Ah New York, it’s an exciting place. The city is a vibrant one partially due to all the young and ambitious that move here every year to try their luck at making it big in the city. But as any of them will tell you, the city can be punishingly expensive, especially when it comes to real estate. Is it just because it is a big city? Is it because the economy does so well and offers so many high paying jobs? Is it the geographic limitation of being mostly a set of islands strung together into an entire city?

Well yes and no. Two of the most expensive cities in the US in terms of housing, San Francisco and New York, also happen to be some of the most left leaning cities politically. This is not a bad or a good thing in my eyes, but it does have a particular effect on housing policy and this is what plays a strong hand in making it so darn expensive in both of these places.

What About the Housing Policy Make it So Expensive?

A lot of people think that housing is expensive in New York because there are so many rich people here. I decided to take a look at this since there is a lot of information available on income distribution by household. A quick lookup was able to find the breakdown by income levels for households across the US as well as in NY and when you put the breakdown by household income side by side, it doesn’t look that different.

A look at the breakdown shows that there is indeed a higher percentage of households that make over $200k per year but there are also a higher percentage of households that make less than $10k per year, which would put these households far under the poverty level. If there are more rich but also more poor, why would home prices be so much higher in New York compared to other places besides the factors mentioned previously like the economy or the geography? It seems that the demand should not be that different from the rest of the US in terms of the purchasing power of households across the income spectrum.

 

The problem is supply. A quick look at the current housing situation also gives us an idea of how the housing market differs in New York compared to other places. As of 2014, there is a rental vacancy rate of 3.5%, the vacancy rate in the US for 2014 was 7.0% which shows that there is indeed a housing shortage in NYC. This is because there is a certain amount of vacancy that is needed to keep prices down, people are constantly moving in and out of cities and a higher vacancy rate can keep renters from driving up prices but this is not the case in New York.

You will also notice that out of 3.4 million households in New York, only 1.2 million are owned, or 35%. This is in contrast to the rest of the US in which the homeownership rate in 2014 was 64%. Of those 2.2 million rentals about half are rent controlled. This means the city and state cap the rent increases. This can allow people to live long term in a neighborhood they otherwise couldn’t afford by guaranteeing below market rent increases and automatic renewals for renters. This essentially means that one third of New York residents are living in below market housing and receive an implicit subsidy, regardless of their income, in the form of lower rent.

There is no restriction on income for living in a rent controlled apartment. A fact that leaves it open to illegal subletting or profiting from having roommates. Essentially over the long term, this also means that as your income increases, you rent will not keep up, which means that the subsidy will end up going disproportionally to the relatively wealthy over time.

If you are a newcomer to New York, the options for you can seem daunting and the market rate rent outrageous. A quick look on www.streeteasy.com for a 1 bedroom apartment in Manhattan can bring tears to your eyes.

If rents are this bad, you can imagine why way less people own homes in New York compared to the rest of the US. A quick look at the prices to own a 1 bedroom in Manhattan shows similar misery.

As hard as it can be to get a rent stabilized apartment it has to be nearly impossible for most people, especially a family, to be able to live in a place like Manhattan with prices like these. Oh  and owning? Forget it.

Or Should You?

Every city in the world, no matter how expensive, has a way to live cheaply. Some of the best ways to get a rent stabilized apartment are to inherit it or through word of mouth of someone you may know. However there is an often overlooked way to own in New York to buy a cheap apartment.

This way is called the HDFC Co-op. HDFC stands for Housing Development Fund Corporation. You can read more about what a Co-op is and what the HDFC is here but what you really need to know is 2 things: that they sell for significantly below market, and there are income restrictions.

There are many detailed articles on how to get an HDFC apartment but I want to give just a broad overview of how almost anybody can get an apartment in New York through this program.

A lot of the focus on these types of homes, like everything in the media, centers on Manhattan. Within Manhattan, a market rate apartment that may cost $1.5 million can be found as an HDFC Co-op for $675,000, which is great if you have that much money but if you really want to take advantage of living cheaply in New York this is still not a great option. To find things drastically cheaper you need to look north, to the cheapest part of the city, The Bronx.

It’s Not What You See on TV

There has been a drastic change from when The Bronx was known as the worst slum in America in the 1970’s. Although still primarily working class and with higher poverty levels than many other places, The Bronx has seen a spectacular resurgence in the past 30 years that has gone little noticed elsewhere. Even to this day, other New Yorkers still will give you looks of disdain when you mention you are from the Bronx but for those with some street savvy trying to save a buck it feels like getting away with murder getting a home there.

Before I get into the advantages I want to tackle the perception that the Bronx is dangerous. In terms of safety, I am in no way painting the illusion that it is completely safe everywhere. Except for places like City Island or Riverdale much of The Bronx still has higher crime rates than many other parts of the city, but in terms of how high the rates have been historically they are quite low. According to DNAInfo.com, the crime rate has declined by 71 percent from 1993 to 2010, including reductions of 75 percent for murders, 68 percent for shootings, 86 percent for car thefts and 82 percent for burglaries. You can’t deny that this is a drastic change. I would argue that crime levels there are similar to levels you may find elsewhere in New York in more working class parts of Queens and Brooklyn. Many of those areas in Queens and Brooklyn are also being quickly gentrified. Areas like Bushwick and Crown Heights in Brooklyn, or Jackson Heights and Woodside in Queens, have traditionally been working class areas that are now being rapidly gentrified but in the Bronx, outsiders are only starting to realize how affordable the borough is.

So Now to the Good Part

When you combine the forces of misconception with proximity to the largest commercial area in the United States (midtown), you can take advantage of the imbalance of having the opportunity to work in a higher paying job compared to the rest of the US while paying the same or less in terms of housing costs than the rest of the country. Even if you have a lower paying professional job out of college, the Bronx offers opportunities for ownership thanks to the HDFC program. A quick look on Zillow shows the options in the Bronx for 1, 2 and 3 bedroom apartments.

Keep in mind that these are income restricted but there is an important caveat to this. These are cooperatives and they can keep their costs low through a tax break they receive from the state from having income restricted apartments. However, there is not necessarily requirement to meet an annual income cap after you buy the home, this will depend on the co-op but in my experience very few co-ops check income annually to meet the cap.

When you apply for the apartment, they look for 2 things: that you have the ability to pay (a job) and that you meet the income threshold only for the last 2 years. They do this through examining your last 2 tax returns. For the 2 places shown above in the Bronx, the income cap is determined by how many people are in your household but starts at $82,000 and moves up about $10,000 for every person you add to the household. In addition, you will need the down payment, but if you are serious about owning and apartment and can spare a few hundred dollars every month, you can reach $15,000-$20,000 in savings within a few years.

It is also important to keep in mind that you will not just pay the mortgage; there are HOA dues which can be significant but still are affordable for many people. In the cases above, the 2 bedroom apartment has an HOA due of $835 a month, which if you add a 30 year mortgage would put the monthly cost at $1,172 and in the case of the 1 bedroom, although the HOA fees are not listed I would estimate these to be between $500-$700 which would put the monthly cost to own at $700-$900.

If you meet the income threshold and are early on in your career and starting at the bottom of the ladder, I recommend purchasing the largest apartment you can afford with easy access to the train. If you can snag it, an apartment on the Grand Concourse near the D train can from many places get you to midtown in 20 minutes. The same amount of time in which people paying half a million to a million dollars take to get to work from a gentrified area. In addition, as you move up and your income grows, you will not have to move out, you can continue to pay a fraction of what others are paying to live in New York, even compared to the rent controlled apartments that are so hard to find.

Happy Hunting

So there you have it. If you can meet the income requirements and muster up enough savings for a down payment, you can own an extremely affordable apartment in NYC for the fraction of what others pay. It will take research, preparedness, determination and an open mind about the location but anyone with a steady job can make it happen. The question you have to ask is do I want to own an affordable apartment or not?

 

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