There is a troubling covid-instigated situation that has been brewing in New York City since the onset of the pandemic, a complete and utter housing crisis. This has not been unique to NYC, however many different factors have contributed to it being especially horrific in the city. As we had learned in class, the Federal Reserve is mandated to maintain price stability meaning it must combat rising inflation with corresponding monetary policy in order to ensure purchasing power doesn’t fluctuate too much. Economic disruptions due to COVID have led to unprecedented inflation rates reaching about 9% at its worst, but upon many aggressive Federal-Funds Rate hikes in order to decrease inflation, the New York City housing market has especially suffered.
To provide national context before analyzing NYC specifically, at the very beginning of the pandemic, in 2020 and 2021, we witnessed record low median mortgage interest rates of 3.00%. Following a string of consistent aggressive interest rate hikes, we now sit at an abysmal 7.03% according to the Home Mortgage Disclosure Act data. In the textbook, we had similarly learned that most interest rates generally tend to move together with monetary policy explaining why these Federal-Funds Rate hikes have significantly contributed to mortgage rates also soaring. These sky-high mortgage rates discourage both supply and demand. For buyers, fewer affordable homes will be available as monthly payments are now much higher in effect “pricing” many people out of the market. For sellers who capitalized on record-low 30 year mortgage rates in 2020 and 2021, they would have no reason to put their homes on the market as they would assuredly find worse mortgage rates on the current market. Not only that, but mortgage originations are also at an all-time low as potential borrower’s debt-to-income ratios which wouldn’t have otherwise been pushed above the 50 percent ratio, have now been made ineligible for mortgages due to rising rates. This has led to a 2% increase in mortgage rejections since 2022. For these reasons, few people are able to afford owning houses in the city and have flooded the already scarce rental market.
To focus on the city, the interest-rate hikes have also compounded with the expiration of the 421-a tax abatement in New York. Since the 1970s, 421-a has encouraged affordable housing construction by reducing property taxes up to 35 years after developers build new rental buildings. In June 2022, this abatement expired leading to a meager projected 11,000 new housing units being built in 2023 which is only half of 2022’s numbers. This is not remotely close to meeting demand in a city of 8.5 million people. Not only have the interest rates decreased the supply of homes on the market, not enough new homes are being built to begin with. The shortage further drives up the price of the scarce apartments that are available.
Additionally, housing policy analyst Oksana Mironova at the Community Service Society stated, “The primary underlying issue is the nature of a speculative housing market. … Investors and landlords take the opportunity to raise rents during times of disaster, after borrowing heavily to acquire properties during slumps in the market they can raise the rent when the downturn is over.” It was popular for many landlords to offer a free month or two of rent and reduced prices in the midst of the vacancy rate surges of the pandemic. Mironova continued, “while tenants received “COVID deals” at the onset of the pandemic, landlords anticipated jacking rents back up once the COVID crisis subsided, putting tenants in tight binds where they either had to accept a large rent increase or re-enter the housing market now in competition with an influx of returning New Yorkers.” That last part is crucial, due to people leaving and now returning as the pandemic has ended, there is a larger share of people looking for housing at any given moment than before. With an influx of people returning to the city and many more people being pushed onto the rental market due to interest-rate hikes, more buyers are chasing fewer homes as the shortage only gets worse.
It is basic supply and demand, prices will soar upwards in response to insufficient supply not being met by an excess of demand. Perhaps most egregiously the city is home to the predatory practice of warehousing. The New York’s Division of Homes and Community Renewal reports that there are currently 38,000 rent-stabilized vacant apartments, landlords allege this is due to The Housing Stability and Tenant Protection Act which blocks landlords from notably hiking rents on vacant units when leasing to new tenants. However, if this were the case the number of vacant apartments would’ve increased after 2019 yet it has been around 40,000 before and after the approval of this law. Many have asserted landlords are simply creating artificial scarcity to jack up rents even higher.
In essence, upon the backdrop of an already nationally stifled housing market due to the interest-rate hikes from the Federal Reserve, many people are being forced onto the rental market which is flooding the demand for housing alongside many returning to the city. COVID has disproportionately impacted the economic landscape of New York City as a mix of expiring abatements, questionable and downright immoral landlord price-gouging strategies, and speculative real estate investments have combined with excess demand to produce New York City’s worst housing crisis yet.
Citations
Rising Interest Rates Put the Brakes on the Mortgage Market for Borrowers with Low Incomes | Urban Institute. 24 Aug. 2023, https://www.urban.org/urban-wire/rising-interest-rates-put-brakes-mortgage-market-borrowers-low-incomes. Meghjani, Sam Rabiyah, Tanaz. “New State Numbers Show Slide in Vacant Rent-Stabilized Apartments.” THE CITY - NYC News, 17 Nov. 2022, http://www.thecity.nyc/2022/11/17/rent-stabilized-vacant-apartments/. In New York City, Housing Supply Continues to Fail to Meet Demand. https://ny1.com/nyc/all-boroughs/housing/2022/10/07/new-york-city-housing-supply-demand. Accessed 10 Dec. 2023. David, Greg. “NYC Will Build Just 11,000 Homes This Year, Half of 2022 Total, Annual Report Finds.” THE CITY - NYC News, 18 Oct. 2023, http://www.thecity.nyc/2023/10/18/housing-development-construction-affordable/. “Why Are NYC Rents So High? It’s Complicated.” THE CITY - NYC News, 4 Aug. 2023, http://www.thecity.nyc/2023/08/04/why-is-nyc-rent-so-high/. New York City Real Estate Market Everything You Need to Know. 30 June 2023, https://www.doorloop.com/blog/the-new-york-city-real-estate-market.There is a troubling covid-instigated situation that has been brewing in New York
City since the onset of the pandemic, a complete and utter housing crisis. This has not
been unique to NYC, however many different factors have contributed to it being
especially horrific in the city. As we had learned in class, the Federal Reserve is
mandated to maintain price stability meaning it must combat rising inflation with
corresponding monetary policy in order to ensure purchasing power doesn’t fluctuate
too much. Economic disruptions due to COVID have led to unprecedented inflation
rates reaching about 9% at its worst, but upon many aggressive Federal-Funds Rate
hikes in order to decrease inflation, the New York City housing market has especially
suffered.here is a troubling covid-instiThere is a troubling covid-instigated situation that has been brewing in New York
City since the onset of the pandemic, a complete and utter housing crisis. This has not
been unique to NYC, however many different factors have contributed to it being
especially horrific in the city. As we had learned in class, the Federal Reserve is
mandated to maintain price stability meaning it must combat rising inflation with
corresponding monetary policy in order to ensure purchasing power doesn’t fluctuate
too much. Economic disruptions due to COVID have led to unprecedented inflation
rates reaching about 9% at its worst, but upon many aggressive Federal-Funds Rate
hikes in order to decrease inflation, the New York City housing market has especially
suffered.gated situation that has been brewing in New York
City since the onset of the pandemic, a complete and utter housing crisis. This has not
been unique to NYC, however many different factors have contributed to it being
especially horrific in the city. As we had learned in class, the Federal Reserve is
mandated to maintain price stability meaning it must combat rising inflation with
corresponding monetary policy in order to ensure purchasing power doesn’t fluctuate
too much. Economic disruptions due to COVID have led to unprecedented inflation
rates reaching about 9% at its worst, but upon many aggressive Federal-Funds Rate
hikes in order to decrease inflation, the New York City housing market has especially
suffered.
/