Editor: David Reiss
Brooklyn Law School

April 25, 2014

The Ghosts of the Housing Bubble

By David Reiss

NYC Councilmember Daniel Garodnick has released a report, The Ghosts of the Housing Bubble: How Debt, Deterioration, and Foreclosure Continue to Haunt New York after the Crash. The report opens,

New York continues to have the highest rents in the country and a housing crisis that has lasted for decades. Many residential rents are below market value – a result of the myriad of state and local laws that have been implemented to protect working and middle class tenants from being forced out of their homes. This gap between the current affordable rent and potential fair market value can fuel the imaginations of investors and owners who dream of squeezing out the unrealized value hidden in these properties. This leads some developers to make riskier and riskier decisions following visions of real estate fortune, only to find themselves tilting at windmills, stuck with unpayable mortgages and escalating maintenance costs. (1)

The report proposes a number of interesting solutions to the problems it identifies, all of which should be looked into further. I am particularly intrigued by the proposal that Community Reinvestment Act exams should include a review of “the quality of the investments being made, measuring if banks are lending mortgages to landlords with portfolios of distressed housing. Were their bad loans to be reflected in their CRA ratings, banks might change their behavior.” (8)

But as with a similar ANHD report, the magnitude of the proposed solutions does not seem to match that of the identified problems. Market forces are extraordinarily powerful in NYC right now. It is unclear whether initiatives such as the “First Look Program,” which gives “good developers the first opportunity to buy” properties in foreclosure, can do anything when valuations are so frothy and predatory equity is on the prowl. (1)

That being said, the report is still quite valuable for shining light once again on the problem of owners who seek to illegally force rent regulated tenants out of their homes.


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