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This is exactly what would happen.Anyone who hopes or thinks that ending rent stabilization would lead to a big drop in rents and lead to a more affordable situation for most is dreaming.As Ninjahedge said,it would probably lead to the biggest reductions at the highest levels and probably lead to a simultaneous INCREASE at the low and mid levels.The 5,000/rents would go to $4,000 but the $1,000 rents would go to $1,500 and the $1,500 rents would go up to 2,000.There are many, many more $1,000 and $1,500 rentals than $5,000 dollar ones so landlords would make more money even though the median might come down. Do you think landlords hate rent stabilization because they think the rents will go down if it is eliminated ? That they want to get rid of it so you can pay less rent ?
People who pay less than market rent for a unit do two things: 1) consume more of that good than they would at a market rate (they stay in the unit longer than they should,economically) and 2) block people who would pay the market rate for the unit from doing so. If one was to argue that most of the apartments under rent stabilization are at or near their market rents, anyway, then yes rent stabilization is a good policy. It is good policy because it contributes to neighborhood stability while not distorting the housing market substantially.
I do not believe that that is the case, though, so I believe part of why housing costs are so high in this metro is programs like stabilization. Obviously, the bigger components that create such high housing costs are 1) restrictions on development, 2) the built-out nature of the metro (we can't just throw down a new highway on empty land and there is a limit to how many subway lines you build underground in a certain spot), 3) regulatory red-tape, etc.
Landlords that oppose rent stabilization oftentimes do so because they do not understand how such a policy would operate in the real world. A landlord does well when he gets his units off of stabilization while stabilization still exists, but if stabilization ceased to exist across the board, his rent would likely go down. The supply of units would increase to such a point that the market would beat his price down, imo, below what the prevailing market rent was under rent stabilization. Landlords do not realize that stabilization is insulating them from a whole lot of competition.
On a whole, New York is not the most expensive city in the country, Washington, DC and San Francisco have higher costs of living, particularly in the housing sector. Both of these cities, however, are significantly smaller than New York, and have profound housing shortages in desirable areas that tends to drive the prices higher, something that is not easily changed in either city.
New York, too, suffers from a housing shortage, and if the rent stabilizations were lifted, it might not have the effect that people think, since there's still a problem of numbers of units. Stabilized or not, to effectively bring prices down, overall, there would need to be an influx of new units to the market, that were not subject to any control. If there were a significant increase of desirable, moderately-priced, not affordable and not luxury, housing, then the city's shortage would begin to have an effect. It's not easy to build such housing in New York, either, due to lack of available land and infrastructure in many places where such construction would have the most beneficial effect on the NYC housing price. Part of the problem is on the demand curve, since there's a huge demand for a moderately priced apartment on the UWS, but zoning regulations and landmarks prevent construction of large-scale buildings to make a dent in the price point of that neighborhood. In contrast, further reaches of the city, where one has a forty-five-minute-plus commute to Midtown, where there may be more land, don't have the demand to justify a moderately-priced tower.
So, in your opinion, is there anything that can be done to lower the housing costs in NYC and possibly the NY metro as a whole?
Imo, things like "affordable housing" when it is built with government subsidies will never really effect the market price for housing in the city. We need market solutions if we ever want some semblance of true affordability.
It sounds like when you're talking about lowering housing costs, you're only referring to market costs and are discounting "affordable housing" programs. I'm not convinced that "affordable housing" should not be considered within the framework of "true affordability." If anything, I'm in favor of an expansion of (or a shift towards) "affordable housing" to the middle-class. I'm also in favor of lessening the primacy of Manhattan via greater development of regional centers.
It sounds like when you're talking about lowering housing costs, you're only referring to market costs and are discounting "affordable housing" programs. I'm not convinced that "affordable housing" should not be considered within the framework of "true affordability." If anything, I'm in favor of an expansion of (or a shift towards) "affordable housing" to the middle-class.
In an ideal world, market-rate housing would be affordable, period. Even in our slums, rent is still high.
As for government affordable housing, I just don't believe we can ever achieve the scale where it will be more than some negligible portion of the overall housing market. It sort of reminds me of the philanthropic tenements of the late nineteenth and early twentieth centuries. They were good for those who were lucky enough to live in them, but the overwhelming majority of the lower socio-economic classes were still subject to the conditions which prompted their creation in the first place.
Well, I've not come across any ideas that would truly make market-rate housing affordable period. The idea of getting rid of government programs and allowing landlords to put everything at market rate could work in some places and in some cases, but I'm skeptical of its effects on Manhattan. While government housing will not achieve affordable housing on the scale where the middle-class that want to live in Manhattan could really do so, it will probably allow more non upper-income residents than the all market-rate solution. However, I'm not drawing this on hard data, but on impressions of what I've read and what I know. If you have some evidence or some study for Manhattan's particular situation, then I'm all for i.
On a whole, New York is not the most expensive city in the country, Washington, DC and San Francisco have higher costs of living, particularly in the housing sector. Both of these cities, however, are significantly smaller than New York, and have profound housing shortages in desirable areas that tends to drive the prices higher, something that is not easily changed in either city.
Are you kidding? Especially with housing? Only SF was even close (again, as said before, it WAS more expensive if you exclude Manhattan but I think it suffered the housing meltdown far more than here). If there's anywhere now that approaches in expense, it would be Boston.
And if they're smaller, then it should be easier to have open land further out to supply a market solution to the housing issue than there is in NY.
Bmwguydc, I have a question...this is similar to why housing prices are so expensive in Annapolis, despite it being drastically smaller than the cities were talking about in this discussion right?
but back on topic....NY Home prices forecast to drop 40%? I'll believe it when I see it. The original post was so short it seems almost like one of those brief craigslist ads.
Exactly, the finite number of available desirable units at any given point in time makes the cost index much higher when comparing housing across the board. Annapolis is tiny, and few cities come to the scope of NY in terms of population, but in comparison to other metro areas in the country, there are more affordable alternatives in NYC, though there's still a housing shortage in the city.
Elimination of stabilization, since control is so small a percentage that it's barely even worth discussing these days, would make Manhattan stabilize at a higher price point than the current level, due to the desirability of Manhattan. Some expensive units would come down, but the less expensive units would move up to the new equilibrium -- exactly the scenario that bluedog2 stated. I could then see a similar situation evolve in NYC as is in place in Boston, where the neighborhood demographics were dictated solely on the basis of economics, lower wage earners are displaced, and wage inflation hits desirable areas such as Manhattan in the service sector to attract workers.
I am not a proponent of rent controls, but elimination without a subsequent influx of new units is not the answer, either. Perhaps reforming the situation so that higher income households that are exploiting the current regulations with cheap rent by paying hefty broker fees to get the apartment would need to be addressed. And, then, perhaps on the landlord end of the scale, they could deduct from operating income, the difference between stabilized price and the cost of running the apartment plus a small, regulated profit.
There is a shortage of housing in NYC, but the collapse of a few ghost towers that should not have been built at the prices forecast is not the harbinger of the ultimate destruction of NYC real estate, since there are many sub-markets in the city that are healthy and stable. One primary reason for that is the large number of co-ops, where the residents are vetted economically, so that massive swings in price are rare, and those who live there are less likely to have been extended beyond their means and driven into foreclosure.
Location is the key to real estate, and no marketing can change that in a challenging market cycle, though that does tend to stabilize desirable areas that much faster. Everyone was looking for massive swings and flipping a property in a year or two for a couple of hundred thousand extra, something that was unsustainable as it had been during prior boom-bust cycles in NYC. They were heavily extended into the "next <insert trendy neighborhood name here>" in an "undiscovered" area, overloooking the fatal flaws that are bringing the investment value back to the historic levels for the area.
The Financial District, for example, is a good neighborhood, but it's a ghost town without many conveniences for residential buildings, since it was a commercial sector. This has changed somewhat, but it's not the same as other parts of the city that are more residential in character. During the boom, this flaw was overlooked with the "luxury" towers built in the area that have had to cut their rents/asking prices in recent months. This is because for the same money as they had been trading, someone can live in an established area that doesn't have the potential swings, since there's really no lost opportunity in taking a risk on the up-and-coming area that might have returned a higher rate of appreciation in a shorter time, since it's not happening now. Thus, fewer buyers want to take such risks, and the prices are descending, whereas an historically viable area is not going to suffer a similar reduction, though at certain price points it will take longer to sell a property and there might be a cut in asking price, but hardly anywhere near 40%.
So, in your opinion, is there anything that can be done to lower the housing costs in NYC and possibly the NY metro as a whole?
Imo, things like "affordable housing" when it is built with government subsidies will never really effect the market price for housing in the city. We need market solutions if we ever want some semblance of true affordability.
The region can lower housing prices, but it's difficult to do so in established areas, due to the populations present in the city. Increased transportation to far-flung areas of the city would be a key component, so that it would be viable to get to Manhattan or any part of the city faster than one could do so when coming from somewhere in Northern Westchester-Putnam.
Artifical involvement in pricing by the government is no solution, I agree, and the tax abatements create a dependency on the system which then hands control over stabilized rent to the city.
The problem is that the focus of development has always been attracting the highest income earner possible to any given project, hence the faux luxury towers that grew like weeds in all corners of the city. The mindset of development has been slash and burn, get the highest profit at the lowest expense, with little consideration to the neighborhood, which is fine if everything is paid for at market rate by the developer and on a sound feasibility plan. However, when there's tax subsidy or abatement involved, that's where things enter the grey area and become sweetheart deals doled out to key people. I would be in favor of relaxing zoning regulations as to space utilization, through expanded TDRs/ mandated creation of public parkland, such that it could be viable to build more market-rate housing on a given piece of land.
Current projects that purport to work toward this with all the red tape to get approved and to lease/sell are clearly not a solution, since they are heavily dependent upon taxpayers to get off the ground. Co-ops have been historically viable as affordable alternatives, negating the luxury end of the market, but I'd like to see a hybrid co-op where the owner-residents live in a good number of units and then there are deeded rentals provided that are wholly owned by the co-op. This would allow for an integrated structure and not disallow anyone who did not meet the downpayment qualifications, for example, but met the income, to live in the community. Speculation would be discouraged since an owned unit may not be rentable, except under certain pre-defined exemptions, as many co-ops have in their by-laws.
Thus, I'd allow a new co-op to be slightly oversize for a given parcel of land with the TDR/parkland requirement in place, and allow the individual co-op to provide deeded rental units under its income qualifiications. Many affordable co-ops have voted to keep themselves affordable in recent years, even in prime Manhattan neighborhoods, so attracting that level of interest and commitment, combined with new visions in architecture (and better transportation in far-flung areas) would help to set the stage whereby stable, viable communites could be created that would be independent of the city and affordable. The city would take the role of sponsor of the new development, but then bow out just as all sponsors do when the co-op is completed, and allow the co-op to direct its own operation. Instead of a tax subsidy to be viable, rental income from the deeded rental apartments and likely commercial rentals would provide the consideration to the project that municipal funds might have ordinarily done.
EDIT: Basially, I'd take a similar tack to Mitchell-Lama, but remove the state and city from the equation, save for their role as initial sponsor. It would work in the vein of an Amalgamated co-op, for example, but with deeded rentals for residential/commercial/retail/parking, depending upon the scope of the project.
thanks for the in depth reply dmwguydc, I appreciate that!
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