The Grim Math of the Working-Class Housing Crisis
theatlanticcities.com
theatlanticcities.com
"That inability is mushrooming, driven by increasing rents across much of the country and wages that aren’t going anywhere."
One has to wonder: where is the money coming from that drives up these rents, if wages are stagnant? The issue is supply and demand.
Why has supply decreased? Part of the answer is the housing bust, which followed the housing boom (irrational exuberance was counter balanced by irrational pessimism):
http://www.calculatedriskblog.com/2013/09/ny-times-on-shorta...
As it says there:
"The latest land rush is in full swing, as developers realize that they have failed to feed the zoning, permitting and mapping pipeline, which can take months or years to turn raw fields into buildable lots."
The other side of the supply and demand issue is the increase of foreign demand. Some of the money comes in the form of foreign money that speculates in the American real estate:
http://www.nytimes.com/2011/07/07/nyregion/more-apartments-a...
As it says there:
"But some Manhattan neighborhoods are assuming that vacant feeling the year round, because the people who own or rent apartments there actually live somewhere else most of the time. "
A combination of housing bust and foreign speculation in USA real estate leads to a situation where rents go up even when wages are stagnant or falling.
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A possible explanation of the international forces at work is offered here:
http://krugman.blogs.nytimes.com/2013/09/26/trade-and-secula...
This was interesting to me:
"So the causation could run the other way, with deregulation and rising leverage pulling in foreign capital, keeping the dollar overvalued, and producing persistent deficits."
New York City is one of the safest big cities, has very high wages, and very slow production of new housing due to a lack of buildable land and zoning that makes it difficult to replace small buildings with larger ones in many areas. These factors lead to very high demand with little new supply to meet it.
This is not true, new housing is actually one of the things NYC has done really well. See this story for more detail: http://www.wnyc.org/story/300641-how-new-york-vertical-city-...
>building boomed during the Bloomberg years, both in terms of sheer numbers and in terms of height ... In fact, the housing supply well outpaced the city's population growth, as it has in the past several decades. The number of housing units increased 5.3 percent between 2000 and 2010, while population rose just 2.1 percent, according to the Furman Center
New York may be building more than, say, San Francisco, but it's not building enough given a country with increasing population and the growing popularity of city living. New housing units may well be smaller than old ones.
That's a misleading and mostly irrelevant statistic because population growth in the USA is not homogenous. Half the growth from 2000-2010 has been hispanic, a population that tends to live in western and southern states - not the northeast/NYC. This is reflected in geographic maps of population growth: http://www.cgpgrey.com/blog/united-states-population-growth-.... 10% growth hasn't occured anywhere near NYC; the 2-3% population growth in NYC reflects the geographic area it is in.
Anyway, I don't see why national population growth is relevant either way, the important statistic is supply has outpaced demand, which is a hard fact (and is visibly clear - construction is common in many parts of the city, especially the outer boroughs and the east/west sides of Manhattan). Prices are going up because the demographic of the city has changed, not because of supply constraints.
I don't have data on it at hand, but I'm willing to bet the high cost of living (mostly driven by very high housing prices) is the number one driver of outmigration. The expensive housing is a worthwhile to high-wage workers, but cheaper housing elsewhere makes a huge difference in quality-of-living for people working at low wages.
I suspect you are arguing based on incorrect intuition here, this simply isn't true. Some of the neighborhoods with the most construction in the last 15 years include the financial district, Manhattan's west side (Chelsea all the way up to the the UES), and the brooklyn/queens waterfront. Where I live, in the East Village, many new luxury buildings are going up. http://www.nytimes.com/newsgraphics/2013/08/18/reshaping-new...
In the next several years, midtown east - some of the most expensive real estate in the country - is going to be transformed with millions of more square feet of office space in a huge rezoning plan: http://www.nyc.gov/html/dcp/html/east_midtown/index.shtml
A little bit north of there, in one of the most expensive residential neighborhoods in the country, there is a residential boom going on - soon, 4 of the tallest buildings in NYC will be around 60th st: http://gizmodo.com/four-of-americas-tallest-buildings-are-be...
>I'm willing to bet the high cost of living (mostly driven by very high housing prices) is the number one driver of outmigration
Doesn't this contradict your original point that everyone wants to move to NYC? Anyway, I agree, but this isn't relevant because it's regulated by supply/demand - this is as close to economic fact as you can get. As I showed in a previous comment, supply growth has outpaced demand growth for decades now. Housing prices are going up in NYC because wealthier people are displacing poorer people as jobs move here and the city gets safer/nicer, not because there is a housing shortage.
"as crime and pollution have decreased in American cities, and the downsides of auto-oriented suburbs have made them unappealing to many, there are a lot more Americans looking to move into urban housing"
You describe a change in preferences, from one form of housing to another form of housing. All other things being equal, this does not lead to an increase in demand. If 1 person moves from the suburbs to the cities then there is 1 more person demanding urban housing and 1 less person demanding suburban housing. Total demand does not increase in this scenario.
TFA points out that relocation isn't always a rational economic choice for people priced out of these metropolises and that they turn to other measures such as doubling up on housing or spending an imprudent 50%+ of their wages on rents. This places these people in an extremely precarious position financially and increases their chances of homelessness.
"But I don't think people are arguing that total demand has skyrocketed"
and yet you can see that I am responding to a comment that starts with these words:
"Much of the demand increase is domestic"
So in the NYC submarket, total demand has definitely increased.
Outside of city limits, it is often somewhere between illegal and very difficult to build new multifamily housing.
Most of Manhattan got too pricey for working class families a decade or more ago (unless hey have rent control.) it's a much bigger crisis that large portions of the other boroughs might head that way.
In spite of what you said about rich people only occupying one unit, there is always going to be some elasticity in where people live, and the demand for housing can also grow as more high paying jobs are created. From what I have seen, price rises in the other boroughs is mainly driven by people with high incomes who either can't afford Manhattan (but are still fairly wealthy) or choose not to live in Manhattan.
So the real issue is how many apartments are being left vacant by the owners, or only used rarely by the owners.
Which now looks pretty much like this: "In a large swath of the East Side bounded by Fifth and Park Avenues and East 49th and 70th Streets, about 30 percent of the more than 5,000 apartments are routinely vacant more than 10 months a year because their owners or renters have permanent homes elsewhere, according to the Census Bureau’s latest American Community Survey."
http://www.nytimes.com/2011/07/07/nyregion/more-apartments-a...
Per the article, 5% of Manhattan apartments now have absentee owners who don't rent them out. And below 96th street that figure probably doubles.
There are about as many seasonal or occasional use residential units as there are rent controlled units ~40k. That's out of more than 3.3 million residential units.
Just as articles about rent regulation usually focus on a rent controlled apartment, rather than the far more numerous rent stablized (~1 million) because they make for better stories, so too do empty floor is luxury building on fifth avenue.
But I fail to see much relevance to the larger housing market. Particularly as it relates to the type of working class people this article talks about.
It's definitely relevant to the overall housing market, because while 20 years ago the bankers and lawyers would have rented or purchased on the Upper East Side or Upper West Side, they're now (often) priced out and buying places in Brooklyn and the Bronx. 15 years ago I used to see a working class neighborhoods when I walked around on the far side of the river in Brooklyn, LIC or even Hoboken/Jersey City; now there are multi-million-dollar apartments there.
Any time you hear investment bankers talking about how they can't afford a 2-bedroom in Manhattan, something's gone seriously out of whack with the real estate market.
While the knock on effect you mention could have a legitimate effect, with only 1% of the apartments affected it's hard to believe it's terribly significant. Particularly since at the stratospheric levels we are talking about (high level bankers and lawyers) the substitutes for UES/UWS spreads include Long Island and Westchester rather than just other parts of the city.
Queens & Brooklyn dwarf Manhattan in size. Queens has only one or one and half neighborhoods with Manhattan exiles and even though Brooklyn has more, the non-trendy ares are still much larger.
This whole perception of a crisis is fomented by young, hip, creatives who think they have a good given right to live in the West Village. There's still plenty of safe, affordable rentals in places like Flatbush, Kew Gardens, Pelham Bay, and so forth.
http://www.nytimes.com/2013/10/13/opinion/sunday/londons-gre...
The point I am trying to make is that there are two phenomena. First the very rich who buy an apartment that they rarely use just because they can. The second is more high paying jobs in the area driving up demand.
What I am arguing against is a third "macroeconomic" phenomenon where foreign investors looking for somewhere to "park" their money drive up prices directly. The only thing that makes NYC attractive to foreign investors is the local demand for housing.
In addition to wanting to keep housing affordable for workers in cities and elsewhere, cities should be scared witless by the thought of "ghost towns" and neighborhoods with 30% residency. Cities are not collections of streets and buildings, they are made up of the people that reside in them, and without people, the economy of a city will collapse.
Are they permitted to rent them out and not pay? If so it seems like it would be a great loophole for a bank to mutate into a quasi real estate management company. You could easily undercut any other local rents by the cost of property taxes.
One factor is that an item in constant demand but having limited supply is a great store of value - people buy to keep their money safe regardless of whether they have use for it or even whether the thing yields a reasonable profit. And once that store of value starts to rise more in price, that just accelerates the trend. It is speculation but not random speculation. Land will always be part of people's wealth, the price of land reflects how wealth different groups have. Land prices go up in response to the rise of the ultra-wealthy but if the ultra-wealthy aren't going away, those price rises are justified (by some logics at least).
And as they said, the source isn't foreign as such, it is extremely-wealthy-as-such.
Essentially a product of the extreme concentration of wealth world-wide.
I think housing is a typical example of a market that probably benefits from regulation -- a family without a place to live can't simply choose not to pay rent, or try to get a mortage to buy a house -- while (most) sellers have a much stronger position.
I seem to recall private debt is very high in the US, especially in medium to low income brackets -- so I'm guessing the money comes from credit? Which may or may not lead to another swath of bad loans.
... no... he's really going to put other peoples' money where his mouth is. taxpayers' money. landlords' money. developers' money. Rent Control 2.0, here we come! It worked so well the last time. :P
The socialists will probably mod me down for this, obviously.
Pretty shocking stuff, I know.
Anyway. There's plenty of feelgood language with destructive consequences on the backend. But I'll point out a lovely bit: "Bring Basements and Granny Flats into the Legal System
There are thousands of unsanctioned housing units across the city in basements and above garages — but the city doesn’t recognize them. That deprives tenants of legal protections, and prevents landlords from making the kinds of upgrades that would ensure the health and safety of families living in them. Bill de Blasio will end the practice of pretending these homes and their families don’t exist. As mayor, he will bring them into the regulated housing system, ensure they meet legal standards for safety, and work to bring them under rent-regulation, so their tenants will have the same basic protections as New Yorkers in traditional apartments."
Yes. Protections like "gee, if I rent out my basement to someone, it sounds like there will be a bunch of extra regulatory requirements. I'll need to be careful or my tenants might take me to Housing Court and get a free legal advocate like deBlasio proposes in another section, and get me on some technicality, and then I won't be able to evict them. Maybe I'll reconsider whether to bother at all."
And he's right! That's exactly the same sort of awesome protection that existing rent control already provides!
Statistically speaking, wealthy people tend to have fewer children, and have those children later in life. I believe this was true for the previous generation, too.
>the 1 BR in SOMA isn't going to cut it at that point and there will be a flight back to the suburbs.
Yeah, but a 2 BR would work just fine, especially if you only have one kid. And 3 BR apartments are not unheard of. (and the cultural changes required to expect kids to share a bedroom are not impossible.)
I think that the deciding factor here is perceived safety, followed by quality of schools. As cities are gentrifying, people seem to be thinking of them as safer. And a wealthy population (especially a wealthy population that recently moved in, and here in California, is therefore paying full freight property taxes) makes for a bunch of money to throw at those problems.
If cities start being perceived as safer than suburbia? That could push parents out of suburbia and into cities. That's how they got to suburbia in the first place, right? And it's a self-reinforcing cycle; gentrification means more taxes, more resources for law-enforcement, (and conversely, less of those things in the suburbs, if the wealthy folks in the suburbs are moving into the cities.)
Allowing high rise construction in Silicon Valley seems like a policy that could increase investment and affordable housing.
http://www.zerohedge.com/news/2013-10-22/chart-day-average-n...
Or, the city could have a housing subsidy tax that is progressive based on income.
The destructive legacy of the War Emergency Tenant Protection Act (NYC's rent control law - the 'war' in question is WWII) is well-known and well-documented (and equally well ignored by people who think that it should work because they want the world to work that way). It's half the reason why the rent is too damn high - because no one builds apartments anymore except crazy luxury apartments. There's no money in it. Heck, landlords have abandoned hundreds of thousands of apartments over the decades because of rent control. The city took them over, and, at one point, realized it owned 70% of Harlem.
Clearly more of the same is the only answer. :P
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Postscript. When people ignore a consensus among climate scientists about global warming, we mock them. When people ignore a consensus among economists about the destructiveness of rent control (cf. the Whaples "where is there consensus?" surveys of economists), we elect them instead. Meh.
When would it make sense to not build luxury buildings? The only time I can think is if you are trying to build in places like East New York or similar but I don't think that market can support new construction in the first place, regardless of the level of finish.
Also I believe the failure of rent control is well known, rent stabilization on the other hand is contentious (by people, not sure by economists) and started in 1974. Less than 2% of units in the city are rent controlled.
This should only have the effect of driving higher earners out of the city, which would then cause the desired effect of lowering property values, and therefore lowering rent overall.
Personally, I agree that lower property values other things equal are a good thing, but getting them by driving high earners out is a loss; it makes everyone poorer.
It's usually implemented as part of the permitting process rather than as a law, though. Essentially the city says "We'll give you a permit to build luxury apartments, so long as you also build X number of low- and middle-income units."