New York city has been facing a demanding shortage of affordable housing with property prices having soared in the past decade. Recent homeownership rates have dropped significantly to 63.5% from where it was a decade back. To top it all, the great recession left an inexpugnable mark on the millennials, which is nearly a fifth of the total population of New York.
Image Credit: Flickr, Creative Commons: Arne Bornheim
Over the last decade, housing rents across the city have continued to see a surge while incomes stagnated. The number of New Yorkers struggling to afford a rental accommodation grew substantially between 2002-2011. So what are the reasons behind these soaring real estate prices in New York?
1. Space crunch
With more and more people wanting to reside in few square miles, the land prices and subsequently the rents are bound to increase. This also gives rise to cramped living and overcrowded homes and apartments. According to a report by New York City Controller Scott Stringer, there were about 272,000 overcrowded units in New York City housing; which comes to 1.5 million residents as of 2013, according to census. That's a spike of almost 20% from 2005.
2. Zoning rules
There are areas, such as the East Village in Manhattan, where zoning laws prevent Floor Area Ratios to go up to 10, which could then allow for 2.5 times as much building space on the same area of land. A higher availability of living spaces could then automatically bring down rents. Taller buildings provide more apartments within the same area of land. Relaxed Zoning policies would also mean development of new residential units for low or moderate income households.
3. Rent control
There are a lot of affordable housing in New York which are rent controlled. As a result, the tenants residing in these houses do not vacate these houses easily, sometimes in their entire lifetime. This raises the average rent of other non-rent controlled houses in the city. The rent-regulated tenants would have to move more frequently if they were made to pay market rent. As they hold on to this cheap accommodation for decades, they limit the supply of new tenants, and this drives up the rentals.
4. Lower income amongst Millennials
Millennials, those who are aged 19 and 22, are making 35 percent less than what previous generations did at that age; between 26 and 29, they make 11 percent less. Millennials employed in New York city face dramatically lower wage rates. In New York city alone, unemployment amongst young people rose to a phenomenal 18% in 2009. Lower wages do not allow them to buy or even rent comfortable and affordable living space in the city.
As a result of lower incomes, the generation's overall home purchases have decreased dramatically over the years. Since New York City is one of the world's hottest, priciest and perhaps the most competitive housing markets in the country, many NYC buyers think once they've gotten the initial pre-approval for a loan they're ready to start the process of shopping and putting an offer on a home. However, it's not always the case as there are certain processes wherein your pre-approved loan could still be derailed by the bank. Val Tsanev, CEO & Founder of CityRaven, who's familiar with how the process may often come with hiccups, recommends not to indulge into a spending spree after the pre-approval. "Let's say you've been pre-approved for a particular amount of money to buy a New York City home, and then you go furniture shopping to celebrate. If you rack up new debts before it's time to close on a new property your lender will see it, since a new credit check is completed right before closing. If you do have significant purchases you want or need to make, check with your lender first."
5. High property taxes
New York has the second-highest property tax rates on rental apartment buildings among the large cities in the country. Some portion of this tax automatically gets transferred to the renters in the form of higher rents.
It will take some time to bridge the gaps in an already-dense New York City.The hope for an economic recovery coupled with the ability of the local and Federal Governments to find newer and better ways of housing will determine whether New Yorkers will be able to carry the grandness of the city forward, or whether it will continue to experience a downward course of housing nonchalance and neighborhood degradation.