Housing Costs May Cause Foreclosures

by Joshua Boak

Housing experts warn that the borough’s real estate boom could collapse in the next few years, resulting in the foreclosure of as many as 240 apartment buildings and the displacement of thousands of Bronx residents.

“It is a fact that real estate prices go up, and they will go down,” said Elliot Hobbs, a construction loan specialist for JP Morgan Chase, at the 2005 Affordable Housing Forum held at Fordham University last Wednesday. “We don’t know when, but they will go down.”

The growing disparity between record-high apartment building prices and flat profits generated from rent indicates that building owners will soon be unable to repay their loans, according to a study presented by Gregory Lobo Jost, deputy director of the University Neighborhood Housing Program (UNHP), a nonprofit housing finance organization that sponsored the forum. If they can’t make their mortgage payments, landlords could lose their buildings to the banks, a process known as foreclosure.

The price of an apartment complex is typically calculated by dividing a building’s cost by the number of apartments it contains, producing a figure known as “price per unit.” Adjusted for inflation, the borough’s average price per unit has climbed to $67,000 in 2004 from below $10,000 in 1996, the study found. Despite this growth, the annual income earned from each apartment has remained a static $2,000 for the past decade. Unless profits increase, owners cannot pay back their sizable loans.

The discrepancy between price and income could also result in sharp rent increases as building owners try to manage their debt. Many residents struggle with current prices. Approximately 35 percent of people in the northwest Bronx, which includes Kingsbridge Heights, Belmont and University Heights, spend more than 50 percent of their income on rent, according to the New York City Housing and Vacancy Survey. These neighborhoods are classified as having the worst rent burdens in the city.

The eight-year-long boom has been fed by outside investors, who were called “amateurs” at the forum because of their lack of knowledge about real estate. “They’re people with a lot of cash who haven’t been in the stock market since the crash and started looking for alternatives,” said Daniel Houlihan, president of Houlihan & O’Malley Real Estate Services, which appraises properties.

This sudden influx of cash inflated prices and scared off many experienced investors in Bronx real estate. “They think that the prices are crazy and they’re not buying,” Houlihan said.

A similar housing boom led to multiple foreclosures almost two decades ago. “The thing that I remember, and a number of us remember, is that back in the late 1980s the mass foreclosures that took place ended up in mass fire sales to whoever had the cash,” said Jim Buckley, UNHP’s executive director. “The net result was that some of the buildings that are seen as problem buildings today were buildings that were problems then.”

To prevent history from repeating itself, the UNHP has proposed establishing an assistance center as a clearinghouse to help move troubled properties to new owners or provide rehabilitation funds in order to reduce the number of foreclosures.