Currently, vacancy rates in New York City and San Francisco are quite high by the standards of those cities although they would probably seem low by the standards of the rest of the country. As a result, cap rates are higher in other parts of the country than they are in New York City and San Francisco. Due to the booming job markets in both of these cities, there is increased demand for housing in them as opposed to other cities.
Unfortunately, California is experiencing a serious problem with homelessness at the moment. At the same time, homelessness is rapidly becoming as much of a problem in New York City as it was in the early 1990s. Likewise, cities such as Portland and Seattle are experiencing levels of homelessness that they have yet to see. On both coasts, it’s certainly a problem while the middle of the country seems to fare a bit better in this regard.
This situation is already beginning to devalue property in California and likely will soon start to do the same in New York. I fear that many city and state governments are providing all the wrong services to homeless people that aren’t actually assisting them in securing jobs or affordable housing but are instead just perpetuating the problem. In the 1990s and 2000s, city governments took some productive actions towards solving the homelessness crisis but now it seems that we are reverting back to policies that haven’t proven themselves to work very well.
The popular opinion nowadays is that property owners are greedy and raise the rents too high and this explains the homelessness problem. My response to this is that there are so many laws in place that restrict housing development that it has caused a number of developers to simply cease their attempts to build new housing. After the New York state government passed the strict rent regulation protections earlier this year, we certainly saw developers in New York City dramatically slow down on their projects and sometimes even scrap plans altogether. Developers in San Francisco gave up several years ago due to the even tighter regulations that exist there.
This is most unfortunate for all parties involved because if new housing were being built, the cost of housing would actually decrease! This past winter, there was extensive discussion in New York City regarding Amazon’s second headquarters deal in Queens that ended up being blocked. One opinion was that if Amazon had actually gone to Queens, then numerous developers would have followed and the cost of housing would have increased. This is simply not true due to the laws of supply and demand. As economic processes dictate, additional residential units on the market would have actually caused the price of housing to drop. It is misconceptions such as these that continue to perpetuate the problem of homelessness. Governments attempt all the wrong solutions that only serve to devalue real estate and leave people in the streets. On a governmental level, it’s time to figure out workable solutions that benefit people of all income levels and keep our great American cities thriving.
Adam Frisch is managing principal of Lee & Associates Residential NYC.