The New York City housing crisis and the $100 million penthouse
The New York City housing crisis and the $100 million penthouse
By Philip Guelpa
The recent sale of the penthouse apartment at One57, a newly constructed, ultra-luxury residential building located just south of Central Park in Manhattan, for $100 million, epitomizes the huge and growing gap between the city’s super-rich financial elite and its working class.
26 August 2015
The case of One57 stands in stark contrast to conditions faced by most New Yorkers, who are finding it increasingly difficult to obtain affordable housing. In 2012, housing costs for more than half of the renters in the city (most New Yorkers rent rather than own their homes) consumed over 30 percent of family income.
One57 is but one example of the recent frenzy of luxury housing construction in New York City that caters to members of the corporate and financial elite, both domestic and foreign, who are looking for prestigious residences and investment properties. The penthouse and the upper-floor apartments at One57 and other such buildings have spectacular views of the city and are much sought after as status symbols through which the wealthy can flaunt the riches gained via financial speculation and other parasitical activities. It is now typical for condominium apartments in these buildings to go for prices in the tens of millions of dollars. Many will be occupied minimally or not at all by their owners.
Meanwhile, millions of New Yorkers are desperate to find affordable housing and tens of thousands are forced to live either in squalid shelters or on the street. Recent data indicates that nearly 60,000 people, including more than 23,000 children, stay in the city’s main homeless shelter system. Several thousand more spend nights in other shelters. In addition to these, the city recently claimed that there are only 3,182 unsheltered homeless people in the city. The Coalition for the Homeless advocacy group strongly disputes this figure, saying that the actual number is much higher. This is supported by the visibly growing presence of the homeless in the city’s parks and sidewalks.
These statistics do not include many more people who are “unstably housed,” forced to repeatedly move from one lodging to another, such as temporarily doubling up with family or friends, because of the inability to find sufficient permanent residences. For example, during the 2013-2014 academic year, New York City reported 87,210 unstably housed public school students.
The housing crisis is one reflection of the city’s gross economic inequality. Nearly 45 percent of New Yorkers live at or near the official poverty level. Nearly a third of those living in homeless shelters have jobs, but do not earn enough income to pay for housing.
The luxury real estate boom, which first developed in Manhattan, has spread into the “outer boroughs” of the city, primarily Brooklyn and Queens, pushing up rents in those areas. Construction activity has increasingly become focused on the erection of “upscale,” more-profitable buildings, either as super-tall “spikes” on small lots in the most desirable locations, such as One57, or in the outer boroughs, where land is less expensive. The city has explicitly rejected calls to limit the height of buildings that are grossly out of scale with their surroundings.
The frenzied rise in housing prices is also reflected in the cost wealthy New Yorkers pay for garaging their vehicles. Ten parking spaces in a luxury condo in Manhattan’s SoHo district have recently been offered for $1 million apiece. There are no buyers yet. The current reported top price for a parking space in a building in Manhattan is a more modest $325,000.
These developments put upward price pressure on existing housing stock and create incentives to substantially increase rents or drive out current tenants altogether. Areas of the city in which housing costs were once relatively affordable for middle- and working-class families are witnessing a surge in rents. The median rent for an apartment in a new development in Brooklyn was $3,405 in June. The construction of new buildings or rehabilitation of existing buildings that would provide affordable housing for those with middle and lower incomes is far below the need because it is not as profitable without substantial public subsidy.
The tremendous advantages given to developers are politically camouflaged as incentives that are intended to induce the construction of affordable housing by providing tax breaks or loosening zoning or other regulations to facilitate more profitable undertakings. In fact, the supposed gains in affordable housing, minuscule compared to the need, are dwarfed by the loss of revenue to the city, which is mirrored by the enhanced profits of the developers.
The construction of One57 and other luxury buildings is being supported by a tax abatement program known as 421-a, which gives developers substantial, decades-long tax reductions provided that in addition to highly lucrative luxury apartments they also construct some small number of “affordable” units, not necessarily in the same locations.
As a consequence, developers can reap huge profits on buildings constructed in the most sought-after areas, primarily in Manhattan, while placing the relatively unprofitable affordable units in less desirable neighborhoods, generally in the outer boroughs, where the cost of real estate is cheaper. The developers make out like bandits, the city loses large amounts of revenue, estimated at $1.1 billion per year, and the number of affordable housing units built is nowhere near what is needed to address the city’s acute housing shortage for the working class population.
Data compiled by the Economist magazine from a number of sources indicates that issuance by the city of permits for the construction of new residential housing collapsed following the 2008 economic crisis, down to only a few thousand a year. There was a slow recovery beginning in 2012, but remaining at fewer than 20,000 per year. However, 2015 has so far seen a dramatic increase, totaling 42,000 during the first half of the year, in part due to uncertainty about renewal of the 421-a program.
By contrast, public data indicates that the rate of housing unit completion overall has not recovered significantly from its steep decline beginning in 2008. However, the number of units receiving initial 421-a tax benefits, despite a decline, remains higher than it was before 2008. This difference is an indicator that housing construction as a whole is not being positively influenced by these tax incentives, but rather that they are in fact a mechanism for benefiting wealthy developers.
The value of this program to developers is dramatically illustrated by a report that during May and June alone, the Real Estate Board of New York, the industry’s main lobbying organization, made $1.9 million in political donations aimed at preserving this highly lucrative tax break as its renewal was being considered by the state legislature. At the end of the legislative session, the program was renewed, but some details were left to be worked out.
In the specific case of One57, the city will lose an estimated $66 million in revenue over 10 years. The price to the developer for gaining this windfall was the construction of a mere 66 affordable housing units in the Bronx.
The city’s “progressive” mayor, Democrat Bill de Blasio, whose election campaign was based on a pledge to fight inequality, recently proposed a new housing plan that would increase the proportion of affordable units required to be included in some new housing developments. Many details are not yet available. However, it appears that the income thresholds would exclude many lower-income working class families. The new scheme merely represents slight changes to the approach that has allowed the housing situation in the city to steadily deteriorate over decades (see: “Legislative deal means further deepening of New York’s housing crisis”).
The mayor’s plan is a further attempt to mislead people into believing that the city’s massive housing crisis can be solved by a few policy changes within the structure of capitalism. Given the power of the real estate interests in New York, it is certain that even de Blasio’s modest proposals will be substantially weakened or killed altogether. Developers have already complained that it doesn’t provide “incentives” (i.e., bribes) and could threaten the continuation of the 421-a program that has been so lucrative for them.
As long as the availability of affordable housing, a fundamental social right, is predicated on the “right” to maximize profits, housing conditions and homelessness will continue to worsen, especially with the intensifying world economic crisis. The right to affordable housing for all can only be realized by a massive effort of construction and rehabilitation carried out according to a socialist program under workers’ control.
Richest one percent controls nearly
half of global wealth
AMERICAN MIDDLE CLASS. CALL IT
banksters…. ALONG WITH DONALD TRUMP!
Richest one percent controls nearly half of global wealth
By Barry Grey
A top official of the Federal Reserve Board broadly hinted Wednesday that the US central bank, contrary to previous indications, would not begin to raise its benchmark interest rate at the September meeting of its policymaking committee.
27 August 2015
The statement by William Dudley, president of the Federal Reserve Bank of New York and vice chairman of the Fed’s Federal Open Market Committee (FOMC), was timed to buttress and expand an early morning rally on US stock exchanges, which had seen over $2 trillion in market capitalization wiped out in massive declines over the previous six trading sessions. Over those six days, the Dow lost 11 percent of its market value.
Speaking in New York about one hour after the 9:30 a.m. start of trading, Dudley said, “From my perspective, at this moment, the decision to begin the normalization process at the September FOMC meeting seems less compelling to me than it was a few weeks ago.” “Normalization” is Fed-talk for beginning to gradually lift the federal funds rate from near-zero, where it has remained since shortly after the September 2008 Wall Street crash.
Dudley’s remarks carry additional weight because he is known to be a close ally of Fed Chairwoman Janet Yellen. His statement was a calculated signal to Wall Street banks and other financial interests that the US central bank and government were prepared to open the cash spigot even wider and provide whatever public funds were necessary to shield the financial elite from the consequences of a new eruption of the global capitalist crisis.
When Dudley made his remarks, an opening bell surge of 430 points on the Dow Jones industrial average had fallen back to 300 points and fears were mounting of a repeat of Tuesday’s session, when an opening gain of 442 points turned into a rout in the final 30 minutes of trading, with the Dow closing down 205 points, or 1.3 percent.
Dudley’s intervention had the desired effect. Major investors went on a buying spree and drove the rally higher, resulting in massive gains for all three major indexes—the Dow, the Standard & Poor’s 500, and the technology-laden Nasdaq. The Dow finished with a gain of 619 points (3.5 percent), the S&P 500 closed 73 points higher (3.90 percent), and the Nasdaq gained 191 points (4.24 percent). These were the biggest one-day gains for all three indexes since the second half of 2011.
The surge on US markets came despite another down day on Chinese markets. An early rally on the Shanghai Composite Index collapsed, leading to a 1.3 percent loss at the close of trading. It was the fifth consecutive down session, during which the main Chinese exchange has lost more than a quarter of its value.
The loss was all the more significant in that it followed Tuesday’s announcement by the Chinese central bank of major moves, including a quarter percentage point cut in the benchmark interest rate and a reduction in bank reserve capital ratios, designed to push hundreds of billions of dollars worth of new cash into the country’s financial markets.
The surge on Wall Street came as well against the backdrop of new losses on European markets. On Wednesday, the French CAC 40 closed down 1.40 percent, the German DAX lost 1.29 percent, and Britain’s FTSE 100 index declined by 1.68 percent.
There were other signs that the global deflationary pressures underlying the recent stock market selloffs were continuing unabated. The protracted fall in commodity prices continued, with oil prices falling in both the US and Europe. The drop in the US market followed the release of weekly US inventory data showing a drop in gasoline demand and record-high stockpiles of crude oil and petroleum products.
Copper prices were down 3.1 percent.
Besides the sharp slowdown in Chinese economic growth and collapsing commodity prices, the other acute expression of a worsening world slump and mounting financial problems is the crisis in the so-called emerging market economies. Countries ranging from Brazil, to Russia, Turkey, Indonesia, Thailand, and South Africa are reeling from falling stock and bond prices, plunging currencies, and increasing indebtedness.
They are being hit particularly hard by the slowdown in China, a major market for commodity exports, and the broader combination of plunging commodity prices and glutted markets. On Tuesday, South Africa, the biggest economy on the African continent, unexpectedly reported that its economic output contracted by 1.3 percent on an annualized basis in the second quarter. Economists had predicted a gain of 0.6 percent, itself a sharp decline from the country’s first-quarter 1.3 percent expansion.
In his morning remarks to reporters, Dudley alluded to the recent global stock market and currency turmoil. “International developments have increased the downside risk to US economic growth somewhat,” he said. “The slowdown in China and the sharp fall in commodity prices are increasing the strains on many emerging market economies and this could lead to a slower global growth rate and less demand for US goods and services.”
While implicitly acceding to demands from prominent financial figures, such as former Treasury Secretary Lawrence Summers, to delay any increase in interest rates, Dudley rebuffed the call made Tuesday by Summers and Ray Dalio, head of hedge fund giant Bridgewater Associates, for a new round of “quantitative easing,” i.e., Fed bond purchases, to directly pump additional billions of dollars into US financial markets.
“I’m a long way from quantitative easing. The US economy is performing quite well,” he said. He also held out the possibility of the Fed raising rates before the end of 2015, saying, “I really hope we can raise interest rates this year.”
But in signaling the Fed’s determination to do whatever is necessary to rescue the financial aristocracy from the consequences of its own speculative and semi-criminal activities, Dudley is making clear that the ruling class will continue to carry out the very policies that, far from producing a genuine recovery, have deepened the crisis announced by the Wall Street meltdown of 2008.
The US central bank and government, and their counterparts internationally, have focused all of their efforts on rescuing the financial oligarchy and creating the conditions for it to further enrich itself at the expense of the working class.
The primary means has been the provision of unlimited funds to subsidize and underwrite the parasitic activities of the banks and hedge funds. The main mechanism for promoting what the Fed calls the “wealth effect,” i.e., the enrichment of the financial-corporate elite, has been the stock market, with the Fed financing a massive inflation of share values by means of zero interest rates and money-printing in the form of quantitative easing.
Before the latest market turmoil, share values on US markets had tripled from their lows at the height of the financial crisis in early 2009, and stock markets internationally had hit record highs.
This has gone hand in hand with a relentless attack on the conditions of the working population by means of mass layoffs, wage-cutting and the gutting of social programs. Governments have been bankrupted by the diversion of funds to bail out the banks and speculators, whose debts have been shifted onto the balance sheets of the capitalist state, with the working class made to foot the bill.
Meanwhile, the real economy has been starved of productive investment and left to stagnate. The current stock market turmoil reflects the growth of deflationary forces in the global economy that threaten to overpower the efforts to inflate and maintain financial bubbles for the benefit of the rich.