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The Future of Money

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Landmark 19th-century rowhouses on tree-lined Kent Street in Greenpoint Historic District. (Photo: Public Domain)

Do We Need to Force People to Live in the Homes They Own?

• March 19, 2014 • 2:00 AM

Landmark 19th-century rowhouses on tree-lined Kent Street in Greenpoint Historic District. (Photo: Public Domain)

With more and more individual investors looking to real estate as just another money-making commodity to add to their portfolio, rents are being driven to unreachable heights for all but the wealthiest among us.

Chances are it’s happened to you: A lease runs out or a roommate situation changes and you’re forced to find a new place. All of a sudden the neighborhood that you’ve been living in for the past five years starts to feel foreign. Looking at the rental listings, it’s clear your neighbors are paying twice what you’re used to, prices you can’t possibly afford. It’s time to start searching further afield. But where?

Trying to make rent in New York City, and, these days, Brooklyn, might be a cliché, but it’s one I’ve certainly suffered through. When I began looking for a new apartment last year, I knew that my East Williamsburg neighborhood in north Brooklyn (even the name is tailor-made to sell real estate) had changed and I likely wouldn’t be able to find another affordable place there. What I didn’t expect to feel as I browsed endless Craigslist postings was the gnawing feeling that the city had turned against me.

Rent around my old place was too high. So were prices to the east in Bushwick. Park Slope was out of the question. Hip Williamsburg—maybe it would have worked a decade ago? Bed Stuy was a possibility, but it was already being labeled the next great neighborhood. On the L subway line, where I’ve lived since I moved to New York, the cheapest place borders an enormous graveyard. Cheap Brooklyn real estate is moving ever farther south, down into Flatbush and Sunset Park, far enough from Manhattan that it would have been faster at times to take the commuter rail in from Connecticut.

A real estate broker told the New York Times that she thought 70 percent of sales in Brooklyn were to hedge funds and investors rather than “end users or first-time buyers.”

Real estate has always been a precious commodity—the wealthy live closer to the river, or inside the castle walls, or in a house that gets better sunlight. But lately, urban property is becoming more like a stock traded on the NASDAQ. Gentrification turns buildings into investment goldmines seemingly overnight. Apartments are bought and sold before they’re even lived in. In Manhattan, skinny skyscrapers are designed to maximize luxury prices. And in London, entire streets of mansions sit empty because the owners simply choose not to live there.

An op-ed in the New York Times by Ben Judah, the author of Fragile Empire: How Russia Fell In and Out of Love With Vladimir Putin, noted that “the capital’s poshest districts are empty; they have been sold to Russian oligarchs and Qatari princes.” As much as 37 percent of property in the most expensive central London neighborhoods are not primary residences, a Savills report found.

Judah points to The Shard, London’s tallest building and a property jointly owned by the U.K. Sellar Property Group and the state of Qatar, as the epitome of his argument. There, the penthouse mansion has a price tag of $83,000,000. A recent report estimated the market for London penthouses at $1.6 billion, noting that the apartments existed separately from the realm of normal real estate and could fetch as much as $233 million. The report also found that half of penthouse purchases are made by “Russian and Middle Eastern billionaires.”

The proliferation of unused real estate is a waste, according to Michael Kwartler, the president of the Environmental Simulation Center in New York, a firm that consults on the environmental impact of urban architecture. Speaking to the new generation of ultra-skinny skyscrapers that are due to pop up around New York’s Central Park over the next decade (like 111 West 57th Street), Kwartler says, “the technology allows you to do it, and enough wealthy people want to park their money if not their asses there.”

The empty mansions and skyscrapers that are tall enough to cast shadows on the public space of Central Park are a drain on space—space that no one lives in. “It’s an issue of who gets to monopolize a resource,” Kwartler says. “If you’re opting for the views, which is what developers are, you’re buying a fabulous view. But at what expense?”

One motivation of the real-estate-as-commodity phenomenon is that real estate is a good investment, particularly if bought in bulk, and if the supply of properties is as scarce as it is in Brooklyn, Manhattan, or London, so much the better. In 2013, a real estate broker told the New York Times that she thought 70 percent of sales in Brooklyn were to hedge funds and investors rather than “end users or first-time buyers.”

Those investments will likely turn a profit, given that Brooklyn’s real estate value is growing, much faster even than Manhattan’s. A 2014 report from the real estate firm Douglas Elliman found that monthly rents in Brooklyn grew 11.6 percent in February, averaging $2,890, while in Manhattan they fell 2.8 percent to $3,100, suggesting that Brooklyn is still undervalued while the island might just be losing its cool.

While gentrification is pointed at as a driver of urban change, the term doesn’t really begin to describe what’s actually going on. When real estate is looked at simply as a way to make money rather than homes, new communities aren’t being created. Properties flip and rents rise too quickly for tenants to stay long. As corner dry cleaners are swapped out for clothing boutiques, rents rise exponentially, and owners are motivated to swap out their renters for a higher-paying batch. Meanwhile, empty buildings are traded like cattle.

The problem suggests less rent control than residency requirements, forcing owners or tenants to actually occupy buildings rather than use them as commodities. In a time when AirBnB is forcing up property rates even in rural Marfa, Texas, by turning full-time residencies into vacation homes, maybe it’s time to rethink how we approach real estate ownership.

In Brooklyn, the cool new neighborhood was supposed to be Bed Stuy, but it turned out to be Crown Heights, south of Manhattan, not too far from Prospect Park. As for me, I moved to another neighborhood a little farther east of my previous apartment. I found a larger space with more roommates and reasonable rent. I count myself lucky to have found it and grateful to make it my home—for now.

Kyle Chayka
Kyle Chayka is a freelance technology and culture writer living in Brooklyn. Follow him on Twitter @chaykak.

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