Why are those new housing developments almost all rentals? What happened to co-ops?

In Westchester's major cities, hundreds of residential buildings continue to be built, creating tens of thousands of apartment units.

Nearly all are rentals.

A combination of high demand for housing, lower costs to build rentals, easier financing for developers, and government financial incentives have contributed to a booming rental market. Rents have soared since the pandemic.

Condos and co-ops long offered a key path to first-time homeownership, but these days homeownership seems less appealing thanks to high mortgage interest rate and low inventory.

Over the past five years, rents across the Hudson Valley region have increased between 25% and 45%, according to a report by Hudson Valley Pattern for Progress.

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Anthony Pili, senior vice president at Orange Bank & Trust, said that for developers, rental apartment buildings bring more profit with less risk.

“It’s like the stream runs down stream towards multifamily,” he said. “The combination of being able to build more units, getting certain preferential treatment from building multifamily rental buildings, makes it very difficult to compete for developers who want to do condo projects.”

Carmen Bauman, president elect of Hudson Gateway Association of Realtors, said these trends may not change soon unless there is a break point like a significant change in interest rates.

“I do think that’s a problem because condos and co-ops are probably the new first-time home for people,” she said. “Somebody will have to build condos, co-ops or maybe these rental buildings will convert.”

Here are key reasons that rental housing appeals to developers:

Rental housing easier to finance

Many banks only offer loans for multifamily developments, which are considered less risky compared to condo projects. With "such a tremendous demand and little fluctuation in rental rates," developers of rental projects are more likely to pay back their loans, Pili said. Economic conditions tend to not stop these projects from being completed, he said.

Building costs are lower

Developers can build more units in rental buildings because tenants may have lower expectations for unit size and are open to sharing amenities like laundry facilities and parking, said Pili. It also may take less time to get site plan approvals to develop rental buildings. And developers only incur a one-time closing fee that includes an attorney fee, broker fee and more.

Government incentives

Many municipalities encourage developers to build more multifamily buildings to address housing shortages by offering financial incentives, such as tax breaks.

Less taxes on rental developments

Pili said multifamily rental developments incur less taxes than housing that is sold. In most situations, developers don’t need to pay taxes on the income from operating rental buildings, he said. By comparison, nearly 50% of the income of each sale of a condo or co-op is taxable.

Helu Wang covers development and real estate for The Journal News/lohud and USA Today Network. Reach her at hwang@gannett.com.

This article originally appeared on Rockland/Westchester Journal News: Why are new housing developments in Westchester NY mostly rentals?