October 2023 - Lipton's Tea

Invisible to the Naked Eye: Apartments are Dissappearing in NYC

Published on October 26, 2023

If you’ve lived in New York City for any period of time, you have seen your fair share of newly constructed buildings and the demolition of countless others. Less apparent are the changes taking place behind the facades of existing residential buildings and how those changes are impacting the well-documented housing shortage. Since 1950, NYC has lost more than 100,000 apartments through apartment combinations and the conversion of multi-unit buildings into single-family homes, according to a recent article in the NY Times. Certainly, the net number of new apartments is greater today than it was in 1950, but the reduction of total unit count through combinations and conversions is an underreported issue exacerbating the lack of sufficient housing in NYC.

Wealthy Neighborhoods with Transit Access Most Affected

The desire for more space is something any city dweller can appreciate but not many can afford. Therefore, it should come as a surprise to no one that the combination of apartments is taking place in wealthier neighborhoods in NYC like the Upper East Side and the West Village in Manhattan and Park Slope in Brooklyn. These neighborhoods enjoy easy access to transit and jobs and the very reason why we need more not fewer homes. We need not begrudge folks seeking more space for growing families or due to greater purchasing power, but it does play a role in the overall insufficient supply of housing.

Take the row houses on 88^th Street between Amsterdam and Columbus Avenues where there are 173 units, compared to more than 400 on the same street in the 1960s. This is the result of the conversion of multi-family buildings into single-family homes.

How Much Space is Enough: Depends Who You Are

Another example of this is 12 East 72^nd Street, owned by a well-known NYC landlord. Twenty years ago, the property (totaling nearly 20,000 sq. ft.) contained 23 apartments before being turned into a single-family home for the owner and his family. Opulent for sure but not illegal.

Brooke Shields (of 1980s Blue Lagoon fame) jumped into the single family conversion game by turning an eight unit Greenwich Village building into a home worthy of an Architectural Digest spread.

From 2010 to 2021, the community district that includes the Upper East Side has seen net zero new housing during that period. Yes, 3,000 units of new housing were added but 1,000 were lost through demolition and 2,000 through consolidation.

One Example Highlights the Economics of a Single-Family Conversion

The economics of these deals make sense as this example highlights:

Purchase Price: $1,500,000
Renovation Cost: $750,000
Re-sale to End User: $3,250,000
Profit: $1,000,000 (excludes carrying costs)

The decline in unit count through the consolidation of apartments and conversion of buildings cannot be blamed on individual households. It is a citywide problem that stems from policy choices made at the local and state levels. Adam Brodheim, a preservationist who conducted much of the research, says the loss of apartments in these ways would not be a problem “if you were building a lot of new housing.” But alas, the number of new developments in the pipeline in NYC is down significantly compared to historical averages with nothing to suggest this will change in the near term.

Website Source:
Zaveri, M. (2023, October 19). How 100,000 apartments in New York City disappeared. The New York Times. https://www.nytimes.com/2023/10/19/nyregion/nyc-apartments-housing-crisis.html

Sheltering Migrants or Housing Vulnerable New Yorkers? Can’t Do Both!

Published on October 10, 2023

Anyone versed in basic economics will tell you that it is all about the allocation of scarce resources to maximize societal benefits. If we adhere to a budget (and NYC does—it must), a dollar spent on one program is a dollar not available for others. This is the very definition of opportunity cost and the current migrant crisis plaguing NYC highlights the issue.

Migrants Flood into NYC

For anyone asleep at the wheel, more than 122,000 migrants have arrived in NYC since April 2022. The cost to shelter a single family is downright jaw-dropping at approximately $380 per night or nearly $35,000 over a three month period. At the current pace, the city is on track to spend $12 billion over the next three years to shelter and support migrants. For some perspective, the budgets of the Fire, Parks, and Sanitation Departments combined are about $5 billion annually.

Mayor Adams was blunt in his assessment of this crisis when he said “This issue will destroy New York City.” And perhaps it will if federal assistance doesn’t arrive in time or falls far short of what is needed. And isn’t just about dollars—there simply isn’t enough housing available. Last week, the city’s lawyers requested the 1981 consent decree—that legally obligates the city to provide shelter to migrants—be suspended whenever the governor or mayor declares a state of emergency. Opposed to the move, the Legal Aid Society and the Coalition for the Homeless said the change would “gut” protections and noted “street homelessness would balloon.” No decision by the NY Supreme Court has been made as of this writing.

Who Should Taxpayer Dollars Help?

In a perfect world, our desire to help all those in need would be bankrolled by an infinite flow of dollars. But that isn’t the case and, therefore, legislators should ask whether we should be subsidizing low income New Yorkers living in rent stabilized apartments or recently arrived migrants?

I recently wrote a piece here about the rent stabilization laws and the burden they put on landlords. Several owners have already experienced—and many more are facing—the loss of their properties through foreclosure as the income from these properties is insufficient to support current debt loads. Meanwhile, buildings are falling into disrepair and we may be headed toward the blight and urban decay that defined certain NYC neighborhoods in the 1970s and 1980s. City, state, and federal programs such as FHEPS, Section 8, and HASA subsidize the rents of certain low income tenants and I think it’s fair to ask why not expand the subsidy to include low income rent stabilized tenants?

The $4 Billion Math Problem: Subsidizing Rent Stabilized Tenants or Sheltering Migrants

Let’s do a bit of math.* According to a city survey in 2021, the median rent for a stabilized apartment was $1,400 compared to $1,825 for an unregulated unit. With approximately 900,000 stabilized units in the city, the rent shortfall amounts to approximately $383 million a month (or $4.6 billion a year)—the required subsidy to make landlords whole. Ironically, this cost is about the same as housing and supporting migrant families. Who deserves those dollars? Both groups of course but in a world of scarce resources, legislators must choose.

_{*This calculation assumes that the cost to subsidize every rent stabilized apartment is the difference between the median stabilized rent and the median unregulated rent multiplied by the total number of stabilized units in NYC, which may not be correct. To undertake a more accurate calculation, we would need to look at each regulated apartment on an individual basis and compare its rent to the market rent for a similarly sized and located unit, and aggregate that amount for all 900,000 stabilized apartments over a monthly and annual basis.}

Website Sources:
Mays, J. C. (2023, August 10). Mayor Adams Said Migrant Influx Will Cost NYC $12 Billion. The New York Times. https://www.nytimes.com/2023/08/09/nyregion/adams-nyc-migrants-cost.html#:~:text=As%20newcomers%20continue%20to%20arrive,them%20and%20provide%20other%20services.

Fitzsimmons, E. G. (2023, September 7). Eric Adams Asserts Migrant Crisis Will ‘Destroy New York City.’ The New York Times. https://www.nytimes.com/2023/09/07/nyregion/adams-migrants-destroy-nyc.html#:~:text=Mayor%20Eric%20Adams%20said%20that%20New%20York%20City%20was%20not,We’re%20here

Fitzsimmons, E. G. (2023, October 4). NYC Moves to Suspend Right-to-Shelter Mandate Amid Migrant Crisis. The New York Times. https://www.nytimes.com/2023/10/04/nyregion/eric-adams-right-to-shelter-migrant-crisis.html

US Supreme Court Refuses to Hear Landlords’ Challenge to NY Rent Stabilization Law

Published on October 6, 2023

When all else failed, landlord-friendly groups in NY like the Rent Stabilization Association and Community Housing Improvement Program (better known as RSA and CHIP) turned to the US Supreme Court to hear their challenge to the 2019 rent stabilization law. And why not, the court is stacked with conservative justices and it was reasonable to think they would take this on. Not so, the court declined to hear the case.

The Case Made by Landlord-Friendly Groups

The case was largely premised on the idea that the rent law was so onerous and, therefore, amounted to a “taking” under the Fifth Amendment to the Constitution (a.k.a. eminent domain). And that requires proper compensation to the landlords.

Eminent Domain in NYC: Physical “Takings” Nothing New

In New York City’s history, there have been instances of legal government “takings” using eminent domain, such as the redevelopment of Times Square in the 1990s and the transformation of Central Park more than 150 years ago. In Times Square, it was pornographic theaters that were shut down, while Central Park was converted from rocky swampland dotted with small farms into the 843-acre oasis of greenery it is today. These were both constitutional “physical” takings as the property owners were fairly compensated for their lost land.

2019 Rent Law Case: Regulatory Taking?

The case brought by RSA and CHIP is a bit more nuanced and arguably a tougher case to make as landlords weren’t stripped of their assets. Instead, the new law imposed financial burdens on property owners and significantly restricted their ability to optimize the value of their properties. Landlords contend that the unfair burden placed on them involves providing “public assistance” to tenants at the owners’ expense through mechanisms like low rents, mandatory lease renewals, and succession rights. A role more suited for government than the private sector the argument goes.

The Law is Nonsensical and Hurts NYC’s Housing Stock, but Is it Unconstitutional?

CHIP’s executive director, Jay Martin, slams the law as “irrational” and claims that it is “destroying New York’s housing.” While there is merit in these claims, it does not necessarily render the law unconstitutional. After all, states and cities often impose onerous property restrictions that, although cumbersome, are still lawful—examples include zoning laws, building height restrictions and parking requirements, to name a few). Had the case been heard, the Supreme Court would have had to decide whether the 2019 rent law effectively deprived owners of all economically reasonable use or value of their properties. I’m not so sure that it does but it is certainly causing a lot of hurt for landlords.

The Lawsuit was a Hail Mary

The truth is the lawsuit was a long shot to begin with, in part, because the Supreme Court hears so few cases each year (about 70-80 out of 7,000-8,000 petitions each term). Furthermore, rent regulation issues have been covered by the court in the past with existing precedent (little of it favorable to landlords). In 1988 and, again in 1992, the Supreme Court determined that rent control, on its face, does not constitute a taking. Perhaps the case survives on appeals but I think owners of rent regulated properties in NYC are stuck contending with the status quo.

Website Source:
Rebong, K. (2023, October 2). End of the road? Supreme Court declines to take up challenge to New York’s rent law. The Real Deal. https://therealdeal.com/new-york/2023/10/02/supreme-court-rejects-ny-rent-law-challenge/

Month: October 2023