzing "new construction" permits issued in the Town of EH for 2024 and 2023 and doing the the same exercise for the years 2016/2017 reveals significant increases in house size over 7-8 years As a note, the 2016/17 period picked for historical comparison has significance because in 2016 there was a proposal on the table to modulate the house size formula to 10% +1000 from 12%+1600, although a much scaled back change to 10% + 1600 was adopted and took effect on 1/5/2017
Calculating the GFA as permitted in the building permits identified 2024 average permitted GFA of 4,034 sq feet. That represents a 5.8% increase over the 2023 average GFA of 3,813 sq ft. Although in the first year the new code was implemented, there was a 4.8% reduction in average GFA in 2017 over 2016, from that point on average GFA has appeared to increase steadily over these past 7 years by a total of 19.3% .
Looking below at the overall average of GFA for new construction in East Hampton, we can see some very meaningful shifts in distribution of both house size as well as how the house size permitted relates to the the maximum allowable. Specifically
House size: GFA | 2024 | 2023 | 2017 |
<1,500 | 3% | 4% | 7% |
<2,500 | 18% | 20% | 31% |
<4,500 | 67% | 69% | 77% |
4,500-10,000, | 30% | 27% | 17% |
>3,500 | 52% | 47% | 40% |
4,500-<7,500 | 25% | 25% | 16% |
GFA Average sq ft | 4,034 | 3,813 | 3,380 |
Looking not only at a steady shift in GFA to larger bands, analyzing new construction size as it relates to the maximum allowable GFA per the code formula on the size of the lots on which they are built, a profound shift is noted: in 2024 and 2023 combined, 55% of all the building permits issued for new construction were for houses that were between 75% and 100% of maximum allowable GFA, and of that, 44% were within 15% and up to max. This compares to the 2017/2016 2 -year period where 38% of all new construction permitted were for houses between 75% and 100% of maximum allowable and just 25% were within 15% of max GFA and up to the max.
In terms of other recent house size data, I also track data for new construction “spec” builds in East Hampton using published real estate listing details. To summarize the findings of this tracking analysis:
House Size Review Sample: New spec construction as listed for-sale over the last 15 months (136 observations):
House size range: smallest: 2200 (1900) sq ft; largest: 13,1890 (12,395) square feet.
Average size: 6385 (6196) sq ft. Median size: 6038 (6038) sq ft.
Average bedroom/bathroom count: 6.2/7.4 (6/7.2)
Lot size range: 0.25-7.1 acres
Lot size acres: Average 1.1; Median 0.89
New spec Construction: House size distribution (sq ft):
7 @ < 3000
13@ 3000-3999
54 (45)@ 4000-6490
25 (23)@ 6500-7999
22 (17)@ 8000-9499
15 (12)> 9500
New Spec Construction Listing Prices:
Average: $7,744,815 ($7,634,825)
Median: $6,345,000 ($5,995,000)
#< $1 million: 0
#< $2 million: 4
Note that the numbers shown here in parenthesis reflect our calculations derived the first time we analyzed our initial sample set, compared to the results from the full 136 set, and even over that short period of time, we can see average sizes moving up.
Analysis 2: Drivers of The East End Real Estate Markets
In Analysis 1, we gleaned from media accounts going back nearly three decades, as well as from actual data over more recent years, that there has been a fairly steady upsizing of houses in East Hampton, and those increases have likely accelerated steadily over the past 5-10 years, especially after the last time in 2017 that the maximum GFA allowance formula was modified.
If, as the real estate opposition asserts, reducing maximum allowable house size by any amount greater than a rounding error will somehow crush nest eggs, crash property values, topple the real estate industry and destroy the local economy, then when we dig in and analyze the industry up close and over time, we would expect to see house size as having been definitively a prominent if not primary driver of real estate prices consistently over time.
But is that what we've seen?
No, that is not in any way what is observed across the various industry sources of real estate market data and commentary.
We've compiled the reported industry data over the prior two-plus decades 2000-2023 (and we'll update for 2024 a soon as we have those final numbers which should be available shortly), and the fact patterns revealed show a real estate market that is deeply cyclical in nature, that displays pronounced volatility and year-to-year/quarter-to-quarter instability, and that is driven/impacted sharply and primarily by non-local macroeconomic conditions and exogenous factors/events--all unrelated to house size.
As discussed in Analysis 1, (a) real estate punditry commentary over the years about the Hamptons referenced intermittently some type of trend toward increasing house size, and (b) most recently, we confirm that new construction house size (GFA) growth in East Hampton has averaged just over 5% a year between 2017 and 2024. Yet in our deep-dive review of market data published regularly and discussed endlessly by the local real estate brokerage industry, we find that there are no datapoints about house size reported regularly, let alone any data that illustrates or proves any correlation between the robustness or "health" of the market and absolute house size.
So what are the actual drivers of the state of East End real estate?
As a starting point for this, here's an overview of the "Hamptons" real estate market over the past 23 years. We've assembled the publicly available data points published regularly about the South Fork over time by several real estate brokerage agencies, specifically: number of annual transactions, overall real estate industry revenues, as well as reporting of average & median property sales prices. Our source of data is the quarterly/yearly market reports in the public domain published by local real estate brokerages , such the ones we consulted from Brown Harris Stevens (BHSUSA) as well as Town & Country Real Estate.
Here are the three basic pictures of East End real estate annual data points we created for the 24-year period 2000-2023, as well as a graph of interest rates over time. In addition, we have also included a graph of quarterly number of sales (demand) compared with quarterly sales listings available (inventory/supply) between 4Q06 and 3Q24s published in an Elliman Report.
As we calculate from the data we have here from 2000-2019 the year just prior to COVID, the market showed a 5.2% average annual appreciation in the median house price and a similar 5.8% CAGR of the average over the same period. If we were to include the data through 2023 which included the idiosyncratic COVID bubble, growth over time has averaged just under 7% on a compound annual basis.
Not withstanding a simple calculation of CAGR from end point to end point, increase in house prices. sales and transactions numbers can be seen in these graphs as anything but steady appreciation over the more than 2 decades—it is easy to see that house prices are variable and volatile, and there is a deep underlying cyclicality.
When we look at them more closely, here is what these 4 graphs tell us clearly about what characterizes real estate dynamics and drives values on the East End over time:
The Hamptons real estate market, like many other financial risk asset classes, is cyclical and volatile: we see significant variability across annual transaction numbers, revenues and prices.
The graphs make clear that exogenous events are the primary driver of the Hamptons real estate market from year to year, and transaction numbers as well as pricing of individual properties are driven nearly entirely by external factors including the performance of the broader financial markets and overall monetary policy (e.g interest rates, liquidity). In particular, mirrored in these charts, we clearly see:
the recovery off a bottom from the 1995-March 2000 "dot-com" bubble burst.
the impact of 9/11 that not only drove people out of New York City area, but also resulted in an extended period of unprecedented economic monetary policy stimulus directly after the tragedy and carried through for over a decade until just a few years ago.
the 2008 financial crisis & the subsequent intense federal financial stimulus (which also fueled intensification of speculative development and accelerated private equity/investor activity).
the real estate bubble that lead up to the 2008 financial crisis and the subsequent intense federal monetary financial stimulus and aggressive lowering of interest rates, which in part fueled intensification of speculative development activity.
the Covid city-fleeing-frenzy beginning March 2020 that drove the unprecedented spike in Hamptons real estate market All three data sets reached unprecedented levels, more than one standard deviation above the historic mean.
We also see the cyclical relationship between inventory of listing supply and number of sale transactions. We can see that the industry outcomes are heavily driven by supply and demand overall, unrelated to specifics such as house size.
[Note: there are two other very important macro factors that have been significant drivers of the East End real estate market and transaction prices especially over the past 5-10 years: 1. global wealth concentration, and 2. speculative development. We have done deep-dive research on both and we will be publishing an additional piece focused on that.]
Not only does the real estate industry reported data make clear that the End End real estate market is definitively volatile, cyclical in nature and shaped primarily by exogenous events and macro factors/conditions, but over the years and decades, the actual participants in the industry, in particular the real estate brokers, consistently, year in and year out, explain the dynamics of this market, nearly entirely in terms of the same macro factors and external events, particularly interest rates, stock market performance, wall street bonuses, election cycles and broader shocks like COVID and financial crises.
The real estate industry reported data make clear that the East End real estate market is definitively volatile, cyclical in nature and shaped primarily by exogenous events and macro factors/conditions.
I have now read dozens if not close to one hundred articles... and not once have I come across a comment that tied the strength or weakness or attributed the health of of the East Hampton real estate market or property values to expanding house size or actual/potential changes in zoning codes.
Here is but a sampling of their explanatory narrative over the last 20+ years: we have culled market observations from real estate news articles/commentary, and all of them describe similar macro related ups/downs of the market over that prior decades that drove Hamptons real estate market outcomes. This all might seem like overkill, but by looking at so many years, you can see how irrelevant house size is in the minds of the industry participants. So it seems the only time it is said that it matters is when folks are lining up to oppose a change
Two other takeaways you will get from combing through all of this annual punditry is how incredibly variable and volatile the market is, and sometimes how inaccurate predictions for the market conditions are over time.
I have now read dozens if not close to one hundred articles... and not once have I come across a comment that tied the strength or weakness or attributed the health of of the East Hampton real estate market or property values to expanding house size or actual/potential changes in zoning codes.
Here for example is an article from the New York Times in 1997. "The Hamptons' Real Estate Market Is Surging" that reviews a massive increase in real estate transactions and ties the market directly to wall street stock market and bonuses:
"THE Hamptons are back.Their timeless appeal never went out of fashion, of course. But the recession put a crimp in the real estate market even in this gilt-edged enclave. The bottom of that cycle, about 1991, seems like a dim memory to real estate experts now.
Today's thriving Hamptons market -- fueled by low interest rates and the marathon bull run on Wall Street -- is at its highest since the frenetic peak of the late 1980's. Parts of the Hamptons have even surpassed the record prices of that era and are setting new benchmarks...While the Hamptons have long prospered from their proximity to New York City, their cachet has now spread across the nation and overseas...'We have a lot of people coming from London, Italy, France, Germany, South America -- all over,' said Peter L. Hallock, president of Allan M. Schneider Associates realty."
An article in the New York times from 2000 "Residential Real Estate; A Sky Without Limit: Prices in Hamptons Still Rising"
"Never mind that the stock market is considerably lower than it was last winter and that the Nasdaq has been sinking, sales figures for everything from cottages to castles are soaring from Westhampton to Montauk.
"According to a report issued recently by Cook Pony Farm, a brokerage firm with seven offices in the area, the average price of homes sold in the Hamptons in July, August and September rose to $680,947 from $482,792 in the previous year -- or 41 percent. Fewer houses -- 636 -- changed hands in that period than in the same period last year, when 743 properties were sold. The data was compiled from statistics gathered by Long Island Profiles Publishing, a research organization that tracks all sales in Nassau and Suffolk Counties.
"The third-quarter figures show the continuation of a trend in 2000. 'Things have really exploded in the last six to nine months,' said Judi Desiderio, vice president of Cook Pony Farm. ''Both the ceiling and floor have moved up in leaps and bounds. Several years ago, the low end was $350,000, but now we are dealing with a low end of half a million dollars...The high end is so much higher than it ever was,' she continued, describing $20 million as a typical upper-end listing this year.
"The biggest percentage increase in sales volume occurred in Montauk, where the volume was 115 percent higher in this year's third quarter than in last year's -- $33.7 million compared with $15.6 million, and prices soared. John Keeshan, president of Keeshan Real Estate, who has been in business in Montauk for 30 years, sees 1998 as the year that community began to sizzle.
In part, he attributed that to what he sees as spreading malaise about the Hamptons. ''More and more people are feeling cramped in East Hampton' he said. 'You can still come out to Montauk, get lost, and find buys that are at least 30 percent cheaper.' "
· From a Real Deal Article July 2, 2008: "Spec builders grow cautious in Hamptons"
"Speculative building is a risky endeavor almost anywhere. From the initial land purchase to the process of obtaining permits, hiring an architect and overseeing construction, building a home before you have a buyer is not for the faint of heart. In tony spots, like the East End of Long Island, where the price of land has gone up seven-fold in the past 10 years, it can be an even bigger risk.
"And a year after the subprime mortgage crisis, it can be downright dangerous. 'I can't imagine why anyone would go into speculative building right now,' said Walter Molony of the National Association of Realtors.
"Nationwide, building is down. Though spec building isn't broken out from the stats, new housing starts dipped 27 percent from 2007, which was itself a drop of 24 percent from 2006.
“However, Michael Davis, a longtime developer of high-end properties in the Hamptons, argued that, 'the Hamptons is unique.' Davis, who has already sold one spec home in Southampton this year for $5.9 million, has two others in the works. 'If you're in the right location in the Hamptons,' he said, 'demand exceeds supply, even now...Last year when subprime hit, it sounded as if the real estate market as a whole was going down the tubes,' said Davis. 'But I think it's unfortunate that the press tends to generalize.'
"The right location, said agents and builders, is key, as are views. 'If you're south of the highway, that's considered an amenity,' explained Morabito. 'If you're close to the ocean, that's another. If you're north of the highway and border an agricultural reserve or have a water view, those are amenities.' "
·
From a June 13, 2016 article from "The Street: "Hamptons Real Estate Could Rebound This Summer."
"The Hamptons real estate market is bound for sunnier days after a volatile stock market dinged prices in the beginning of 2016, according to Douglas Elliman, a real estate brokerage firm. During the first quarter, the average price for a Hamptons home fell 21%, compared to the fourth quarter of 2015, to roughly $1.9 million, Douglas Elliman said.
'' ‘We've seen a slowdown in velocity of transactions, but the buying public is still there and still interested -- they're just being a little more cautious,' said Zachary Vichinsky, co-founder of Bespoke Real Estate, a firm specializing in Hamptons real estate sales...2016 was the worst start to a new year for stocks ever.
" 'Although there may be equity market volatility, I think ultimately it comes down to the individual -- their liquidity situation and where they are in their life,' said Cody Vichinsky, also a co-founder at Bespoke. He referred to the many factors affecting one's decision to buy a Hamptons home. 'I'm actually quite confident that you're going to see a rebound this summer.'
"While the market volatility has calmed down, global growth worries are still in focus, but that hasn't changed the influx of international buyers moving into the Hamptons property market. 'We're still seeing Chinese money coming in, Russian constituency and French,' Zachary Vichinsky said, adding that international buyers are looking for homes beyond the ones they already have in New York City and Miami, in addition to their primary residences.
"Cody Vichinsky also said it doesn't hurt that the Federal Reserve looks as though it will take a more gradual approach to its normalization of policy. While Bespoke clients are largely cash buyers, the Fed's moves have implications for the broader markets. 'From a sentiment perspective, people are obviously weighing out all of the variables that ultimately make up the mathematical equation for pulling the trigger or not,' Cody Vichinsky said."
· From a 2017 article in Forbes "Bigger Isn't Better in Hamptons Real Estate this Summer"
"Mega-mansions and huge oceanfront properties have apparently fallen out of favor with today’s buyers. That’s according to several veteran brokers on the East End who spoke with Bloomberg. 'Those great big huge houses from the 1990s and early 2000s, they’re sitting,' Paul Brennan, a Bridgehampton-based broker at Douglas Elliman Real Estate tells Bloomberg. 'I think that conspicuous consumption isn’t in vogue these days, and that’s why bigger isn’t better’....The taste is: ‘I want it now, and I don’t want it huge,’ Paul Brennan tells Bloomberg. 'And those substantial houses haven’t come down in price enough to either knock them down or renovate them to a certain standard.' "
· From an August 2017 Town and Country market update: "Pulse: The Summer 2017 Hamptons Real Estate Roundtable"
Nearly a dozen East End real estate agents were polled around various questions about the local market which had been soft over the prior 12 months. Recall that 2017 brought a reduction in the max GFA allowable code in East Hampton, and not a single mention of that was made related to the weakness of the market. Instead, the focus was on uncertainty related to the election and the stock market influence.
"With so much uncertainty attributed to the election last summer and low inventory, the mood of the market was cloudy at best, with a “wait-and-see” attitude. “This summer, the sun came out—and so did the buyers." "Reluctantly optimistic. The stock market keeps buyers begrudgingly in the game." "I would say the high-end luxury has struggled a bit more than expected, while homes in the lower-middle price point have performed quite well. This would apply to most Hamptons regions."
In addition, a great deal of discussion related to the questions posed: "Are there amenities that no high-end buyers asked about five years ago that are now must-haves? And not a single brokers referenced bigger house size and greater GFA. Instead they cited:
"Outdoor living spaces are a must, including outdoor kitchens, fireplaces, large covered patios, and fire pits” “Subterranean habitats” “Fully finished lower levels with 10-foot ceilings are must for the higher-end buyer.” “Must-have high-end amenities now include outdoor kitchens, fireplaces and gathering spaces.” “I think that smart technology is very important to the high-end buyer. Being able to remotely control heating, air conditioning, cameras, etc., from smartphones and laptops is a must. “Finished lower levels are important as well—buyers are looking for media rooms, playrooms, wine cellars and gyms basically, taking full advantage of the footprint of the home.” “I feel the home theater might fall into that category, especially in the high end. Conversely, I feel tennis courts are less popular and much less important than they used to be.” “Outdoor living spaces. Living rooms, full kitchens, etc., and modern amenities.” “I would say movie theaters—not to be confused with home theaters—putting greens, and an eye on eco-friendly luxury, to name a few.”
· From an August 1, 2018 Financial Times article "Hamptons Property Sales Slow as Caution Spreads to the Wealthy"
"Home sales have slowed down this year in the Hamptons, the Long Island beach communities that serve as a summer playground for the wealthy of New York, bringing the median price below the $1m mark. Second-quarter sales fell 12.8 per cent from 2017 levels, according to data prepared for Douglas Elliman by Miller Samuel Real Estate. The median price dropped 5.3 per cent to a $975,000, compared with $1.03m a year earlier.
"The spring selling season is usually the high point of the year in the Hamptons, so the drop is stoking concerns that the resort areas of Long Island’s south shore are succumbing to the pressures depressing property activity in other parts of the US. Rising mortgage rates are increasing costs for homebuyers of all stripes. Higher-end properties have been affected by the 2016 federal tax reform, which imposed new limits on the deductions of mortgage interest and state taxes — the latter a particular concern in high-tax New York.
"The inventory of homes listed at more than $4.25m rose 36.5 per cent year on year in the second quarter to 329, according to Miller Samuel. Sales in the luxury market were down 11.6 per cent from last year’s level. 'The prices really ran up quickly and a lot of inventory built up, said John F Wines, a broker at Saunders & Associates in Southampton. 'Now sellers have had to get a little more realistic.'
"Judi Desiderio, chief executive at Town & Country Real Estate in East Hampton, said there is a 'glut in the market,' with pricing pressures most pronounced at the highest end. 'Those homes are being brought down significantly,” said Ms. Desiderio. 'We have seen houses listed at $15m brought down to $12m and maybe trading at $9m or $10m.' ”
· May 29, 2019: Financial Times: "Why are homes in the Hamptons losing value?"
"The housing market in the Hamptons, the string of picture-postcard, Long Island villages and hamlets around Southampton and East Hampton, which has provided summer relief for generations of wealthy New Yorkers, is in a hole. According to Douglas Elliman Real Estate, the number of home sales during the first quarter fell 19.3 per cent compared with a year earlier. This was the fifth consecutive quarter of falling numbers — and the lowest number for first-quarter sales in seven years. The median sales price of a single-family home was $860,000 between January and March, a 7.9 per cent fall compared with the same period a year earlier.
"Listings in the prime market have expanded rapidly, increasing during each quarter for the past six quarters. At the same time, the number of sales at or above $10m during the first three months was equal to the lowest of any quarter in the past six years. There are several possible reasons for the slowdown. Downsizing baby-boomers from New York are increasingly moving to lower-tax states, such as Florida. Added to that is the relative distaste — and inability — of millennials to buy second homes. Downward pressure might also be coming from the New York financial sector: average annual bonuses fell 17 per cent last year compared with 2017, according to estimates by the New York State Comptroller. It was the first decline in three years.
“However, Jonathan Miller of real estate appraiser Miller Samuel, blames tax changes brought in by president Donald Trump which included a cap of $10,000 on the amount of state and local taxes (including property taxes) that could be deducted from federal income tax. In high-price, high-tax states such as New York, this has resulted in some homeowners spending thousands more in tax every year and has caused a stand-off between buyers and sellers. ‘Everyone is pointing to the sellers and waiting for them to capitulate, says Miller.
Tim Davis, a broker at Hamptons agents Corcoran, agrees. In the past, the prestige of the Hamptons has made the housing market immune to sudden drops in price, he says. ‘But there is a certain amount of concern about changes in tax laws, and that causes people to think hard about their ownership.’ One of the problems with the Hamptons, says Miller, and the north-east in general, is that the tax changes affect the market more because homes are so much more expensive than in the rest of the US. ‘Most of the north-east is a high-cost, high-tax housing area,’ he says."
· From a July 2019 CNBC piece "Real estate in the Hamptons Had its Worst Spring Quarter in 8 Years"
"It’s been a cruel summer for Hamptons real estate. Real estate sales and prices in the Hamptons continued to fall in the second quarter, marking a year and a half of declines, according to a report from Douglas Elliman and Miller Samuel. It was the worst second quarter for sales in eight years.
"The weakness in the Hamptons is especially surprising given the strength of the stock market. For decades, Hamptons real estate rose and fell with the stock market since so many of the buyers worked in finance and Wall Street. But despite the S&P 500being up 20% this year, the Hamptons is suffering from some of the same pressures as other high-end markets — an oversupply of luxury homes, a lack of foreign buyers, changes to the tax law that have hit high-tax states hardest and sellers who are still clinging to 2014 prices.
"The worst may be yet to come. The number of homes listed in the Hamptons nearly doubled in the quarter, to more than 2,500. This is the highest level since Miller Samuel started collecting data in 2006. There is now a 15-month supply of listings. The glut is especially large at the high end — with more than a three-year supply of luxury properties, according to the report. 'I think it’s premature to talk about a turnaround until the inventory growth slows down,' said Jonathan Miller, CEO of Miller Samuel, the appraisal firm."
· From a 2019 article in the New York Times “In the High-Flying Hamptons, Real Estate Is in a Rut”
"Buyers seem to be staying on the sidelines. The number of single-family homes on the market during the first three months of 2019 was nearly double that of a year earlier: 2,327, up from 1,201. And sales of single-family homes have dropped, to 287 from 350 in 2018. One thing making buyers hesitate, said Jonathan J. Miller, the president of the appraisal firm Miller Samuel and the author of the Douglas Elliman report, is the new federal tax code approved by Congress in late 2017, which makes it more expensive to own luxury property because homeowners can deduct only up to $10,000 in state and local taxes from their federal income taxes. ‘The Hamptons are trending much like the New York City metro area,’ Mr. Miller said, noting that the situation is similar in other parts of the Northeast and in California, where real estate is pricey, and property taxes are high.
‘ ‘The slowdown in sales represents the disconnect between sellers, who are anchored to better times, and buyers, who have a lot of changes to process,’ Mr. Miller said. Any sense of urgency was further quelled by the ‘intense volatility of the financial markets at the end of last year, along with the close linkage of Wall Street to the Hamptons,’ he added.
“A 17 percent dip in bonuses in the finance industry in 2018 likely also discouraged Wall Street workers from buying second homes in the Hamptons. The average bonus for financial market employees in 2017 was $184,400; in 2018, it dropped to $153,700, according to a report from the New York State Comptroller.”
· From CNBC article July 23, 2020: "Home prices in the Hamptons hit record as wealthy New Yorkers flee to the beach"
"Home prices in the Hamptons hit new records as wealthy New Yorkers fled the Covid-19 troubles of the city for the beach, according to a new report. The median price of a single-family home in the Hamptons reached a record $1.1 million in the second quarter, an increase of 25% over last year’s second quarter, according to the report from Miller Samuel and Douglas Elliman. The average sale price hit $2.1 million, as the sale of several eight-figure mansions drove up the average.
"The rebound in the Hamptons, after nearly two years of weakness in 2018 and 2019, shows how the coronavirus is remaking the real estate landscape, as affluent people flee big cities for the suburbs and vacation communities. While the Hamptons has long been the summer playground of the Manhattan elite, brokers say the current wave of buyers are making the Hamptons their main home, returning only occasionally to the city for meetings or events.
"The strong quarter also shows how Covid-19 has been a windfall for suburbs and beach .
communities like the Hamptons, which have lagged in the housing rebound after the Great Recession. The Hamptons saw seven straight quarters of declining sales in 2018 and 2019, and the median sales price of a single-family home dipped to $812,500 in 2018. The declines led to social-media and news commentary that the Hamptons was “dead” as a status symbol and real estate market. 'This has given the Hamptons a new lease on life,' Miller said. 'The pandemic may have started the trend, but it’s the technology, and the acceptance of working from home now, that will make it more lasting.' ”
· From a March 12, 2020 WSJ article “Despite Its Glitz and Glam the Hamptons Real Estate Market is Looking Grim”
“Located about 90 miles from Manhattan, Long Island’s South Fork is facing its worst real-estate slump since the financial crisis. That is partially due to the same market forces pounding New York City real estate, like oversupply, brokers said.
“But the Hamptons is also losing some of its allure. Over the past decade, the South Fork has developed a reputation for McMansions, a status-obsessed culture and grueling traffic, even as luxury homes got bigger and asking prices climbed higher. Younger buyers especially have responded by voting with their feet, eschewing the pricey beachside haven for other second-home destinations, from the Hudson Valley to Long Island’s more-relaxed North Fork. Some are going farther afield to Nantucket, Martha’s Vineyard or even the Caribbean. And while the Hamptons still have plenty of loyal devotees, many are baby boomers looking to downsize into smaller homes, leaving large, high-maintenance estates lingering on the market.
“The Hamptons ‘has more competition than it has in the past,’ said New York real-estate appraiser Jonathan Miller. As new wealth is created in the tech sector, he said, ‘I’m not sure they place the Hamptons at the top of the to-do list.’
“After years of skyrocketing home values, the Hamptons real-estate market was dismal last year.... ‘All of 2019, every day, every real-estate broker walked into their office, they saw price reductions,’ said Judi Desiderio of Hamptons-based Town & Country Real Estate. ‘It was staggering.’ Even with falling prices, the Hamptons are still prohibitively expensive for many New Yorkers. And a growing number of home buyers are avoiding the Hamptons for reasons other than cost.”
· From Hedges March 24, 2021 Taylor Vesey "The Great Hamptons ‘Land Rush’ of 2021"
“Judi Desiderio, the CEO of Town & Country Real Estate, agrees. ‘The COVID kick-up ate away at three years of inventory,’ she says. ‘Buyers are finding little to no options in particular locations and price ranges. That opened the door for land and build.’
“She believes the “land rush” began a few years back and buyers and developers have been buying teardowns because vacant land is so scarce. ‘As I always say, “We live on an island,” ‘ she says. ‘So unlike Aspen or other resort towns, you can’t drive an hour outside the villages for more land — you’d be in the ocean or bay.’ ‘The difficulty today is what I call the three ‘Ls,’ she continues. ‘Land is more expensive, labor is more expensive and now lumber and materials are more expensive, due to COVID shutting down manufactories, forest fires, floors and tariffs.’
“There are certainly a lot of positives to building your own dream home. The land cost spike varies. ‘In general, land is up across the board by at least 15-percent to 30-percent. In some areas, it has doubled,’ says Morabito. ‘If the spec guys are spending around $300 to $500 a square foot, the average range for an end-user will come in around $400 a square foot to infinity, depending on what they want. In the luxury market, you’re starting at $1,000, minimum, a square foot.’
"Morabito started out as a land developer and has an affinity for this part of real estate. ‘I’ve always looked at what’s under the house as part of the pricing strategy,’ he says. ‘The most important factor is the location of the land. If the property is on the water, then you need to take the linear feet of the frontage into account and then the square footage of the house and what’s in it. A good broker knows how to crunch those numbers in order to get a fair read on what a property is really worth.’
“Land varies from $3 to $8 million for choice south-of-the-highway parcels, and $1 to 2.5 million for north of the highway, according to Bodenchak. ‘Waterfront is a different animal, and varies from $3 to $20 million or even higher,’ he says. Bodenchak further explains that price within the range depends on size, buildability concerns, such as impediments like wetlands or clearing, views, distance from the road and proximity to local attractions, like the ocean beaches. ‘On top of that, we see builders charge from $400/foot to over $1,000/foot for above-ground space…. It’s a wide gamut’ he says.”
· From a January 2023 Investopedia article : "Hamptons Home Sales Fall to Lowest Since Collapse of Bear Stearns, Lehman Brothers":
“Housing sales in the Hamptons, a second-home getaway for Wall Street workers at the eastern end of Long Island, fell to the fewest since the Great Recession after a dismal year for financial markets threatened to slash bankers' bonuses. Just 251 homes sold in the fourth quarter, down 53% from a year earlier, according to appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. In the luxury market, defined as the top 10%, there were just 26 sales, a drop of 52% from the fourth quarter of 2021. ‘Remembering that 2021 was a rocket ship, sales have overcorrected,’ said Miller Samuel President Jonathan Miller. ‘It’s not a traditional housing market, it’s largely a second-home market. We usually see a fairly robust fourth quarter, because this is largely a discretionary purchase market.’
“The last time sales were this low was 2009, in the aftermath of the collapse of investment banks Lehman Brothers and Bear Stearns. Demand in the Hamptons market is driven mainly by Wall Street bonuses, which are forecast to drop by as much as 45% after a year in which volatile markets, high inflation, and the threat of a recession led to a drop-off in stock and bond sales, as well as mergers and acquisitions.”
· From a 27East Article Jan 31, 2024 : "Fourth Quarter of 2023 Saw More Hamptons Home Sales, Higher Median Price"
"The number of homes sold in the Hamptons in the fourth quarter of 2023 ticked up 8.8 percent compared to a year prior, the first time in eight quarters that the market experienced a year-over-year sales increase.
“Though the long-awaited sales increase is good news for the state of the market, the number of sales was still lackluster compared to the 10-year quarterly average. Market experts attribute the low sales figures mainly to the persistently and stubbornly low inventory of homes for sale after the pandemic-driven buying frenzy of 2020 and 2021 absorbed much of what had been on the market. The slim pickings, especially among more modestly priced and mid-range homes, contributed to the median sales price skyrocketing 45 percent to $1.85 million, a record high.
“Bourgard expects that when rates fall to any number that starts with a 5, there will be a generous uptick in sales. The Fed began hiking rates in March 2022 to tame inflation, which has cooled significantly. Somewhat miraculously, the hikes did not cause a recession or a spike in unemployment, though the Fed is planning the rate cuts to ensure the economy continues to hum along. ‘I can't remember being in a period of time where housing was anticipating rate cuts when unemployment was below 4 percent,’ said Jonathan Miller, the president and CEO of Miller Samuel Inc., a real estate appraisal and consulting firm. ‘It’s like the perfect storm for housing in 2024. Granted, it’s not going to be a boom or frenzy, like we had during the pandemic, but it’s going to be a year of higher transactions.’
“ ‘Many of the brokerage community will say that the high end doesn’t rely on interest rates, and that’s true to a certain extent,’ Miller said. ‘But they also watch the financial markets very closely as a whole, and Fed policy clearly impacts the performance of the financial markets.’
In the $10 million and up range, there were 21 sales in the fourth quarter of 2023, compared to a recent norm of around 10 sales per fourth quarter. ‘This is not evidence of a rapidly appreciating market,’ Miller said. ‘This is evidence of a sharp shift in the product mix of what’s available, or what was actually purchased.’
“ ‘You can’t sell what you don’t have,’ Bourgard said, explaining why sales numbers are not as high as they could be. Of the inventory that has come on the market of late, Miller is hearing that price is an issue. ‘The feedback that I get from brokers on the ground, generally, is that the new product coming in seems to be priced on the high side, so the inventory quality isn’t necessarily as good as it could be,’ he said. The high end has plenty of inventory to go around, though when priced unrealistically high, properties don’t meet the needs or expectations of high-end buyers who are waiting to find the right fit.
“Miller notes that the top 10 percent of the market in the Hamptons has 50 percent of the supply. In the fourth quarter of 2023, the entry level to the top 10 percent of sales was $7.3 million — and more than half of the 1,026 listings available at the end of 2023 were priced at $7.3 million or higher. ‘It shows how detached the high end of the market is from the overall market, Miller said.
“ ‘People want to have a starter house, and they should have a starter house,’ she said. ‘But there’s no more inventory. There’s no more land that can be subdivided. That’s it. We're done. And we’re surrounded on three sides by water. So where are you going to go?’ She continued: ‘How do we provide for teachers and firemen and cops and doctors even? I’ve had doctors say to me, “I can't afford a house out here.” That breaks my heart.’ ”
· From an article Feb 2024 in Mansion Global "Ultra-Wealthy Home Buyers and Renters Are Getting an Early Start in New York’s Tony Hamptons"
“Home sales in the Hamptons, the affluent eastern tip of Long Island, New York, have boomed since the start of the pandemic, and demand for homes in the tony beach town shows no signs of abating in the year ahead. In fact, 2024 is poised to see more activity and an increase in property prices compared with the past few years, local agents said. Prospective buyers should expect to pay more for that dream Hamptons home than they would have in the past, while sellers with luxury properties can generally look forward to deals that close fast at the asking price or even above it…
"Steinberg has also seen a growth in closed sales. His $12 million figure in 2022 rose to more than $20 million last year, and he projected that number to increase by at least 25% in 2024….He attributed the strong interest to the general global unrest, such as the war between Israel and Hamas and protests in Europe. ‘My high-net-worth clients aren’t going to the Amalfi Coast or South of France this summer because they’re hesitant about traveling abroad,’ said Steinberg. ‘They’re staying put and looking for a Hamptons home where they can spend the season.’ ” He noted that his clients are considering both renting and buying, depending on what they can find. ‘It’s whatever opportunity is best,’ he said. They’ve already embarked on their search in anticipation of the peak summer season, Steinberg said. ‘Normally, people ‘start looking around President’s Day weekend, but in 2024, they started right after the new year.’ “
· From a February 2024 Podcast Article in 27East: "Real Estate Analyst Gives 2024 Hamptons Outlook | 27Speaks Podcast"
‘The impact of interest rates: Miller is calling 2024 ‘The Year of Less Disappointment.’ He explained that 2023 is the end of the pandemic era, and 2024 is a step forward. He attributes this to the Federal Reserve’s announcement in December 2023 that it would cut interest rates by 75 basis points in 2024, meaning that mortgage rates will drift lower. The stereotype of a high-end Hamptons buyer is ‘oh, they don’t care about interest rates,’ and that’s patently not true. Because while they may not need interest rates to necessarily finance their purchase, they’re looking at the financial markets, which are heavily influenced by Fed policy.
"The fact that sales volume has been lower indicates that interest rates do matter to those buyers, he noted. ‘Interest rates across the economy influence their business lives,’ he said, ‘and during 2023 there wasn’t a path forward. No one knew if the Fed would raise interest rates for another year or two. But when the Fed announced this past December that it would cut rates in 2024, and by how much, it “tightened up the story,” he explained, adding that Wall Street is also factoring in another two rate cuts in early 2025. The general pattern of housing markets today, whether a primary market or vacation market, suburb or urban, ‘the story is almost universally similar across the nation, which is that inventory is restrained.’ ”
· From a Hedges Article August 2024: "Interest Rates Take a Dive, but What Does it Mean for the East End?"
Note: All in, of the seven brokers interviewed in this article, not a one talked about house sizes or potential house size code changes. All said only macro factors were important:
“Earlier this month, mortgage rates took a plunge, declining to the lowest level in nearly 15 months and coming in below 6.5% for the first time this year. Mortgage rates have been trending downward since mid-July, perhaps signaling good things to come in many housing markets. We asked our esteemed panel of agents how they each anticipate it affecting the East End market. Experts don’t expect rates to recede much further.
“ ‘Lower-trending interest rates spell very good news for our real estate market out here on the East End! I have already noticed an uptick in buyer interest now that money is cheaper. Also, there has been an increase in inventory as sellers, who had low-interest mortgages and were hesitant to give it up to either downsize or upsize, now feel more comfortable making a move with these lower rates.’
“ ‘I don’t think rates have as large an impact on the niche Hamptons market. However, I have observed a notable decrease in showings across all my listings and at my open houses, which I think is because of the extraordinary weather we’ve been experiencing.’
“ ‘Most of our home sales out east are cash deals, therefore, logic would tell us interest rates don’t matter…but in fact, they do. Partly because most of our clientele is sensitive to interest rates to help grow their businesses, mostly because the overall economic conditions impact Hamptons and North Fork sales since we are largely a second home market. In addition to interest rates, factors such as inflation, geopolitics and the looming presidential election, all create a pause on nonessential financial decisions for some buyers and sellers. We have seen these cycles before; this too shall pass.’
" ‘However, I have observed a notable decrease in showings across all my listings and at my open houses, which I think is because of the extraordinary weather we’ve been experiencing.’
“ ‘This current summer decrease in rates is a precursor to the CeeJackTeams’ Hamptons fall business. Creating sauce for the impending Fed rate cut in mid-September will ripen our sidelined buyers and sellers and be the psychological waterfall we have been anticipating.’
“ ‘I feel lowered rates will take us into a healthier cycle, as it will bring buyers who have been sidelined by higher rates back into the mix, while simultaneously allowing homeowners who have been waiting for more palatable rates to list their properties.’
" ‘Sellers are apprehensive to downsize with low inventory and rates still way above their previous refinanced levels. This being said, the Hamptons real estate market is highly correlated to Wall Street wealth and all signs are pointing to a robust if not healthy bonus year-end. We shall see.’ “
From a Sept 23, 2024 Hedges article: "With the Season, a Change in the Hamptons Market"
“ ‘Yes, absolutely, I have seen a pickup since LD! My take on why the market has picked up and why I think we are in for a strong fall:-Mortgage rates have dropped significantly-Buyers and sellers are much more aligned on value and desire to transact-Inventory, although, light is improved in quality from what we saw last year and the year prior-Sellers are becoming more in line with what their expectation of home value is compared to what the actual market value is. Which is creating more appropriately priced homes!’
“ ‘The lack of inventory remains a factor at all price points, and we didn’t see a major uptick in inventory after Labor Day like we have in the past.’
" ‘A presidential election cycle historically yields a slowdown in activity on the East End, but this year we have seen interest across all price points, including contracts being signed for properties in the $10 million to $20 million category. The future is difficult to predict without a crystal ball but, if consumer confidence remains stable and Wall Street responds in kind, we can hope to see continued and robust sales activity in the Hamptons into 2025.’ “
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And finally, on February 13, 2025, 27East published a Pulse Real Estate Roundtable 2025
In this session, they posed questions to a roundtable of 10 brokers about the state of the 2024 year in East End real estate and their outlook for 2025. Again, the only explanations and drivers they cited were macro in nature--the election, interest rates, inflation geopolitical tensions, a lack of inventory, construction materials supply chain. With respect to their outlook for 2025, all said that they expect 2025 to be a "more balanced" year and overall expressed modest optimism for East End real estate market. Not a single one of these brokers made any reference to concern about pressure on the market coming from pending or already passed changes to zoning code in East Hampton.
With respect to their outlook for 2025, all said that they expect 2025 to be a "more balanced" year... Not a single one made any reference to concern about pressure on the market coming from pending or already passed changes to zoning code in East Hampton.
Analysis 3: What Does Scholarly Research Tell Us About Relationship Between House Size and House Price?
In Analysis 1, we noted that based on review of news archives, we find anecdotal information/confirmation that since the late 1990s/early 2000s, there's been some degree of upward trend in house size towards, and that numbers over the last couple years based on studying sample sets of speculative new construction listed for sale as well as new construction permits issued by the town in 2023 also confirm increasing house size..
In Analysis 2, we illustrated that the East End real estate market (eg, prices, # of transactions) is driven clearly by external macro factors such as overall financial markets, monetary policy, (eg, interest rates, liquidity/stimulus), elections, weather, and most importantly, by exogenous events/"shocks" such as the 2008 financial crisis & the extreme 2020 pandemic dynamics.
But yet, even as upward trend in house size appeared to be unfolding over two or more decades through 2024, we still see that growth in house prices was minimal from about 2008 through to 2019, until the covid bubble supercharged the market starting in 2020.
But we haven't left the analysis there. As we continue to assess the questions "do EH property values depend only or mostly on expanding house sizes?"& "what might happen if the Town makes a zoning code change to modulate maximum allowable house size?" we've also been digging into the body of scholarly academic research on the topic of home price modeling & impact of an array of variables on property values.
All of this research is rather technical, quantitative & dense; the papers are filed with complex equations & terms like "hedonic pricing models," "spatial econometrics" & "quantile regressions," most of which is well beyond the scope of this blog piece. Though I am analytical by nature & profession, I'm no PhD, but I've slogged through a meaningful number of these academic papers -(so you don't have to :).
In summary, here are seven important and relevant themes we've gleaned from research studies published over the decades:
Each house constitutes a bundle of attributes, all of which contribute to the ultimate sale price of the house. Academic studies and pricing models use various quantitative techniques to decompose the transaction price into various components, including both (a) structural traits (e.g interior and exterior house/property features such as square feet, lot size, age, garages and basements, etc); as well as (b) what are known as "spatial considerations" (e.g. location, neighborhood characteristics, open space, proximity to desired features, etc.)
In several studies assessing the marginal value, percentage contribution, or elasticity value of an array of housing characteristics, square footage/house size is identified as one of the variables or marginal factors that can be seen to have a positive correlation with or relevant impact on house prices to one degree or another. However, we don't find studies that show it to be the sole or dominant variable that defines value.
House size is one of about a dozen structural characteristics that show up in quantitative models as having positive correlation with house price more frequently than not. These include lot size, number of bathrooms, pools, garages, basements, and potentially, age/newness of the structure. Research also concludes that the impact of individual features -- i.e. the elasticity of house price with respect to house characteristic -- cannot be easily or definitively or reliably quantified.
Characteristics such as house size, are not necessarily priced the same/equally across a distribution of price categories. Specifically, the marginal value, percentage contribution, or elasticity value of a certain housing characteristic may be different across the range of house prices. Some studies suggest that factors including house size, incremental square footage and number of bathrooms are valued significantly more within the highest price cohorts than what is determined in the more moderate and lower price ranges. The wealthy purchasers of higher priced homes appears to value certain characteristics such as house size differently and more fully/to a greater degree than buyers of homes in ranges below the very high end.
Aside from the specific structural traits of an individual house/property, research studies also make clear that house prices are heavily influenced/driven by broader context, or a set of spatial characteristics, particularly location, neighborhood characteristics, proximity to desirable features and services (both natural and man-made), proximity to conservation and open space areas, as well as attractive natural/environmental/ecological features, views and other aesthetic conditions. Research further shows that the influence of these spatial and contextual factors can and do have much or more impact on house prices/values than the structural house configuration and dimension-specific factors.
Several studies indicate that the impact of house size as an explanatory variable with respect to selling price is based on size RELATIVE to other houses within the broader market area, rather than correlating to absolute size per se. This suggests strongly that if the zoning code is amended to reduce allowable maximum house sizes across all lots, then once the bar is reset, prices should continue to appreciate over time relative to what is actually built.
Studies also demonstrate material impact of macro factors such as supply/demand dynamics, economic cycles, financial markets and interest rates on house prices. In addition, increases in local property taxes are shown to be capitalized into house prices and have a negative correlation/effect on property price.
We will return to these last two points in more detail at another time, as they are particularly relevant to discussion of the zoning code change and the relationship of house size to house price in East Hampton.
Analysis 4: Who is really benefitting from the ballooning house size...the "average" long-term resident, or the developers and speculators?
Another opposition claim we hear that also needs vetting: the real estate industry says that current code assures that long-term residents garner big profit windfalls when they "cash out" and sell their properties, and it cautions that if a town board moves to modulate the max size allowed or towards other types of restraint, then residents (aka “regular folks”) will be deprived of meaningful profits when they sell.
Our attempt to assess and substantiate the root of that warning claim prompted us to look at the question of who is actually realizing and benefitting from the outsized transaction prices or profit "windfalls"?
Taking a stab at this analysis, as laid out in the spreadsheet below, we’ve gathered data on 86 properties that have been listed for sale by developers over the last year or so. (Stay tuned, we will be updating with an expanded sample set for this analysis very soon.) Specifically, we've found and compared the date & price at which owners (primarily long-term owners and/or residents) sold their properties to developers with the when and for what price the buyer/developer re-lists the same property. We express the difference as a multiple of developer’s for-sale listing price vs. what they paid to the prior owner to acquire the property for development. We've also counted the number of months between that sale and the listing.
The magnitude of these multiples surprised us, as did, in many cases, the short time frames between developer purchase & relisting. If you scroll through our analysis spreadsheet & focus on the numbers in red, you’ll see those multiples and months.
To summarize, for the most part, the developer resale multiples ranged 2x-3x for renovations, & between 3x-12x for redevelopment/new construction. Overall, the average multiple for this data set is 5.3x, and the average time elapsed from prior owner sale to developer new listing is 23.8 months. Let that sink in.
So, looking at this data set, one has to ask: who is really benefiting from the current code and oversized development trends? Is it the “regular” long-term owner who sells who enjoys robust and maximized profits? Or are outsized revenues & potential unprecedented profit “windfalls” being extracted rapidly primarily by a subset of developers and other real estate industry members who work with and facilitate them?
So, looking at this data set, one has to ask: who is really benefiting from the current code and oversized development trends? It does't appear that it is the long-term resident property owners.
Looking at numbers like these, is it any wonder that a segment of the industry is compelled to fight hard against zoning code amendments that might deliver any modulation to max-out levels and add some modest restraint for the purpose of achieving more balanced land use for the benefit and resiliency of the community and the natural ecosystems?
Analysis 5: What has actually happened to house prices after changes to maximum house size zoning code?
Let's first look at the two specific years when changes to the zoning code relating to house size were last made in the Town of East Hampton: 2008 and 2016/17.
In 2008, the first formula specifying a maximum GFA allowance was put in place: 12% of lot area +1600 sq ft was adopted
In 2016/2017, the when the formula was adjusted to 10% of lot area +1600 (adopted in 2016 and took effect January 2017) to reduce maximum house size.
In 2008 and 2009, of we see a decline in house prices, sales and transactions, but it is incontrovertible based on facts and real estate observations at the time, that the sole driver of temporary decline in prices was the brutal 2008 crash/financial crisis.
In 2016/2017 the town implemented the change to reduce the formula from 12% to 10% of lot area, but sales rose and transaction numbers rose, even in the context of that fact that fiscal stimulus policy started to recede and interest rates started to rise meaningfully for the first time in 8-10 years-- factors that generally pressure real estate prices. In 2016, the market saw a modest decline in transactions as well as the median and average price vs 2015, but that was clearly attributed in broker commentary to stock market turmoil in the beginning of 2016 as opposed to any anticipation related to potential code change. More relevant, in 2017, when the reduction was in place for the entire year, prices increased modestly year-over-year and rose again in 2018
But perhaps the most instructive and relevant case study to understand what can happen to property values after a code change is adopted to add more restraint to maximum house size is the following: a very meaningful real-world code change example in a place that has dynamics very similar/relevant to East Hampton…In April of 2013, the Town of Chilmark, MA on Martha’s Vineyard adopted a ground-breaking new zoning code bylaw to limit maximum house size to 3,500 sq ft on lots of 3 acres, with an adjustment up or down by 250 sq ft per acre larger or smaller.
To put that in context, current EH Town code allowed a max house size of 14,668 sq ft on a 3-acre parcel — more than quadruple the MV limit – prior to the recent reset of the final cap on GFA from 20,000 to 10,000
Now in place for over a decade, the actual effects & impact of that “big house bylaw” has been regularly and closely observed/analyzed in real life & real time.
And what’s been found is that the bylaw reduced new construction size by > 40% but there have been no material negative impacts seen as a result of the change; 10 yrs later, none of the concerns, opposition points or feared unintended consequences (e.g. crash of real estate prices/activity, downturn in local economy, surge in demand for variances/special permits etc.) have materialized. In fact, average house prices more than doubled (+120%) 2023 v 2013, even though average size has been reduced by more than 40%.
As quoted in a local paper in 2021, eight years after the amendment: “Eight years later, the Chilmark big-house bylaw is hardly talked about. And despite widespread fears and concerns about unintended consequences such as burdens on the zoning board and impacts on property values, few negative impacts have been reported.”
Eight years later, the Chilmark big-house bylaw is hardly talked about. And despite widespread fears and concerns about unintended consequences...few negative impacts have been reported.
Every two years post the 2013 adoption, the Chilmark Planning Board and Zoning Board both review and report about the impact they see from the house-size bylaw, and we've read all those reports and they have never observed or identified any negative impacts related to the reduction in house size maximum. In their 2022 report they wrote: "In brief, both the ZBA and the Planning Board agree that the Residential Building Size Regulation bylaw appears to be working...We note that the number of permits for Additions increased significantly in the 2020-21 years. However, the Residential Building Size Regulation bylaw does not seem to have had a material effect on either the number of building permits or the number of special permit applications." And in the most recent report issued last year, they also found no issues.
We would note that the 2024 the median home price in Chilmark was $6.6 million. That compares to the medians reported for 2024 by East End realtors of $1.850 million for the "East Hampton area" (including Wainscott), $2.100 million for Montauk, and $4.274 million for Amagansett.
In 2024 the reported median home price listing in Chilmark was $6.6. million, way higher than the 2024 medians reported across the Town of East Hampton.
Perhaps even more compelling, another MV town, West Tisbury, having seen the positive impact of the 2013 Chilmark change and the lack of any resulting negative impacts, proposed & adopted in April 2022 –by a nearly unanimous vote of citizens- a very similar bylaw capping house size at 3500 sq ft on 3 acres. And now, Edgartown—a 3rd of the 6 MV towns—last year started to draft and consider similar house size limits as well.
The point here is not to say East Hampton should adopt a zoning change to reduce house size on 3-acre lots to 3500. The point IS to say that our Town can make appropriate and meaningful changes for our community to allowable house size without capitulating to all kinds of fears about crashes and catastrophe as promulgated by the real estate opposition arguments time and time again.
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