Report describes “a vision of housing as a social good, not a profit-generating commodity”
The risk of a foreclosure crisis among New York City rental properties “comparable in scale to the 2008 crash” is growing, amplified by the COVID-19 pandemic, according to a report released in November by the Community Service Society.
The report, titled “Corporate Wind-falls or Social Housing Conversions? The Looming Mortgage Crisis and the Choices Facing New York,” says the result of such a crisis would likely be a further consolidation of the city’s real-estate industry among large corporations, as they would snap up many of the foreclosed buildings previously owned by small-scale landlords. But it contends that the expansion of “social housing”—“a vision of housing as a social good, not a profit-generating commodity”—would prevent similar crises in the future.
The economic devastation caused by the pandemic has left hundreds of thousands of New Yorkers behind on their rent payments. New York City had lost more than 550,000 private-sector jobs as of October, short-term increases in unemployment benefits have long since expired, and as of early December, Senate Republicans had blocked all efforts to restore them. With so many renters in arrears, thousands of landlords risk defaulting on their mortgages.
These conditions have exposed long-building vulnerabilities in the New York rental housing industry. As the report details, many landlords have dramatically increased their debts since the housing market began re-covering from the financial crisis of 2008. Because real-estate values kept going up, landlords could repeatedly refinance their mortgages, taking on higher and higher debt burdens, and making their finances more vulnerable to unexpected shocks.
When landlords fall behind on their mortgage payments, they begin to withhold basic repairs and services to save money, which in turn can cause the value of their building to drop. “Vulture funds” scour the market for foreclosures in order to acquire buildings at cut-rate prices. The CSS describes this basic process as cyclical and to be expected. After the 2008 crash, opportunistic buyers purchased over 100,000 units at depressed valuations. The difference now is that no one could see the pandemic and the mass failure to make rent coming.
Firms intent on buying distressed properties, such as JP Morgan and Blackstone (the world’s biggest landlord) have amassed $142 billion to do so, according to CSS. Some of this money comes directly from the CARES Act, the major piece of federal stimulus legislation passed this year. These firms had already gained increased revenues from the 2017 Trump tax cuts.
The CSS report argues that the near future could be very rocky for renters, with rising rents, declining service from distressed landlords, and vulture investors seeking to displace them. But it counters that using the crisis to create more social housing would produce stability and reasonable rents for tenants: The report calls for public funding for “preservationist purchasers,” such as tenants, nonprofit developers, community land trusts, and public-housing authorities. They would work to maintain stable ownership, keep tenants in their apartments, and prevent unreasonable rent increases.
Those purchasers would be facilitated by proposed Tenants Opportunity to Purchase and Community Opportunity to Purchase legislation. By buying up rental properties before they become overloaded with mortgage debt, these purchasers could help protect tenants by removing their buildings from rental units from the unstable real-estate cycle.
Most preservationist housing in the city is decades old. Housing Development Fund Corporation (HDFC) cooperatives enable tenants to buy their buildings and run them as co-ops, with property-tax relief in exchange for restrictions on the sale of apartments. From the ’50s to the ’70s, the Mitch-ell-Lama program gave developers subsidies to build moderate-income housing in exchange for regulations on finances.
Currently, the New York City Acquisition Fund and Neighborhood Pillars work to support preservationist housing, but at a relatively small scale. While preservationist housing entities constructing new rental stock is not out of the question, they typically acquire buildings in financial distress that can thus be bought at a significant discount.The public investment needed will require a massive political effort, the report admits—but it is essential if tenants are to be protected from the speculation and displacement of the real-estate cycle.
“The scale of our current tragedy and the depth of our state’s social inequality require nothing less,” the report states.