Trends in New York City Housing Price Appreciation
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Trends in New York City Housing Price Appreciation TRENDS s New Yorkers come to accept that the housing boom of the last ten years is over, many are wondering how the downturn will affect their neighborhoods: IN NYC How much, if at all, will sale prices fall? Will the prices in my neighborhood drop more than in other neighborhoods? Should I be concerned about other HOUSING negative trends, such as an increase in poverty or crime? P AWhile there is no crystal ball to predict how bad this downturn will be or which RICE A neighborhoods will be hit hardest, history can provide some helpful context. In the past PP reciation 34 years, New York City housing prices experienced two periods of rapid increase— 1980–1989 and 1996–2006—and two periods of decline—1974–1980 and 1989–1996.1 Fortunately, both booms were substantial, and both busts, although difficult, were relatively small. Overall, prices increased by 250% from 1974 to 2006. This chapter explores these four periods of price in an upturn or downturn. Finally, to address questions appreciation and decline, using the Furman Center’s about individual neighborhoods, we provide a detailed Index of Housing Price Appreciation and other data, case study of one representative community from each to identify persistent trends and useful lessons.2 The borough. These case studies follow the neighborhoods chapter is divided into three parts. The first describes from 1970 to 2006 and describe not only housing sale each boom and bust, its impact on the City and bor- price trends but also changes in other economic, social oughs, and the socioeconomic and demographic char- and environmental characteristics. acteristics of the neighborhoods with the biggest price 1 According to the Furman Center’s Index of Housing Price Appreciation, derived changes. The second looks at a variety of neighborhood from sales data collected by the New York City Department of Finance, 1974–2006. 2 characteristics and attempts to identify which, if any, For more information on the Index of Housing Price Appreciation, see the Indicator Definitions and Rankings section. The index shows a decrease in housing sale prices are useful predictors of how a neighborhood will fare from 2006 to 2007 for single family and 2–4 family buildings in New York City. Figure 1: Index of Housing Price Appreciation in New York City (1974–2006) Index=100 in 1989 175 150 125 100 75 50 25 0 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 Source: New York City Department of Finance, Furman Center STATE OF NEW YORK CITY’S HOUSING & NEIGHBORHOODS 2008 9 Booms and Busts— Figure 2: Units Authorized by New Residential Building Permits NEW YORK CITY FROM 1974 TO 2006 35,000 In the 1970s, New York City was devastated by national 30,000 and municipal economic crises. Rising crime, unemploy- 25,000 ment and poverty rates, coupled with a lack of social 20,000 services, made many neighborhoods inhospitable.3 The 15,000 10,000 City’s population declined by more than 800,000 people, and many disadvantaged neighborhoods were littered 5,000 0 with abandoned buildings. Between 1974, the first year ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 for which we have sales price data, and 1980, housing sale prices declined by 12.4% citywide. After at least six years covered by the Case-Shiller Composite of 10 Price Index. of decline, housing sale prices across the City soared from FIGURE 3 compares the housing price trends of these ten 1980 to 1989, increasing by 152%.4 Prices in 18 neighbor- metro areas to New York City. hoods increased by more than 200%, and only one neigh- The City government reacted to the changing eco- borhood saw prices grow by less than 100%. This boom nomic landscape with City investment programs. In the 5 ended as the nation entered a recession in 1989. 1970s,35,000 as vacant buildings and tax foreclosures increased,200 From 1989 to 1996, prices dropped by 29.3%. In the New30,000 York City Department of Housing Preservation contrast, during this period housing prices remained and 25,000Development became the second largest landlord150 quite flat in the ten largest metro areas, declining only in the20,000 City. By 1979, the City had taken over ownership 6 100 4%. In 1996, the City entered the decade-long boom of 100,00015,000 residential units. Ultimately, the City under- 10,000 that only just ended. Sale prices increased in every neigh- took a massive program of affordable housing renovation,50 borhood, and the average price increase for the City was rehabilitation5,000 and new construction. The program began 0 0 124.2%. Construction exploded (new building permits in 1985 with’96 ’97the’98 launch’99 ’00 of ’01the’02 Five-Year’03 ’04 ’05Plan,’06 which’07 was quadrupled between 1996 and 2006, see FIGURE 2) quickly extended and renamed the Ten-Year Plan. Funds and the City’s population grew significantly.7 were concentrated in the South Bronx and Upper Man- While the City’s latest upturn was large, the boom hattan—some of the most distressed areas in the City. By was even more pronounced nationwide; prices increased the end of the 1990s downturn, most City-owned build- 189% in the ten metro areas (including New York City) ings had been rehabilitated and most vacant land was Figure 3: Index of Housing Price Appreciation (1974–2006) Index=100 in 1989 New York City Index U.S. Composite of 10 Metro Areas Index 300 250 200 150 100 50 0 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 Source: New York City Department of Finance, Case-Shiller Composite of 10 Price Index, Furman Center 10 THE FURMAN CENTER FOR REAL ESTATE & URBAN POLICY TRENDS in development. As the Ten-Year Plan wound down, the City’s housing stock was in much better shape: 34,000 OUR Data new affordable units had been built, 49,000 affordable Our analysis is based on the Index of Housing Price IN units were rehabilitated, and 125,000 units had received Appreciation, a “repeat sales index” the Furman Cen- NYC renovation subsidies. In 2003, in response to continuing ter constructs using data on property sales provided HOUSING affordability pressures, the City launched a new affordable by the New York City Department of Finance. This housing initiative, the New Housing Marketplace Plan.8 inflation-adjusted index is based on average price changes in individual properties sold multiple times P HOW DID THE DIFFERENT BOROUGHS between 1974 and 2007. This method provides a RICE more accurate picture of price changes than simply and neighborhoods fare A IN BOOMS AND BUSTS? looking at changes in the median or average price of PP reciation New York is a city of diverse neighborhoods; looking all sales each year because it controls for differences solely at citywide trends masks significant variation. in the underlying characteristics of the properties What follows is a more detailed exami nation of how that sell in any given year. The index includes almost different parts of the City fared in each boom and bust, a quarter of a million pairs of sales throughout the including analysis of the ten neighborhoods with the City. However, in the context of this chapter, it is greatest sale price increases and decreases in each upturn important to remember that the number of repeat and downturn; the tables list five from each group. sales in some community districts (CDs) is relatively small.9 Sales volumes are particularly low in Upper 3 Van Ryzin and Genn (1999). 4 Manhattan and the South Bronx, where the vast Because our data begins in 1974, we do not know the exact length of 10 the first bust but estimate that it lasted from 1974 to 1980. majority of residents are renters. 5 Glaeser et al. (2008). National Bureau of Economic Research (NBER) shows In this chapter, to increase the volume of sales that the U.S. was in recession by 1990. For more see: http://www.nber.org/ under investigation, we pooled data for repeat sales cycles.html. 6 National data on housing begins in 1987. S&P/Case-Shiller (2008). of single family, two to four family buildings, five or This data is not directly comparable to our index because of differences in more family buildings, and condominiums (co-ops methodology. are excluded). After 1974, we report data in a rolling 7 For more information about units authorized by new residential building permits see the Indicator Definitions and Rankings section. two-year average to smooth out variations that may 8 The Ten-Year Plan resulted in investments topping $5 billion in housing. be due to small numbers of sales in some years. For Ellen et al. (2003). Van Ryzin and Genn (1999). See NYC Department of Housing Preservation and Development (2006). example, the 1980 figure is the average of sales data 9 CD and neighborhood are used interchangeably throughout this from 1980 and 1979. In some CDs this may mask chapter. Individual neighborhoods experienced different peak years. variations in house prices between the start and end The Furman Center treats with caution CDs with fewer than 1,000 repeat sales since 1974. of each period. 10 For instance, in Mott Haven/Melrose, Hunts Point/Longwood, Morrisania/ The repeat sales index is an excellent indicator Crotona and Highbridge/Concourse, owner-occupied units fell from an 11 average of 30% of the stock to less than 5% from 1970 to 1980.