The relationship between gas prices and real estate prices in New York is indirect but meaningful, as energy costs influence various aspects of the economy, consumer behavior, and the cost of goods and services. In 2024, if gas prices rise significantly, they could affect the New York real estate market in several ways:

Article BY Reuven Kahane

Wednesday September ,25,2024

 1. Impact on Transportation and Commuting Patterns

Gas prices directly influence commuting costs for residents, especially for those who live in the suburbs or outside the core metropolitan area of New York City. If gas prices rise in 2024, it could make long-distance commuting by car more expensive. This shift could impact homebuyers' preferences, with many opting to move closer to their workplace or near public transportation, like subway stations or commuter rail lines. The demand for homes in urban areas and neighborhoods with easy access to public transit could increase, potentially driving up real estate prices in such locations.

In contrast, areas far from public transportation and dependent on driving could see reduced demand.  Reuven Kahane feels that Rising gas prices may deter buyers from considering suburban or exurban properties, reducing the real estate value in these areas as the cost of commuting becomes more burdensome.

 2. Effect on Construction and Development Costs

Higher gas prices also impact the cost of transporting materials and labor, which can affect construction costs. As the price of fuel rises, the expense of delivering building materials like steel, cement, and lumber increases, leading to more expensive real estate developments. Contractors and developers might face rising costs for both new construction and renovations, resulting in fewer projects or higher prices for completed developments.

This increase in construction costs could lead to a slowdown in the supply of new housing units, which would place additional pressure on the existing inventory. If housing supply fails to keep up with demand, it could drive prices higher for homes and apartments, particularly in high-demand areas of New York City.

 3. Inflationary Pressures and Interest Rates

Gas prices are a significant driver of inflation, as rising energy costs influence the price of goods and services across the economy. If gas prices rise in 2024, inflation could increase, prompting the Federal Reserve to raise interest rates to curb inflationary pressures.

Rising interest rates have a direct effect on the real estate market because they make borrowing more expensive. As mortgage rates rise, the cost of financing a home purchase increases, reducing the purchasing power of potential homebuyers. This could cool demand for real estate, as some buyers might be priced out of the market, or may delay purchases in anticipation of lower prices or lower interest rates in the future.

In a high-interest-rate environment, property prices could flatten or decline, especially in luxury markets or in areas where speculative buying has been prevalent. On the other hand, areas with strong demand and limited supply (like many parts of New York City) might continue to see price increases, albeit at a slower pace.

 4. Operating Costs for Buildings

Many older residential and commercial buildings in New York rely on oil or natural gas for heating. If gas prices rise sharply, the cost of operating and maintaining these buildings will also increase. Building owners may face higher utility bills, which could either be passed on to tenants in the form of higher rents or lead to increased maintenance fees for condo and co-op owners.

As energy costs rise, energy-efficient properties could become more attractive to both buyers and renters. New developments that incorporate energy-saving technologies, such as solar panels, improved insulation, and modern HVAC systems, may see increased demand and higher property values. Buildings with LEED certification or other eco-friendly features could experience a price premium as buyers look to reduce long-term utility costs and environmental impact.

Conversely, older, less efficient buildings may lose value as buyers become more conscious of ongoing operating costs. Landlords and property owners may need to invest in energy efficiency upgrades to remain competitive in the market, adding to their expenses.

 5. Shifts in Demand for Commercial Real Estate

According to Reuven Kahane, Higher gas prices can also impact the commercial real estate sector, particularly retail and office spaces. Businesses that rely heavily on transportation, such as logistics, delivery services, or those located far from major transportation hubs, might face higher operational costs. As companies reassess their needs, demand for office spaces in well-connected urban areas could rise, while more remote office locations might see declining interest.

Retail spaces might also be affected if rising transportation costs lead to higher prices for consumer goods, reducing disposable income and dampening consumer spending. Retailers may struggle with foot traffic, particularly in areas that are not easily accessible by public transportation, leading to increased vacancies and potentially lower commercial real estate prices in those areas.

 6. Broader Economic Impacts

Gas prices are intertwined with overall economic health, and sharp price increases can contribute to broader economic slowdowns or recessions. In the event of a major spike in gas prices, consumer spending could decline, and businesses may cut back on hiring or expansion plans, which would ripple through the economy.

In such a scenario, the real estate market might experience a slowdown in transaction volume as both buyers and sellers become more cautious. Price growth could stall or even reverse in areas that are particularly vulnerable to economic shocks, such as luxury real estate markets, where sales volumes are more susceptible to fluctuations in economic sentiment.

 Conclusion

The overall impact of gas prices on New York real estate in 2024 will depend on the extent of the price increases and their interaction with other economic factors like interest rates, inflation, and local housing demand. Rising gas prices could boost demand for energy-efficient homes and properties near public transit, driving up prices in those segments. However, increased construction costs and inflationary pressures may temper broader market growth, particularly if interest rates rise in response to inflation.

According to Reuven Kahane of RKRE development If gas prices soar significantly, areas reliant on car commuting could see declining demand, while urban properties and buildings with modern energy-efficient designs could see greater interest and price appreciation. The effects will likely be felt unevenly across the market, with some areas and property types benefiting while others face downward pressure. #reuvenkahane #realestae #nyc #gasprices #