Did the Feds Just Save NY Real Estate?
Last week, Washington did something it hadn’t done in nine and a half years: hike interest rates.
Around the country, the rate hike should make it cost a little bit more to buy a house or a car — and that’s a good thing. But the hike could have a big impact on Gotham, too. Already, it points up one of our biggest sins: our failure to invest in the city’s quality of life.
“The Fed kept rates low because it wanted people to borrow. But cheap borrowing can harm the economy.”
The Federal Reserve hiked rates for two reasons. First, Fed Chairwoman Janet Yellen and her colleagues see the economy improving. The country gained 2.6 million jobs over the past year — pretty healthy.
The danger is that with more people making money, they’ll start borrowing and spending too much, and drive up inflation. So the Fed raised rates a tiny bit — a quarter of one percentage point — to stop that.
The really good reason to raise rates, though, is to prevent a bubble. Consider: Since the 2008 financial crisis, mortgages, car loans and other types of borrowing have been cheaper than ever.
The Fed kept rates low because it wanted people to borrow. But cheap borrowing can harm the economy.
Consider what’s been going on locally — where we likely have had a real-estate bubble inflating for a few years now.
More than 2 million New York families rent their apartments, so they may not care about mortgage rates. But since the financial crisis, potential landlords have been able to borrow cheaply to buy buildings.
The result? Sky-high prices. One landlord on Seaman Avenue in Inwood more than doubled his money in 18 months recently — by flipping properties.
High prices mean that newer landlords would have to double rents to make a decent return. But rents aren’t going up.
That’s not just because Mayor de Blasio froze rents on the city’s 1 million rent-regulated apartments. It’s also a renters’ market for people who don’t have regulated apartments.
The market’s so good — for tenants — that Manhattan rents really haven’t gone up in 18 months, said Jordan Vogel from Benchmark Real Estate.
Plus, the young people who rent newer apartments — even young people making decent money — haven’t had much wage growth.
Now, higher interest rates don’t do much for wage growth. They harm Wall Street, which depends on cheap financing for profits from trading and issuing debt. Property owners depend, though, on Wall Street workers making ever more money to pay the rent.
Yet the city’s financial industry is still missing 19,000 workers compared to 2007. And with Morgan Stanley announcing 1,200 layoffs this month, things don’t look great for next year.
The problem for tenants is that property owners who overpay have to skimp on maintaining buildings as costs like taxes and insurance rise.
Meanwhile, nobody can afford to buy an apartment — because low rates have helped pushed prices out of reach. Unless mommy and daddy have $100,000 for a down payment, you’re happy to have stagnant rent.
“Rising rates could be a good thing for the city: We could use lower property prices to get more middle-class people into their own homes, and to make sure we don’t lose apartment buildings to decay.”
So rising rates could be a good thing for the city: We could use lower property prices to get more middle-class people into their own homes, and to make sure we don’t lose apartment buildings to decay.
Except: The city didn’t take advantage of record-low rates to invest smartly in things like subways and libraries.
Oh, we borrowed a lot. The city owes $82.7 billion, up from $65.9 billion 10 years ago, when adjusted for inflation, according to a report by city Comptroller Scott Stringer.
But we mostly borrowed to do replacement and maintenance. That’s because we spend so much money on city-worker pensions and benefits — $18.6 billion a year — that we can’t afford to do much else without going deep in hock.
So we’ve got record crowding on subways — 200,000 more people a day today than we had compared to last year’s record 6 million daily passengers.
If the Fed’s modest move really does mean significantly higher interest rates, we’ll have missed a chance to make people’s lives better.
But when you’re packed on a train, at least you’ll be getting a little bit of interest in your savings account for the first time in a decade.
This piece originally appeared in New York Post
This piece originally appeared in New York Post