Real estate speculators fueled the 2007-2009 recession with a wave of mortgage defaults, and are now plundering New York again just like in 2006.
Speculators, who buy homes below market price and resell them within a year (often at a significant markup), purchased more than 2,000 one- to four-family homes in New York City in 2017, a trend that has been steadily increasing since 2011 and shows no signs of slowing.
In a new report published exclusively by The Washington Post, the New York City Neighborhood Center examines the consequences of unchecked home flipping in a city already in the grip of a housing crisis. Speculators are crowding out non-professional buyers of affordable housing, pressuring vulnerable families to give up unrealized home equity, and displacing residents of low- to moderate-income neighborhoods, including many communities of color. Because flipped homes typically have rental properties, post-resale rents skyrocket, forcing thousands of tenants out.
“We're very concerned about the impact that home flipping will have both on the livelihoods of homeowning families and on New York City's skyrocketing prices that are becoming unaffordable,” said Caroline Nagy, vice director of policy and research at the nonprofit New York City Neighborhood Center.
Unchecked resales also pose a serious risk to the overall economy. Many Americans still mistakenly believe that the Great Recession began when low-income subprime borrowers defaulted on their mortgages, but a landmark 2017 report from the National Bureau of Economic Research found that speculators were actually to blame.
“In economically depressed parts of the country, home flipping is sometimes seen as a boon because it puts dilapidated homes back on the market,” the report states. “But in New York City, where prices are soaring and demand for housing far exceeds supply, home flipping is leading to gentrification and displacement.”
“Most of the increase in mortgage debt during the boom and mortgage delinquencies during the crisis were driven by borrowers with moderate to high credit scores,” the NBER experts wrote, noting that borrowers who disproportionately defaulted on their loans during the crisis “are responsible virtually exclusively for the increase in mortgage delinquencies.”
A sign advertising a home resale business. JC Rice
State and local authorities could take action against property flipping. Secretary of State Rossana Rosado could expand New York City's business shutdown zones. State and Assembly bills propose imposing steep taxes on speculative trading, and another Assembly bill would require disclosure of the owners of limited liability companies that buy and sell real estate.
“There is a desperate need for LLC transparency in the New York City real estate market,” Nagy said.
While buying low and selling high is perfectly legal, the CNYCN report alleges that some lawyers and brokers are steering unwary foreclosed homeowners to professional resellers rather than neutral third parties for unfavorable short sales.
Last week, the U.S. Attorney's Office for the Southern District of New York announced that father-son property flipping team Herzl and Amir Meiri had pleaded guilty to defrauding struggling homeowners in the Bronx, Brooklyn and Queens between 2013 and 2015, leaving many of them homeless. They are scheduled to be sentenced in July.
Over the past five years, 9,000 homes have been resold across the five boroughs, affecting at least 15,000 homes, including rentals. Last year, resellers paid an average price per square foot of just $212, while comparable homes sold on the market for an average price of $368 per square foot. A surprise check of property records found that homes resold last year in St. Albans, Queens, were sold for 60 to 95 percent higher than the prices resellers paid in 2016.
As speculators pushed home prices in central Brooklyn, such as Bedford-Stuyvesant, to previously unimaginable heights, the epicenter of real estate flipping shifted to southeast Queens, where LL Cool J grew up and where many 20th century jazz legends, including Ella Fitzgerald, once lived.
Now the city has become a hotbed of speculators, with signs on utility poles promising cash for homes and ways to avoid foreclosure. More than a third of the homes resold in the city last year were foreclosures, compared with just 12 percent of all homes sold.
Find affordable housing
Queens native Natalie Holly did all the right things when it came to finding her home: Holly took workshops with Queens Neighborhood Housing Services to learn tips for responsible buying, and she refuses to put more than half her monthly income toward a mortgage. She combed the Bronx, Jersey City, and the neighborhood where she grew up.
But more than 200 properties were resold in Cambria Heights/Queens Village last year, putting prices out of Holly's reach.
Her plight is becoming increasingly common: According to the New York City Neighborhood Center, only 11% of one- to four-family homes sold last year were affordable for a family of three earning 100% of the area median income, and an astonishing 38% of those were purchased by speculators.
“I was born and raised in New York and both of my parents owned their own homes, so owning my own home is very important to me,” Holly said.
Her reluctant solution is to leave New York.