Monday, October 03, 2005

Infuriating real estate article

There was an interesting article in this weekend's NY Times Real Estate section, looking at the New York (particularly Manhattan) housing market and how the various factors that define a real estate bubble might apply to today's market.
The piece makes some interesting points-- that NYC does not seem to be a market where a lot of flipping is going on, and that the prevalence of co-op apartments, with their notoriously picky boards, keeps properties from changing hands as much as they otherwise might. They also point out that low interest rates haven't lowered the cost of buying at all, since higher prices mean people have to borrow so much more. They look at the history of one apartment that changed hands several times over the last 20 years and how even adjusted for inflation, the same apartment costs a lot more today in terms of monthly outlay, despite the double-digit interest rates of the past.
But here's the part of the article that just burned me. After pointing out that "Manhattan apartment prices have grown about one and a half times faster than median household income," the article goes on to say that since "it is mainly earners at the top end who can afford to buy an apartment in Manhattan, a group of economists argues that, despite the galloping price increases of recent years, real estate on the island has actually become more affordable."
Wwhhaaaat? I just couldn't believe this. It's like saying that a Ferrari costs $200,000 but since only billionaires buy Ferraris anyway, it's actually an economy car. Last I heard, Manhattan was not a gated community. It's a big island full of all kinds of people who work at all kinds of jobs, some of whom really should live in the community where they work, such as firefighters and police officers, as people often point out. Yes, there is a high concentration of wealth here, but there are still plenty of normal people who have lived here for years and have every right to live here. The fact that the rich keep getting richer is part of the problem, not a reason to shrug off the problem as non-existent. If real estate is more affordable for the wealthiest people, no wonder they buy multiple apartments, apartments for their children, investment properties, etc. and crowd the rest of us out.
To pull out some more relevant quotes: in Manhattan, "household income for the bottom 20 percent rose just 7.9 percent from 1989 to 1999, in real terms, [while] the income of the top 20 percent went up 61.5 percent," yet since 1981, average prices "are up 50 percent for co-ops and 37 percent for condos." Yep, no need to cry for the top 20 percent of Manhattanites, but guess what, the forgotten 80 percent actually exist, and they're having a tough time.

1 comment:

Anonymous said...

The problem is, you're trying to use a moral argument to argue economic facts. It may be that, in a just world, more New Yorkers would be able to buy their own homes. But that doesn't prove that the market is going to have to change to allow them to do so. Only a third of homes in NYC are owned rather than rented by their occupants. With that low a level of home ownership, the fact that 20 percent of New Yorkers are doing extremely well does make a big difference, whether any of us likes it or not. If the bubble bursts, it will be for economic reasons, not because you and I think it's unfair.

Unfortunately, to use your Ferrari analogy, Ferraris don't have to be affordable for everyone -- just for enough people to buy the inventory. If everyone else has to take the bus, that may be bad for society, but not for the ferrari company.

But hey, in the news today, it says that the prices of luxury apartments plummeted in the third quarter. So looks like things are tough all over!