Last week, a new study from the NYU Furman Center for Real Estate and Urban Policy and Citi confirmed what many New Yorkers already know: homeownership in this city has been increasingly priced out of reach for all but the wealthiest of New Yorkers.
However, there is nothing inevitable about the daunting rise in homeownership costs that we see in the five boroughs today, and we are not powerless to change the status quo. Rather, we can and must adopt policies and practices to safeguard affordable homeownership.
Two of the most promising solutions — community land trusts and an anti-flip tax — may be considered politically ambitious, but they are powerful tools for controlling speculation and distortions in the city’s real estate market that make it inaccessible to most families.
Decreasing opportunities for affordable homeownership in NYC
The Furman report’s findings paint a grim picture for working- and middle-class families seeking to own a home in a city suffering from growing economic inequality. While certain Manhattan neighborhoods have long been prohibitively expensive, today the price squeeze extends to more modest homes in neighborhoods throughout the five boroughs. It affects current homeowners, many of whom are financially overextended, as well as would-be homeowners, who are almost entirely shut out of the market. The report also raises serious questions about the future of New York City as a place where working families can afford to stay and choose to put down roots.
According to the findings of the report, the cost of New York City real estate has dramatically outpaced incomes, with home sale prices rising 200 percent over the last 25 years while real incomes have remained stagnant, decreasing 11 percent when adjusted for inflation. As a result, working- and middle-class families in New York today have been largely squeezed out of opportunities to own: for the 51 percent of New Yorkers earning less than $55,000 a year, only 9 percent of homes on the market are affordable to them.
So who can afford to buy in New York City today? In 2014, the average sales price of a coop, condo, or one-to-three family home was $575,700. According to the study’s authors, this price is affordable only to the top quarter of New Yorkers who make more than $114,000 a year, and that’s assuming they can save up for a 20 percent downpayment.
And for the New Yorkers who already own their home, nearly half are in a precarious financial position, spending 30 percent or more of their income towards mortgage and other housing costs, according to the study’s authors. Further, an alarming one in four homeowners spend 50 percent or more of their income on housing costs.
When housing is an investment vehicle, what’s left for everyone else?
One million more people live in New York City in 2016 than in 1990, and one factor driving up the cost of housing is New York’s desirability as a place to live, despite a limited supply of housing. But what is causing New York housing prices to so dramatically outpace the incomes (and therefore presumed buying power) of the people who live here? Ultimately, New York is not just a desirable place to live, it’s also a desirable place to invest money in housing, whether investors are international kleptocrats seeking to launder their ill-gotten billions, Australian pension funds, or small-time flippers pounding the pavement in East New York seeking willing sellers.
For would-be first-time home purchasers, who almost always require a mortgage, it is increasingly difficult to qualify for a mortgage in today’s tight credit market and then to compete for the small number of relatively affordable units in a market where all cash buyers are prevalent and in demand. For those who own, the combination of stagnant incomes and high housing prices can mean unsustainably high monthly mortgage payments, as well as persistent harassment from speculators in neighborhoods with rapidly rising home values.
Solutions that make sense for a diverse metropolis
If we believe that homeownership in New York City should not be the sole privilege of our wealthiest residents and the global one percent, we must take steps to subdue real estate hyper-speculation and promote affordable homeownership.
In addition to expanding existing downpayment assistance programs for working families, now is the time for New York to catch up with major cities like Boston, Chicago, and San Francisco and implement community land trusts. A community land trust is a community-controlled nonprofit that reduces barriers to homeownership (it is also a great tool for creating affordable rental units). It works by retaining ownership of land and selling or renting the housing on that land to lower-income households. Since the CLT owns the land, it can dictate the conditions of development, ensuring that what is built is truly affordable for its community and that homes remain affordable over time. CLTs are a strategy that can shelter New York City homes and their residents from speculation and gentrification, not just now, but for decades to come.
We can also level the playing field for families seeking to purchase homes by implementing a flip tax. Aimed at speculative investment driving up New York City home prices, the flip tax would increase state real estate transfer taxes when a property is being resold after a short period. Such an anti-speculation tax would create a disincentive for the property flipping that inflates home prices and rents and, in doing so, strengthen the affordability of small residential properties for prospective homebuyers and existing renters. Such a measure is being considered in San Francisco and Philadelphia and should be a priority of the city’s representatives in Albany.
These reforms will require significant efforts on the part of city and state elected officials, as well as substantial financial investment, and will undoubtedly face stiff opposition from those who profit from sky-high housing prices. However, taking action is necessary if we believe that all New Yorkers should have the opportunity to own a home, and not just the wealthy.