A Christmas wish appears in the classifieds of last month’s New York magazine:
WE NEED HELP BUYING AN APT
on the UWS, 3bd 2bath. YOU are a phil-
anthropic, wealthy person who would
not miss a million bucks and would be
interested in donating (or even investing)
in a highly targeted manner: to my fami-
ly. WE are a wonderful, hard working
middle class family who contributes to
our UWS community, is entrenched, hap-
py and desperately wants to remain on
UWS (lest the city lose yet another
wonderful family to the burbs). We can
afford 600-700K, so you see the
predicament. Can you help us?? Email:
I like a lot of Thorstein Veblen’s ideas. He’s often dismissed as a product (or producer) of the times, because of his focus on technocratic solutions to social problems, and his view that the economy should be managed by economists seems preposterous today. But central to his most popular book The Theory of the Leisure Class is the odd place of rent in society. In the idealized view of capitalism, someone accumulates capital by risking rather than hording material. This incentive to venture allows for increased efficiency, and everyone is happy. Although it would be difficult today to say that real estate investing carries no risk, I think it is fair to say that such risk isn’t particularly useful. What would it mean if rents were outlawed?
Who lives here?
The fourth quarter numbers are in, and the average cost of an apartment in Manhattan is up again, to $1.4 million. The median price of an apartment in our neighborhood went from $763K last year to $1.195 million this year, an insane 57% increase. Unlike much of the nation, there was very little bubble here. In part, this is because it is virtually impossible to get into an apartment in New York with “zero down,” and pretty hard to get into one without at least 20% of the purchase price. Moreover, as one real estate agent recently put it, Europe considers New York to be a 50% off sale, due to the weakness of the dollar. As a result, the market remains hot.
Admittedly, Manhattan is an island: there are only so many people who can live here. And they aren’t making any more land. But the expense seems well out of proportion to what any normal human can afford. In our neighborhood, the average household income is just over $70K a year, and the average purchase price of an apartment well over $700K (as of a year ago). How is this possible? It’s possible because most people still rent, a few in rent controlled or rent stabilized buildings, and our famous next-door neighbors, the Frederick Douglass Houses, a massive public housing project. The very lucky might win a low-income lottery to be allowed to purchase an apartment in a building where your neighbors are paying market rate.
As a practical matter, rent control means that there are people in our building who pay, literally, a tenth of our rent. One one hand, it seems really unfair (particularly the extreme examples, like Cyndi Lauper’s $989 place, or Nora Ephron’s $2,000 apartment in the Apthorpe). Some of these folks have lived in the building for a half-century, and it hardly seems fair that someone should have to leave their apartment, their neighborhood, or their city because the rents have gone through the roof. Of course, this is exactly what is happening.
Is rent wrong?
Most of the individuals and companies that own rental properties provide a service for a price–what could be wrong with that? I suppose my complaint is that there isn’t all that much risk in the rent game, at least in New York, and so why should their be such profits. The main source of profits is the fact that (a) property owners bought at a time when the cost of property was less, and (b) they have greater access to borrowed capital. In other words, they get to profit because of their entrenched position. This is exactly what profits are supposed to avoid.
So what if residential rent was outlawed? Many apartment buildings in New York are already co-ops, what if they all went co-op. Maybe you could make an exception for “second residences” like hotels, as long as people didn’t spend a certain number of days residing in the city. (This is more practical than it seems, since you already have to show what part of the year you spent in the city to determine whether you have to pay the annual city income tax.) The result would be a depressed residential real estate market–and likely business market as well, since owners of residential buildings would try to switch their buildings over to business rentals. No more lotteries, or rent control; every home has to be owned. It would probably change New York forever, since people would be less likely to leave and less likely to come. Maybe that would be for the worse, and maybe for the better.
Or maybe not something so extreme. In Mumbai, the Society for the Promotion of Area Resources (SPARC) has sought ways of helping those living in the slums to cooperatively gain ownership of residences. Co-ops in New York have a reputation for being exclusionary and established, but I wonder whether there are groups who have started “Yuppie co-ops,” collectives of first-home buyers in the city who purchase a building outright and manage it as a cooperative?