Corporate Windfalls or Social Housing Conversions? The looming mortgage crisis and the choices facing New York

Hundreds of thousands of tenants in New York State are facing growing rent arrears, potentially setting off a chain reaction that could lead to a rental building foreclosure crisis comparable in scale to the 2008 crash. While the pandemic’s economic impacts would be the trigger, this crisis would be rooted in an older problem: the risky approach to real estate finance adopted by many New York landlords and investors over the past 25 years. With the rapid growth of urban property values, small and large landlords have used their buildings’ increased net operating income (NOI) to refinance their properties with larger and larger mortgages, overloading them with debt. This November 2020 Community Service Society (CSS) report includes Jacob Udell, UNHP's Director of Data and Research as one of its four authors.

Even though the real estate market is cyclical, New York State does not have to follow the post-2008 crisis trajectory: a decline in rental building values does not have to lead to a consolidation of the market by large real estate investors, followed by another upswing in values, all at a tremendous cost to tenants. Instead, with intervention from policymakers, we can pursue a recovery that both stabilizes distressed buildings and grows the state’s social housing sector, a model that is not as susceptible to fluctuations in the real estate market. We recommend that the city and state:

• Facilitate tenant, nonprofit, and
public acquisition of distressed rental
buildings, thus creating a pipeline
for social housing development.
• Continue to expand tenant protections
and code enforcement.
• Use tax policy to curb speculative
behavior by landlords and lenders.