Why Are NYC Housing Prices Holding Up?

There has been some weakness in the New York City housing market, but Manhattan's housing prices have remained surprisingly strong. The conventional wisdom is:
- The decline in the value of the dollar makes U.S. properties look very cheap to foreigners.
- Foreigners are looking for quality and Manhattan is the apex of quality.
- Aggressive lending policies were much more prevalent in Florida and California (along with Nevada and Arizona) than in the Northeastern United States.
- NYC coops maintained their credit standards even when mortgage lenders did not.

Here's another possible explanation: New York City is the densest city in the United States, with the best transit system, and a transit system is becoming more valuable. Higher gas prices are making the automobile commute look wasteful. After World War II, the rest of the United States plunged into the creation of highways, purchase of cars and the auto-dependent suburbanization of big cities. NYC already had its subways and commuter trains in place. With the rise of the price of gasoline, the suburban model is being reexamined. For middle-class people under pressure of higher prices, NYC is becoming steadily more attractive.

Outlook for the NYC Economy

The New York City Independent Budget Office predicts there will be 33,000 fewer NYC bankers and financiers by mid-2009. These losses come on top of what Bloomberg news estimates as 83,000 financial-company layoffs worldwide since July 2007. NYC alone has lost about 10,000 financial-service job losses August 2007, 3.5 percent, according to the BLS. Bear Stearns is laying off 9,159 people, two-thirds of its pre-demise total. Citigroup is layoff 15,900 workers worldwide, a 4 percent reduction. A table of cuts from the NY Post is here. Comment by CityEconomist: Wall Street may seem remote from those who don't work there, but spending and taxes by Wall Streeters are crucial for the NYC economy. The dependence on Wall Street has periodically been bemoaned, but as Wall Street productivity increased, revenues and income (including bonuses) per Wall Street worker have been rising steadily with other industries not replacing these jobs and manufacturing jobs that have also been declining. Fortunately, health-care jobs were reliably growing and now we have more tourism and restaurant jobs. But many of these jobs do not pay well. So do not ask for whom on Wall Street the bell tolls - it tolls for everyone with a stake in New York City and that's a large number of people.

Subprime Loan Maps

Subprime Loan Maps. Here's a useful new service from the Federal Reserve Bank of New York. The Fed is now offering dynamic interactive maps showing conditions and density of owner-occupied subprime mortgage loans for all U.S. states, counties and zip codes. The maps are based on data for subprime mortgage loans, based on the grade assigned to the security. The underlying data start December 2007. A dozen separate functions are available, such as loans per 1000 housing units, foreclosures per 1000 housing units, REOs per 1000 housing units. Comment by CityEconomist: This is part of what the U.S. Conference of Mayors asked the Mortgage Bankers Association for at their recent Detroit meeting, i.e., a way to estimate what the impact of foreclosures might be in every neighborhood.

New York City's Economic Outlook

How Bad Will NYC's Economy Get? AM New York. "There have been four distinct downturns since the 1970s and the one that seems most similar to this one is the S&L crisis in 1987," said Rae Rosen, assistant vice president and economist at the Federal Reserve Bank of New York. That meltdown began with the jarring stock market crash in October 1987, and lasted into the early 1990s, spreading from Wall Street to Main Street, and crippling the city's real-estate market. The 1980s meltdown was known as a "white-collar recession," because it broke the trend of economic cycles that used to rise and fall on manufacturing. The pattern today is very much along those lines. The city lost 350,000 jobs during that period, far more than the number predicted to disappear this time. However, in a note of concern, the city's economy is far more reliant today on the fate of Wall Street, where most of the cuts are happening – so far. Wall Street employment makes up about 5 percent of the workforce but about 25 percent of all wages earned; that figure was only 9 percent in the early 90s. Comment by CityEconomist: The October 1987 stock-market crash affected New York City more than the nation, which didn’t go into recession until 1989. The low point for NYC jobs was October 1992 (the month I was first appointed Chief Economist in the Office of the NYC Comptroller in what turned out to be a 13-year stint covering three full electoral cycles and two partial ones). Using annual data, NYC's economy didn’t turn around until 1993.

Free Biking in Paris

Free Biking in Paris. May is Bike Month NYC, according to Transportation Alternatives, so it's a good time to report on a trip up and down the Seine with my wife Alice using the Velib' ("Velo-libre" or "free bike") system. This is the less-than-a-year-old brainchild of the socialist Mayor of Paris, Bertrand Delanoe. Paris has more than 230 miles of well-marked cycling lanes and the Velib' has been a big success with more than 20 million trips as of this month, or 70,000 trips per day. At this pace, by the first anniversary on the day after Bastille Day, July 15, the Velib' will have attracted an amazing 25 million trips. To add our two more trips to the counter, we first buy a Velib' map, sold at any newsstand. The Google map of Paris has its green arrow pointed exactly to where we decide to join the Seine from the north. We decide to start with the bicycle route on the north (right) bank of the Seine headed east, ride this until the Seine-side bicycle path ends (it goes north), then cross over the Seine and take the bicycle path west on the south (left) bank to the Branly Museum. Our trip has some lessons for New York City and other cities! A friend of mine from Lyons says the free-bike movement started there but Amsterdam had the white bikes years ago and may have been first. The problem in Amsterdam is that the bikes got stolen and were just repainted. Harder to do with the easily identifiable Paris bikes, and anyway they get your credit card and the locks are pretty secure. Washington, DC is experimenting with a much smaller program than the one in Paris. To continue, click here (map and photos included).

MYANMAR | Connection to GOP Convention

The junta in Myanmar has been taking its sweet time about getting help to the victims of the cyclone. Humanitarians they are not. A big surprise was that the Arizona PR firm head that Senator McCain appointed to run the GOP Convention did substantial work for this bunch – Doug Goodyear. Now we find that lobbyists are all around McCain - he has or had at least 118 of them working on his campaign, according to Progressive Media USA Research. Click on the link below for details. The individuals identified in the linked chart all current or former lobbyists who serve as fundraisers for McCain's campaign or senior aides or advisers. To date, three lobbyists have resigned their role due to conflicts of interests: Eric Robert Burgeson, Douglas B. Davenport, Thomas Loeffler. The list doesn't include Goodyear. More.

Iraq Crusade a Recruiting Sergeant for Bin Laden

The Iraq Crusade Is a Recruiting Sergeant for Bin Laden. Soon after President Bush swore his support of Israel before the Knesset, Senator McCain questioned whether Senator Obama fully appreciates the threat from Iran. Bush and McCain are double-teaming Obama, defining themselves as hawks, with the implication that Obama is an appeasing dove. Sorry, but this picture doesn't fit the actual history of the Iraq war. The right contrast to make is not that Bush and McCain are hawks and Obama is a dove. The right contrast is that they are cuckoos and he is an owl. More (posted on Huffington Post).

LAND VALUES, NYC | Bill Vickrey Lives

Prof. Bill Vickrey

The Federal Reserve Bank of New York has performed a service in showing that CoStar data can be used to generate estimates of land value over time and across an area.

The study (in the April/May 2008 issue of Current Issues in Economics and Finance, 14:3) is built around a computation by three Fed staff members (Andrew Haughwout, James Orr and David Bedoll) of average land values per square foot in New York City, excluding Staten Island, and ten New Jersey counties.

The average land value rises sharply from $47/sf in 1999 to $89/sf in 2001, then falls back after 9/11 because of questions about NYC’s future as a place to live or work.

Recovery set in quickly in 2003, with land values rising to $104/sf and soaring to $366/sf in 2006. As theory would predict, prices are highest in mid-Manhattan and fall off as a property is more distant from the center.

The report is interesting on many levels:
- The care that CoStar shows in collecting and verifying data makes it a useful new source of information on commercial property values.
- Property values increase five-fold increase in property from the post-9/11 dip in 2002, a remarkable achievement for which Mayor Bloomberg deserves significant credit – property values are an excellent hedonic index of the desirability of living or working in a particular city. One would like to have comparable data from other cities to see NYC’s relative performance.
- The data show how changes in overall building values primarily reflect changes in the underlying land, since buildings themselves depreciate over time. As more data of this type become available, it will become easier to show that taxes on land (“site”) value are fairer and more efficient than taxes on buildings. Land values do not depreciate in value like buildings and increases in these values are, in the thinking of Henry George, “unearned rent” relating to population growth and are therefore especially appropriate as a tax target.
- Over time, site values can be expected to grow steadily and are therefore a good basis for a tax system.
- Site value taxation was at the heart of recommendations for New York City presented at economic hearings before NYC Comptroller Liz Holtzman in 1993 by Columbia Professor William Vickrey, who was awarded the Nobel Prize in Economics in 1996 for his work on auctions and congestion pricing. Unfortunately, he died between the announcement of the award and its presentation in December, and Prof. Lowell Harriss went to Stockholm instead to accept it on Vickrey's behalf.

Vickrey’s ideas faced practical implementation problems 15 years ago. Today, the obstacles are more political than practical. If New York City evolves toward a rational system, it will follow more of Vickrey’s recommendations. It was part of his genius to know that technology would in due course catch up to his brain. The New York Fed has helped move this process along.