Author Archives: David Reiss

Neighborhood Change and Public Housing

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H.L.I.T.

The Effects of Neighborhood Change on NYCHA Residents, a report released to little notice in May, has received a lot of attention after the NY Daily News wrote a disparaging article about it. I will leave it to others to decide if this report was worth its six figure price tag, but I do think that there are some interesting findings. The report was prepared by Abt Associates and NYU’s Furman Center, two leading housing research entities. The Findings at a Glance state that

In this study, Abt finds statistically significant differences in earnings for NYCHA residents living in different neighborhood types. Annual household earnings average $4,500 higher for public housing residents in persistently high‐income neighborhoods as compared to persistently low‐income neighborhoods. Earnings are $3,000 higher for those in increasing income neighborhoods. Moreover, these findings are not attributable to any selection bias of residents choosing to live in either persistently high or low income neighborhoods. (1)

This is a pretty big deal, given that the average family income for NYCHA residents is $23,311. If this increased income is attributable to neighborhood characteristics, we would want to take that into account when formulating housing policy.

There were some other interesting findings that were also not highlighted by the Daily News:

  • Developments surrounded by persistently high‐income neighborhoods have lower violent crime rates (5.7 violent crimes per 1,000 residents) than those surrounded by persistently low‐income neighborhoods (8.3 violent crimes per 1,000 residents).
  • Developments in persistently high‐income neighborhoods are zoned for public elementary schools with higher standardized test scores than developments in persistently low‐income neighborhoods; 72% of NYCHA households in low‐income neighborhoods are zoned for schools in the bottom quartile for math proficiency (cf. 41% for those in high‐income neighborhoods).
  • Among public elementary and middle school students living in NYCHA housing, those living in developments surrounded by persistently high—and increasing—income neighborhoods score higher on standardized math and reading tests. (Findings at a Glance, 2)

Before this report is dismissed as a boondoggle, we should try to understand its implications for developing a housing policy that promotes socioeconomic diversity. This is a city of extremes of wealth and poverty and there has been a very negative reaction to policies, such as poor doors, that seem to reinforce that state of affairs. But it may turn out that public housing is a useful tool for creating the more equitable city that so many New Yorkers strive for. Let’s not shoot the messengers before we hear what they have to say.

5 Signs You Probably Need an Accountant

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Alan Cleaver

WiseBread quoted me in 5 Signs You Probably Need an Accountant. It reads, in part,

Do you dread filing your income taxes each year? Does preparing your taxes take weeks of your time? And once you’ve sent your papers to the IRS, do you have the sneaking suspicion that you might not have taken all the deductions to which you are entitled?

You might need to hire an accountant.

“Hiring an accountant depends on whether your knowledge, time, and money are best spent on bookkeeping, loan application, and tax preparation, or whether you have higher priorities,” says Valrie Chambers, associate professor of taxation and accounting at Stetson University in Celebration, Florida. “A business owner who excels at sales should probably use her time increasing sales rather than learning and doing accounting. That strategy is just more profitable for the business.”

Here are five signs that you need to hire an accountant.

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4. You Own Rental Real Estate

Renting an apartment or two is a great way to earn passive income. But doing so can also complicate your finances. That’s why it makes sense to hire an accountant to make sure that you don’t miss any important tax deductions related to rental income, and that you file all the paperwork necessary when working as a landlord.

“There comes a point when personal tax software is not sophisticated enough to take into account the complexities of real estate investments,” says David Reiss, professor of law and research director for the Center for Urban Business Entrepreneurship at Brooklyn Law School in New York City. “If a taxpayer has multiple properties that have both a personal and investment component, tax software may not be able to accept all of the relevant inputs and generate the correct output.”

The Explorer

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Head_Odysseus_MAR_Sperlonga

A poem to commemorate exploration on Columbus Day:

Ulysses

     Alfred, Lord Tennyson

It little profits that an idle king,
By this still hearth, among these barren crags,
Match’d with an aged wife, I mete and dole
Unequal laws unto a savage race,
That hoard and sleep, and feed, and know not me.
I cannot rest from travel: I will drink
Life to the lees:  All times I have enjoy’d
Greatly, have suffer’d greatly, both with those
That loved me, and alone; on shore, and when
Thro’ scudding drifts the rainy Hyades
Vext the dim sea:  I am become a name;
For always roaming with a hungry heart
Much have I seen and known; cities of men
And manners, climates, councils, governments,
Myself not least, but honor’d of them all;
And drunk delight of battle with my peers,
Far on the ringing plains of windy Troy.
I am a part of all that I have met;
Yet all experience is an arch wherethro’
Gleams that untravell’d world, whose margin fades
For ever and for ever when I move.
How dull it is to pause, to make an end,
To rust unburnish’d, not to shine in use!
As tho’ to breathe were life.  Life piled on life
Were all too little, and of one to me
Little remains:  But every hour is saved
From that eternal silence, something more,
A bringer of new things; and vile it were
For some three suns to store and hoard myself,
And this gray spirit yearning in desire
To follow knowledge like a sinking star,
Beyond the utmost bounds of human thought.

This is my son, mine own Telemachos,
To whom I leave the sceptre and the isle-
Well-loved of me, discerning to fulfill
This labour, by slow prudence to make mild
A rugged people, and thro’ soft degrees
Subdue them to the useful and the good.
Most blameless is he, centred in the sphere
Of common duties, decent not to fail
In offices of tenderness, and pay
Meet adoration to my household gods,
When I am gone.  He works his work, I mine.

There lies the port, the vessel puffs her sail:
There gloom the dark broad seas.  My mariners,
Souls that have tol’d and wrought, and thought with me-
That ever with a frolic welcome took
The thunder and the sunshine, and opposed
Free hearts, free foreheads – you and I are old;
Old age hath yet his honour and his toil;
Death closes all:  but something ere the end,
Some work of noble note, may yet be done,
Not unbecoming men that strove with Gods.
The lights begin to twinkle from the rocks:
The long day wanes:  the slow moon climbs:  the deep
Moans round with many voices.  Come, my friends,
‘Tis not too late to seek a newer world.
Push off, and sitting well in order smite
The sounding furrows; for my purpose holds
To sail beyond the sunset, and the baths
Of all the western stars, until I die.
It may be that the gulfs will wash us down:
It may be that we shall touch the Happy Isles,
And see the great Achilles, whom we knew.
Tho’ much is taken, much abides; and tho’
We are not now that strength which in old days
Moved heaven and earth; that which we are, we are;
One equal temper of heroic hearts,
Made weak by time and fate, but strong in will
To strive, to seek, to find, and not to yield.

Loose Credit. Plummeting Prices.

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"Durdach Bros Miller Lite pic4" by MobiusDaXter

Christopher Palmer has posted Why Did So Many Subprime Borrowers Default During the Crisis: Loose Credit or Plummeting Prices? to SSRN. While this is a technical paper, it is clear from the title that it addresses an important question. If it can help us get to the root causes of the foreclosure crisis, it is worth considering. The abstract reads,

The surge in subprime mortgage defaults during the Great Recession triggered trillions of dollars of losses in the financial sector and accounted for more than 50% of foreclosures at the height of the crisis. In particular, subprime mortgages originated in 2006-2007 were three times more likely to default within three years than mortgages originated in 2003-2004.

In the ensuing years of debate, many have argued that this pattern across cohorts represents a deterioration in lending standards over time. I confirm this important channel empirically and quantify the relative importance of an alternative hypothesis: later cohorts defaulted at higher rates in large part because house price declines left them more likely to have negative equity.

Using comprehensive loan-level data that includes much of the recovery period, I find that changing borrower and loan characteristics can explain up to 40% of the difference in cohort default rates, with the remaining heterogeneity across cohorts caused by local house-price declines. To account for the endogeneity of prices — especially that price declines themselves could have been caused by subprime lending — I instrument for house price changes with long-run regional variation in house-price cyclicality.

Control-function results confirm that price declines unrelated to the credit expansion causally explain the majority of the disparity in cohort performance. Counterfactual simulations show that if 2006 borrowers had faced the price paths that the average 2003 borrower did, their annual default rate would have dropped from 12% to 5.6%.

Ok, ok — this is hyper-technical! The implications, however, are important: “These results imply that a) tighter subprime lending standards would have muted the increase in defaults, but b) even the relatively “responsible” subprime mortgages of 2003–2004 were sensitive to significant property value declines.” (40) It concludes that, “In reality, cohort outcomes are driven by both vintage effects (i.e. characteristics bottled into the contracts at origination) and path dependency in that exposure to economic conditions affect cohorts differently depending on their history.” (40)

So, the bottom line is that loose credit and plummeting prices were both causes of the defaults during the crisis. Mortgage underwriters and policymakers are on notice that they need to account for both of them in order to be prepared for the next crisis. This paper’s contribution is that it has quantified the relative impact of each of those causes.

 

 

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Severe Crowding in NYC

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"NLN Scott Stringer" by Thomas Good

NYC Comptroller Scott Stringer

New York City Comptroller Scott Stringer has issued a report, Hidden Households, that shows that more than one in twelve NYC homes are crowded. The report opens,

New York City is in the midst of a protracted housing emergency. The City’s net estimated rental vacancy rate is the official statistic used to gauge a housing emergency, but there are other important variables that shed light on the state of our housing environment. Chief among these is crowding. Crowding is an established predictor of homelessness and a critical indicator of negative health, safety and economic household risk factors. The City’s “hidden households”, which contain nearly 1.5 million New Yorkers, are the topic of this report.

*     *      *

Among the most notable crowding trends detailed in the report, we find that New York City’s overall crowding rate, which includes rental and ownership housing units, rose to 8.8 percent in 2013, compared to 7.6 percent in 2005 – a proportional increase of 15.8 percent. The City’s crowding rate is more than two and a half times the national crowding rate of 3.3 percent. The proportion of crowded dwelling units increased in all of the City’s boroughs except Staten Island during this time period with increases of 28.1 percent in Brooklyn, 12.5 percent in Queens and 12.3 percent in the Bronx.

Severe crowding, defined as housing units with more than 1.5 persons per room, also increased substantially, surging by 44.8 percent from 2005 to 2013, with increases seen in every borough. Most notably, the proportion of studio apartments with three or more occupants rose by over 365 percent from 2005 to 2013. All told, 3.33 percent of all dwelling units in NYC were classified as severely crowded in 2013, compared to a national severe crowding rate of 0.99 percent. (2)

The report only focuses on the problem of crowding, but it would be helpful to mention one of the main solutions to crowding — building more housing. To the extent that the NYC Comptroller can push down construction costs in NYC and support increased density in appropriate neighborhoods, he would help reduce crowding in the long run.  Lots of people want to be in NYC. We need lots of apartments to house them.

State of Lending for Latinos

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Mark Moz/ Commons- Flickr

The Center for Responsible Lending has posted a fact sheet, The State of Lending for Latinos in the U.S. It reads, in part,

At 55 million, Latinos represent the nation’s largest ethnic group and the fastest growing population. However, Latinos continue to face predatory and discriminatory lending practices that strip hard-earned savings. These abusive practices limit the ability of Latino families to build wealth and contribute to the growing racial wealth gap between communities of color and whites. The Center for Responsible Lending (CRL), along with its numerous partners, has sought to eliminate predatory lending products from the marketplace. High-cost, debt trap lending products frequently target Latinos and other communities of color. (1)

No disagreement there. The fact sheet continues,

Barriers to Latino Homeownership

According to a 2015 national survey of Latino real estate agents, nearly 60 percent said that tighter mortgage credit was the No. 1 barrier to Latino homeownership; affordability ranked second.

In 2014, Latino homeownership dropped from 46.1 percent in 2013 to 45.4 percent. In 2013, Latinos were turned down for home loans at twice the rate of non-Latino White borrowers and were more than twice as likely to pay a higher price for their loans. (1)

I have a few problems with this. First, I am not sure that I would unthinkingly accept the views of real estate agents as to what ails the housing market. Real estate agents make their money by selling houses. They are less concerned with whether the sale makes sense for the buyer long-term. Second, it is unclear what the right homeownership rate is. Many people argue that higher is always better, but that kind of thinking got us into trouble in the early 2000s. Finally, stating that Latinos are rejected more frequently and pay more for their mortgages without explaining the extent to which non-discriminatory factors might be at play is just sloppy.

The fact sheet quotes CRL Executive Vice President Nikitra Bailey, “As the slow housing recovery demonstrates, there is a market imperative to ensure that Latino families have access to mortgages in both the public and private sectors of the market. The market cannot fully recover without them.” (1) But what Latino households and the housing market need is not just more credit. They need sustainable credit, mortgages that are affordable as homeowners face the expected challenges of life — unemployment, sickness, divorce. It is a shame that the CRL –usually such a thoughtful organization — did not address the bigger issues at stake.