New York’s 2021 housing crisis

Shortly before the Trump administration expires at noon on Jan. 20 — about 60 days from now — New York will face a storm of evictions, bankruptcies and foreclosures as the current housing crunch explodes into a full-blown disaster. A new report by the Community Service Society is warning that current and future political leaders must address the approaching crisis without delay.

Despite the slogans shouted by activists, rent has not been cancelled in New York. Gov. Cuomo announced a statewide moratorium on evictions last March, and has renewed it four times; the latest extension is scheduled to end on New Year’s Day.

It was a necessary step to prevent some families from ending up displaced or homelessness. But their unpaid rent has continued to accrue, creating a severe economic burden that will wreck many a household when the bill comes due.

The challenges facing families extend to their landlords, according to the CSS report. In many cases, real estate firms entered 2020 leveraged to the hilt, pressing for ever-higher rents and then borrowing against the value of those income streams.

“As real estate markets soared in several cities across the state, landlords raised rents, re-sold their buildings at higher prices, and used their properties’ rising values to take out ever-larger mortgages,” the report says.

“These strategies attracted huge amounts of money to the business of owning rental buildings. They also left those same buildings, and their tenants, vulnerable to market shocks because they were dependent on two assumed constants: ever-rising property values and rent payments.”

If this sounds familiar, it should. From the mid-1990s up to the 2008 mortgage crisis, real estate firms went on a spree, buying and selling buildings and constantly hiking rents: the average price of rental properties increased by nearly 400% in four of the five boroughs (Staten Island was the exception), according to the report.

All along the way, as the value of buildings increased, real estate firms took out loans against the new, higher value. In some cases, the extra money was used to purchase additional buildings.

The whole edifice famously came crashing down in 2008, when banks went under, credit dried up and many real estate firms were unable to keep up their mortgage payments. But that, in turn, led to a wave of new investors who scooped up the defaulted mortgages and buildings for pennies on the dollar — and made out handsomely when the market recovered.

All along the way, tenants in these buildings were subjected to confusing changes of ownership along with neglect and a decline in building maintenance and services. And because rental properties are typically structured as limited liability corporations, bankruptcy of one building can be written off without affecting the finances of the real estate parent company.

For the firms involved, the market boom and bust can be like a game of Monopoly, while for tenants it can be the difference between a safe home and homelessness. And it could all happen again next year. “As low-income tenants are suffering through this economic and public health crisis, major investors are gathering billions of dollars to buy up buildings and extract maximum profits,” warns CSS Housing Analyst Samuel Stein, one of the report’s co-authors. “New York faces a stark choice: Will we let this happen, or will we take bold actions to secure a better future?”

It’s not a crime to try and make a buck in real estate. But a wave of foreclosures and new, predatory investors could come at a high cost to the whole city, says CSS President David Jones.

“Policymakers need to heed the housing movement’s call to take action now and interrupt the coming frenzy of real estate investment that will only lead to further instability for tenants, and more people joining the ranks of the homeless — now about 60,000 — because we’re mired in policies that treat housing as a commodity,” Jones told me.

The alternative, he says, is for New York to step up its commitment to what he calls “social housing”: well-known arrangements like limited-equity cooperatives and Tenant Interim Lease buildings, both of which give tenants a measure of non-speculative ownership of their dwellings.

Jones also supports legislation that would give non-profit organizations the first crack at purchasing buildings that are facing foreclosure. There’s legislation pending in Albany that would create a right of first refusal so that tenants or community organizations dedicated to affordable could acquire financially distressed buildings rather than allow private firms to scoop them up at auction.

It’s an expensive idea, but worth exploring. From 2014 to 2019, city government spent more than $3.2 billion on homeless services, according to the controller’s office. For a fraction of that amount, we could begin shifting more buildings into permanent affordability.

There’s no time to waste.