It’s no secret that New York's housing supply is thinning at a rapid rate. And with the city’s population expected to swell to 9 million by 2040, finding an affordable place to live is only becoming a more daunting task for most middle-income residents.
This housing crunch isn’t the only factor that’s driving up rents across the five boroughs. A report published this week by the Center for NYC Neighborhoods shows that a rapid influx of house flippers is also a major driving force.
The report looked into property sales across New York from 2011 to 2017 and found that speculators are currently flipping homes at a rate not seen since 2006, right before the Great Recession. The surge of the practice among real estate investors plays a significant role in reducing the number of buildings that working-class families can afford and making rentals unaffordable, the report claims.
In 2017, 11 percent of the 24,344 homes sold in New York City were within the reach of middle-class buyers (families of three with an annual income of roughly $86,000). Yet 38 percent of those were bought and flipped in the following months by investors, a vast majority of the time at much higher prices.
A good deal of this activity was fueled by foreclosures, the report found. Roughly 12 percent of the homes sold across the city in 2017 were in foreclosure at the time of sale, but foreclosed homes accounted for 34 percent of the homes that were flipped.
Add in intense marketing and outreach strategies leveraged by flipping-thirsty investors, and you're left with a relatively small group of investors quickly raising the cost of living throughout the city.
The report found that flippers tend to target outer-borough neighborhoods. Southeast Queens and eastern Brooklyn had the highest rates of house flipping last year. Twenty-two percent of the sales made in Jamaica, Queens, were to flippers, compared to just 10 percent across the borough. Cambria Heights in Queens, Queens Village, the northern Bronx, Flatbush, Canarsie and Flatlands also all saw steep year-over-year gains in house flipping in 2017.
“In more economically depressed parts of the country, flipping is sometimes considered a boon because it puts dilapidated homes back on the market,” the report says. “However, in New York City, where prices are sky-high and demand for homes far exceeds supply, flipping contributes to gentrification and displacement.”
What’s at stake here is more than groups of investors turning a quick buck. When property values inflate at a rapid rate, it leads to higher rents and less economic mobility for prospective home buyers. The report’s authors recommend adding in stricter regulations on this kind of home-buying activity, including an anti-speculation tax, which is currently working its way through Albany.
This kind of sleazy activity is nothing new for New York City’s real estate scene. Still, expect the cost of living to become an even bigger issue in the decades to come—this report warns that it could spur a housing market crisis similar to the one the nation saw a decade ago.