A Little Real Estate Lesson…
There are a great number of misconceptions, myths, legends and out and out misunderstandings about the real estate industry as a whole. I am going to debunk a few of these, and hopefully intuition will help those who are ill-informed to decipher the rest without my assistance.
Some of you may have noticed a comment that I made about three or four days ago, stating that I believed there will be riots over housing in the near future in a particular section of New York City.
SIDE NOTE LEGALESE: I am not condoning, calling for nor supporting any such thing, nor should any of my writing be perceived as such.
My rationale for that comment, which was not off-hand nor flippant:
PEOPLE ARE BEING DISPLACED IN RECORD NUMBERS IN 2011.
Every state is different, and every city is different with regards to how the real estate market works in each respective locale. That is to be expected. There is no real estate market like New York City. With the combination of the highest tourist population, finite housing options, finite hotel/lodging options (creating two entirely new subsets of lessees: hostels and short-term rentals) and ever-increasing cost of living while wages have largely remained what they were in the 1990s, well, therein lies the perfect storm.
This is not to suggest that no other cities have housing shortages, overpriced apartment units, without employment wages that are commensurate with the housing available. Washington, DC has quite the conundrum on its hands in this regard, because the city is relegated to the 10 square mile grid that it has been laid upon since 1787.
The state of Florida has a situation that is unique to almost any other state, with the highest influx of new residents with more than $250,000 in savings and buying housing upon their arrival to the state. Throw in the insurance barriers that come with living in a state in the heart of Hurricane Alley, and it creates a rather tenuous situation for real estate broker agents and clients to wade through alike. This is part of the reason why Florida’s Real Estate Licensee Exam is one of the more difficult ones out there.
However, I would like to focus on the issue at hand, with some personal perspective thrown in.
As some of you may know, New York City and New York State have allowed for a great number of former “Project Houses”, part of the New York City Housing Authority — to be sold to private investors and switched to mixed-use/market rate apartments and condominiums. This is just business, right? Right, it is, and capitalism at work. On the surface, this is not bad business. However, consider these facts:
Many of these Houses were Mitchell-Lama buildings under the NYCHA. The “out” that many of them had is if they were built and completed before 1976, after a 30-year period, they could be converted to privately-held apartments and condominiums that can either be sold individually or rented at market rate by the new owners.
Examples of this in Harlem alone are:
“1990” (1990 Lexington Avenue aka “The Miles at 1990” — as of 2011)
Riverton Square (although they were technically never “Project Houses”)
and several others to come in the next half decade or so.
This is the reason for my supposition.
As these buildings are being sold to private owners, the owners — seeking to recoup their investment, are doing everything in their power to “freeze out” existing tenants; particularly those who have lived in their buildings in upwards of 30 years or more (Section 8, Rent Stabilization Programs, etc.) This has not created much in the way of negative publicity as of 2011, because many of the displaced have been elders whose stories rarely make the news nor publication print.
A different demographic is being affected in 2011 and going forward. A demographic that will not take this situation lying down. Formerly, the generation between the geriatric population and the current set of 20/30 somethings — i.e. people “My Parents’ Age”, have been leaving New York City willfully and in droves for the past decade and a half. Many of them continue to do so, as almost everyone from New York has relatives or some sort of connection to the Mid-Atlantic/Southeast and will find living a bit more affordable and tolerable, with everything considered.
The current subset of 20s and 30s, many of whom are college graduates, sometimes twice or thrice over, are leaving New York in mass exodus as well. The caveat with many of those is the fact that they are leaving with no real employment prospects in place in whatever city or town that they are headed. Some are returning to where they may have spent part of their lives previously or where they grew up. Some are going back to live with parents, even people in their early to mid 30s or OLDER. I’ve known quite a few people over the years in all my back and forth between NY and NC since the 90s who have done this, and it is accelerated now more than ever since the “Recess… DEPRESSION” hit — and has not subsided, despite the lies that the Labor Department in Washington likes to spew.
There is an old saying — when Unemployment rates are bad nationwide, that means things are TRIPLY bad for Blacks. If there is an affordable housing shortage, it is TRIPLY bad for Blacks, and so on and so forth.
I know quite a number of my friends, acquaintances and relatives who have never had to look for an apartment a day in their lives in this city, so they have no idea (or a very limited perspective) of what it is like on the open market now more than ever.
Many of the older generation were familiar with the 15% Broker Fee in place for the annual rent on a lease. That practice is still highly prevalent. The catch? Rents were SOMEWHAT reasonable before 1995, when gentrification went from 0-60 in 3.4 seconds flat. Once gentrification began, rents skyrocketed as much as 300% in some places in less than five years. 15% of an average apartment (about $1,750) for a broker fee in 2011 is now about $3,100 and some change. Throw in first month’s rent, last month’s rent, any security deposit and contingencies (i.e. poor credit score means more months’ rent being paid up front) and you could easily be looking at having to come out of pocket with $8,500 if your credit is not good — before you move into a 2 BR apartment for $1,800 — something that is pretty hard to come by in most of Manhattan and Brooklyn (Downtown and surrounding area), by the way.
There is an uneven, disproportion of wealth in this city that is unrivaled by any other city not named Los Angeles or San Francisco — as the United States goes.
The city will state that the average wage is $47,000 for the average New Yorker. However, 75% of all New Yorkers make fewer than $47,000 a year. A good 12-15% are millionaires, and you have an ever-decreasing middle class (if you will; $47,000 is Middle Class in any other city, but in New York, that should be the POVERTY LINE — more on that later) that actually makes about the median wage listed.
(Hubie Brown 2nd Person Voice)
Now. You say “How do I afford to live in a city where the sales tax and taxes on just about everything in this city are around 9% and going up again soon?”. You ask, “How can I rent a car, when the tax is 19.80% on that rental?” Aight, you are in a bind, okay? You know that you will be paid twice monthly, aight? And there is a high per-cen-tage chance that you are going to have to purchase a MetroCard. (Voice deepening slightly with a tinge of sarcasm and facetiousness) Now you say “Monthly MetroCards are $104, c’maaaan Mike” and I will say to you, “You are right and this is just the tip of the iceberg (unintelligible garble mixed with uncontrolled chuckling) okay! Ohhhh myyyy!”
The standard budget that I always drew up included:
Utilities (if not included in the rent)
Miscellaneous Travel (Optional)
Most people don’t have the means to get past the 4th item on that list, IF they make it to it at all.
Personally, having been in graduate school for a year and having an unreasonable trifle attempting to secure full-time employment with an actual salary (non-commission basis), it really makes everything difficult for me to qualify for anything. Even fellow brokers understand that we are full commission, therefore, no “provable” income, other than prior year tax returns. Well GUESS WHAT — I was in school full-time and spent full-time hours looking for employment when I was out for those two semesters between my BA and MS. That means, there IS no three year’s W2 that will state an $80,000 annual salary. Who in Harlem makes that, anyway? Exclude the famous people who live here and the few who have been in their fields for 30+ years and are vested. I’m talking about those of us fresh out of school or secured BA/BS degrees in the past 5 years and are still trying to carve out a niche.
Many people graduated in the past 3-4 years only to be greeted by one of the worst job markets since 1982. New York City was especially ravaged by the economic downturn, because while jobs weren’t downsized and outsourced as frequently as they were in other cities, wages remained flat, while the cost of living continued to uptick exponentially, as it has for 15 years straight.
Consider the cost of travel.
The MTA has raised the fare for buses and subways more frequently in the past 15 years than it had in its entire history before 1995. The fare for a monthly unlimited MetroCard has gone up $25 in just two-plus years. That’s a monthly, budgeted expense, people. $104/month is more than what most people pay for car insurance monthly. Throw in an occasional cab ride and you can easily spend $200/month in transportation WITHOUT A CAR.
Everyone knows everything costs more in Manhattan, even more than the rest of the boroughs. However, with taxes included, you can easily spend $10 on a basic meal in some places. Even fast food joints have fares that are nearing that mark.
Now, going back to the cost of rent. This is the basic thing for everyone. Property management companies and owners — more so in Harlem than any other place outside of Downtown Brooklyn, are DEMANDING that prospective tenants earn (provable, not Independent Contractors such as myself) 40 times the rent in annual salary. That means, in short, if you are looking at a $1,500/month apartment, you need to be making at least $60,000 in salary. And if your credit score is not 700+, you’ll need to pay 2-3 months up front, including broker fees — if there is one included, and security deposit.
Do the math, people. It just does not add up. Especially if you are not loaded with savings. I have met many people on Public Assistance, others who are homeless (yes, I have actually walked, talked and smoked with some of them) and many of these people were once proud workers in unions-connected jobs, educators, highly educated — some of them — and just ran out of options. Some of them only had a couple of relatives that they knew of and they often could not leave the city even if they had the car fare out of town.
Something is going to come to a head soon. Some people have the option to leave the city and not look back. I am one of them. But there are those who, instead of being forced to live 4-5 to an apartment and struggle or hustle to survive, will revolt. And you will really begin to see more of this once the older relatives that they live with either pass on or leave the city and they are forced to fend for themselves when all the project buildings are bought up, “converted” to condos and regular market-rate apartments and they are frozen out by their new ownership.
I just plan to be gone already before it happens.