Breaking NYC’s Housing Speculation Cycle

When wealthy investors treat homes like poker chips, it is the tenants who end up losing. How do we interrupt the vicious cycle of speculation and displacement?

Read Time: 3 minutes

August 23, 2022, 5:00 AM PDT

By LM_Ortiz

Manhattan, New York City, New York

andersphoto / Shutterstock

New York City’s housing market is a multibillion-dollar industry and one that has expanded rapidly over the past three decades. By one estimate, the values of multifamily properties increased between 400 percent and 600 percent between 2000 and 2018 in every borough except Staten Island. This climate has fed a boom of real estate speculation across the city, driving up rents, pushing out longtime residents, and creating “super-gentrified” islands of wealth in neighborhoods where lower-income New Yorkers had lived until the recent past.

“Speculation” in a housing context is a slippery term to define, but some of its harbingers are well known: Anonymous LLCs scooping up homes in lower-income neighborhoods, then reselling them quickly at wildly inflated prices; property owners “warehousing” vacant apartments in the midst of a housing shortage, betting on a turn in the market or a spike in land values to create more profit than a rental income stream could.

But the way multifamily buildings are financed is also a strong signal of speculative action, and one that can tell us not only how likely a building’s tenants are to be displaced, but how likely they are to be living in poor housing conditions, according to “Gambling with Homes, or Investing in Communities,” a report from the Local Initiatives Support Corporation (LISC) and the University Neighborhood Housing Program (UNHP).

The report found that tenants in buildings that had recorded “speculative events”—like a steep increase in prices between sales, or a large amount of debt borrowed against the building—had significantly worse outcomes than tenants in buildings without these markers of speculation. Landlords who bought properties at higher values, or who took on more debt against their buildings, were 1.5 times more likely to execute an eviction warrant against their tenants than owners of comparable buildings in similar neighborhoods.

Speculative financing was also associated with buildings being in a poorer state of repair. Buildings with higher debt loads and buildings purchased at higher sales prices had 2.7 times the number of housing code violations from the city Department of Housing Preservation and Development (HPD).

According to Julia Duranti-Martínez, program manager at LISC and one of the report’s co-authors, “This really undercuts the claim that landlords are generally reinvesting in their properties, and reinforces what tenant leaders and organizers have been saying for quite some time, which is that this is primarily a strategy for extracting profits from buildings, not for investing in their upkeep.”

The report homes in on two forms of speculation, both of which rely on the rising value of the building as an asset, rather than its income from rent payments, for profit. The first occurs when a landlord purchases a multifamily building with the intent to resell it at a higher price, a strategy that works particularly well in neighborhoods undergoing gentrification, or where public sector decisions, like zoning changes or infrastructure investments, are likely to lead to higher property values in the near future.

The second speculative strategy is a little more complex, and possibly more insidious: using the building as leverage to access relatively cheap capital in the form of a refinanced mortgage loan, which can then be diverted to other investments. For example, if a building’s assessed value rises significantly over five years, the owner can refinance the building and use the larger loan amount to purchase a second property, and then a third, and so on.

In the meantime, tenants in the original property are more likely to be dealing with low-quality repairs, deferred maintenance, and a higher number of HPD violations than tenants in buildings that aren’t as loaded with debt. Rather than investing in upkeep, the report suggests, owners who take on higher debt levels ...

Tuesday, August 16, 2022 in Shelterforce Magazine

Chicago Commute

The Right to Mobility

As we consider how to decarbonize transportation, preserving mobility, especially for lower- and middle-income people, must be a priority.

January 26, 2023 - Angie Schmitt

Aerial view of Bend, Oregon with river and old mill district

Bend Eliminates Parking Minimums

The city is complying with an Oregon state mandate that some cities have challenged in court.

January 20, 2023 - KTVZ

Aerial view of dense single-family homes in neighborhood still under construction

How Virginia Counties Use Zoning to Stifle Development

Some state legislators are proposing action at the state level as counties block development using zoning and development requirements even as housing prices rise sharply in the region.

January 23, 2023 - The Virginia Mercury

Seattle buses in line at a depot with Seattle skyline in background

Seattle Brings Free Transit to Public Housing

Linking transit programs to housing can lower administrative costs and streamline the process for riders.

42 minutes ago - Route Fifty

Broad street in downtown Columbus, Ohio with two pedestrians in crosswalk

Columbus Could Lower Downtown Speed Limits

The city council will vote on a proposal to lower speed limits to 25 miles per hour to improve safety and make downtown more walkable and welcoming to pedestrians.

1 hour ago - The Columbus Dispatch

Stoplight with green light and "no right turn on red" pictograph on overhead signal

Traffic Safety Bills Proposed in Washington’s State Legislature

As traffic fatalities continue to climb in Washington and around the country, three proposed state bills would prohibit some right turns on red, reduce the BAC limit for DUI arrests, and require more young drivers to take driver’s education courses.

2 hours ago -