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January 15, 2022

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Misinfo Monday - The Ugly Side of Low Interest Rates

June 7, 2021

If you're in the market for a home or own one already, you've likely heard person after person (including me) talk about today's low interest rates on mortgages, and how these rates increase your purchasing power.

But low interest rates only help you if you can get a loan, either as existing owner refinancing or a purchaser with enough income/liquidity to appeal to both a bank and a seller reviewing multiple offers.

Unfortunately, the biggest thing that low interest rates have done is increase the wealth gap between the haves and the have nots. There are, of course, positives, but the law of unintended consequences is at it again, showing us the dark side of incredibly cheap borrowing.

What’s The Deal

Historically, mortgage rates have been as high as 16%, making your monthly payments significantly higher. The higher the interest rate and payments, the less home you can afford, since your monthly cost is one of the most important factors when purchasing.

In response to the 2020 COVID crisis, the Federal Reserve dropped interest rates to basically zero. While mortgage interest rates are not directly connected, they're loosely correlated, and dropped below 3% in late 2020. While they've increased slightly, they're still incredibly low. This has been lauded as great news for people trying to attain the American dream of home ownership.

But first time homebuyers aren't the only ones capitalizing on these loans: existing homeowners are refinancing their own loans, and major developers/landlords are buying up investment properties with this "free money."

As we saw with PPP loans, banks prefer to do business with people they're already connected to, especially those with shittons (technical term) of cash/assets. It's hard not to think they'll prioritize working with someone who has multiple mortgages/products with them over a first time homebuyer when interest rates are so low that it isn't a lucrative product for them. That's why we believe we saw the "bottom" of mortgage rates in December; at a certain point banks won't go any lower because it's not worth it to them to lend at 1% (again, this is relevant to the PPP loan debacle).

So how is this playing out?

1. Homes are becoming more expensive

Low interest rates led to more people purchasing, hence more demand, and also reduced supply because a lot of people chose to refinance and stay rather than sell and downsize. This is driving up prices.

2. Low-liquidity buyers are being shut out

If you only have 10% (or even 20%) down, you're not going to be competitive in a multiple-bid situation, for a host of reasons including the appraisal. And banks are overrun so they're tightening their lending standards.

3. This is increasing our country's racial wealth divide

Because of actively racist policy including redlining, white Americans own nearly all the property and wealth. These are exactly the people capitalizing on the low rates, while Americans of color get shut out. From Inman, "Again, while lower interest rates were initially a harbinger of hope, the opposite has been happening as intense competition is pushing affordability out of reach."

4. There are a record number of refinances

While not a big deal at face value, this is keeping homes off the market as people choose to refinance and renovate rather than move, and banks are prioritizing these over new mortgages. It's also causing a bottleneck, which can lead banks to pull back on issuing new mortgages, or at the very least cause extended closing delays.

Why Does This Matter?

Because all of this increases inequality, and a deeply unequal country is an unstable one. I know I'm never shy with my opinions, but it's becoming even harder to ignore that 1 in 5 children in the US are being raised in poverty and that nearly half of working Americans have borderline unlivable wages; people cannot afford to pay for housing, expenses, and food, without even accounting for expected inflation. And while the dream of homeownership gets further and further out of reach for much of the country, especially in my generation, rents will likely continue to rise, leading to a situation where we squeeze the "middle class" (lol) more and more until something snaps. I mean, there was an attempted coup and VP assassination attempt in January, so if you don't believe there's something deeply wrong, I wish I had your optimism.

And this isn't even a call for empathy; it's a call for people to recognize that the alternative is a massive swing in the opposite direction. Unnecessary selfishness on the part of landlords was what led to the 2019 rent laws, and unnecessary selfishness by brokers has led to our bad reputation and legislation to reduce our commission. I'm tired of whiplash from swinging from one ridiculous POV to the opposing ridiculous POV.

So what do I want you, the reader, to do? Pay attention and support things that make housing less expensive (like allowing multi-family/mixed use, landmark by BUILDING not by district). Support a social safety net. Push back on anyone telling you that only lazy people are having a tough time.

And if you're in NYC, vote for Kathryn Garcia first and don't rank Eric Adams or Yang.

Ask Anna Anything (AAA)

May 7, 2021

TGIF! We’ve got a new “column” today, courtesy of my friend Sian Pierre, who suggested my followers on Instagram could ask specific questions since I’m SUCH an expert now. So here’s today’s question:

“What happens if my landlord doesn’t provide me with a new lease or I don’t sign the renewal provided? Do I have to move out?”

The Low Down

If your lease lapses and you continue to pay rent (and your landlord accepts it), you are technically now a month-to-month tenant. Each time you pay rent it essentially renews your agreement another month.

Prior to the 2019 rent laws, a landlord could end the agreement with 30 days notice: he provides notice in writing on May 1st and you’ll be out by June 1st. But now this notice requirement increases with how long you’ve lived in the apartment. If it’s been under a year, 30 days notice is still allowed. After a year it increases to 60 days, and upwards of 2 years it’s 90 days. A tenant, however, can cancel the arrangement with no notice at all (although at least 30 days is standard courtesy).

As a landlord you also need to provide the same amount of notice if you are raising someone’s rent more than 5%. A free market lease can increase year over year without limitation, but large increases require the same notice as the non-renewal of a lease. And this must be presented in writing, not just over the phone or face to face.

One caveat: if you are in a rent stabilized or rent controlled apartment, you cannot be asked to leave and your lease cannot be canceled, regardless of whether you have a current lease.

The Final Word

So what do you guys think? If you want to ask me whatever your hearts desire (not literally anything…don’t be creepy) head to my Instagram @annaklenkar. Now go outside and hug a dog (or at the very least get that poor dog out of that box!).

Misinfo Monday - What's It Worth?

May 4, 2021

What is this home worth? This is a question that real estate agents are constantly tackling with clients, during the offer-making process, once they've moved in, and when they're considering selling.

At the end of the day something is worth whatever someone will pay for it, but there is a caveat when dealing with a mortgage: what does the BANK think it's worth?

In a competitive market where homes are going "over ask" with multiple bids, this throws a wildcard into the mix and moves the conversation from "what's the highest bid" to "what's the highest bid that will actually work out?" And there is strategy involved on both sides.

Anna

What’s The Deal?

The real estate market around the country, especially outside of cities, has been on a massive upswing starting a couple months into the pandemic. Average home prices are up double-digits year over year in most markets, and they keep climbing.

Although this is great for homeowners, it leads to confusion when pricing a home, especially if the goal is to get offers "over ask," in a market where people are getting a mortgage in order to buy.

Traditionally, an offer with financing is "contingent" on the bank agreeing to lend and issuing a loan commitment letter for the purchase price. If the bank doesn't think the home is worth as much as the contract price, they will only fund the loan up to their valuation. For example, a home is in contract for $600k but it appraises at $550k -- the bank will only loan X% of $550k.

If the offer is contingent on financing, the buyer can back out of the deal. To move forward anyway, or if the offer was NOT contingent on financing, the buyer must come up with an additional $50k or work with another bank (or get a second appraisal, but that rarely happens).

Agents are on the "front lines" of real estate, and we use all kinds of data, not just closed sales, when pricing a home for sale or evaluating a home's worth for an offer. We also look at these numbers in context, adding a layer of complexity often lost by appraisers, by choice or because they are often brought in from hours away and simply don't know. How can we navigate this?

For Buyers:

If you're a buyer in a bidding war, and you're deciding how to adjust your offer, be thoughtful about whether you think the home will appraise for the price you give, or make a plan to go in non-contingent on financing/appraisal. Super high, contingent bids will often be thrown out. And work with a local bank.

For Sellers:

In multiple bid situations where everyone is contingent, you will likely find yourself choosing an offer that isn't the highest number on the table. If the market is on a strong enough up-swing, a buyer will likely try to make it work even if the appraisal is low (since buyers know when prices are rising even if appraisers don't), but they need to have that cash on hand. This is why offers are considered holistically, and it isn't just the sale price.

For Appraisers:

Know the context of the market where you are. Understand what's been happening with prices, how long between contract and closings, and the specific product type. And review the comps that the buyer's/seller's agents provide rather than choosing arbitrarily, especially if that market isn't your stomping ground.

Why Does This Matter?

Because this is a massively impactful decision that's made, often by someone who isn't an expert in the exact sub-market, using information that is at least a couple months outdated. In NYC, because of the board package and building approval process, apartments go into contract months before they close, and then the actual sale price can take another couple weeks to be updated in ACRIS. I just closed a sale that went into contract in early January, so now that will be used as a recent comp despite the fact that it was negotiated in an entirely different environment.

In "normal" times this is generally ok, because pricing doesn't fluctuate all that much in a couple month period. But when markets are on fire and keep increasing the sales prices, or when you're in a place like NYC that is finally coming out of COVID and the many restrictions we've been under, this leads to low valuations.

This environment -- bidding wars and fierce competition where appraisals are an issue -- forces people to make non-contingent offers and hope for the best, which is risky unless undertaken with the utmost caution and professional guidance. It makes all-cash buyers even more appealing to sellers, which shuts first time buyers out of the market and leads to even more inequality in home ownership.

Is there a solution to this? Not really, because it's in the bank's hands. But everyone can do their best to prepare for the issue up front and get the deal done anyway. If there's strong communication between sides and everyone wants to make it work, that's about as good as we're going to get.

Misinfo Monday - Women in Real Estate

May 3, 2021

This Sunday (don’t forget everyone) is dedicated to the marvellous women who we all take for granted…MOTHER’S DAY! So, today we are talking about women in my industry (and like our Mom’s, we're tough, hence the picture; don't @ me). Women make up over 60% of residential real estate agents nationwide, but are still underrepresented in leadership, commercial, and development, and tend to have fewer listings than their male counterparts.But it's not all bad -- there are female agents at the highest levels and legendary firms like Corcoran and Stribling were founded and helmed by women. And while most women-dominated industries got wrecked during the pandemic, real estate (especially outside of major cities) blew up. At this point, many roadblocks keeping women from the top in real estate are not even coming from within the industry itself -- it's often an issue of society devaluing soft skills or work that is considered "female." As always, it's complex.

Anna

What's the Deal?

Approximately 63% of realtors nationwide are women, and women outnumber men in every state. It's a career path that enabled single moms to raise children in the pre-pandemic world when corporate jobs didn't allow flexibility. Because individual agents are small business owners, this represents a huge amount of female-run businesses around the country. And Barbara Corcoran and Elizabeth Stribling are legends who founded massively successful brokerages back when this was an even rarer occurrence. Donna Olshan also deserves recognition.

But before we pat ourselves on the back too hard, men still hold the majority of listings in many markets. And more men run brokerages and head teams, with more female agents in supporting roles.

Like an element of the wage gap, you can argue that some of this is self-selection: women choosing to do real estate part time (often while raising child) rather than attacking it as a business. But there is definitely still an element of men being viewed as shrewder businessmen and stronger negotiators, even though that is (provably) not the case. And there is definitely sexism within the industry, although it often comes back to bite the sexist-est in a world of co-broking.

Residential is one thing, but in commercial real estate women are underrepresented even at the lower levels. It's a different world that is more stereotypically male, whereas residential real estate has, over time, become associated with women. People ignore the business side of it and focus on the presentation and home part, associating female agents with open houses and cookies, not contracts.

Same goes for developers and investors, both because of this same perception challenge and also because getting into these fields requires a lot of money. Structurally, the people in the US with the most money are predominantly white men. Women and non-white men are facing much more of an uphill battle, but some of the few non-white-male developers that do exist are trying to change that.

Thankfully it does seem to be improving, and I'm optimistic that this trend will continue. Unlike during the Great Depression where women left real estate in droves, it feels like most of us are now able to stick it out, while our peers in hospitality, advertising, and other female-dominated areas lose ground. I honestly feel a lot of this is technology driven -- we can physically be at home playing the supporting role (often unfairly) and still continue our real estate career.

Why Does This Matter?

The cool thing is that even residential real estate was originally restricted to men, and over time the perception has changed as more and more women got into the field. So, as always, I'll say that representation matters and now women aren't fighting an uphill battle to get their residential license.

The problem with that is that it has coincided with a movement to reduce agents' commissions and ridicule the "soft" skills involved in specifically residential real estate transactions. (Why should someone get 6% for selling my house? That's an easy job, not like being a talent agent at 10%....) Coincidence? I don't think it entirely is.

So, as always, it's a mixed bag, and I'm just grateful that things seem to be getting better year after year. The pandemic removed some of the power of "aggressive tall man" energy and also paved the way for women to be more human and honest in all industries, including real estate. Who'd have thought Zoom would have such an impact?

Misinformation Monday - Mom & Pop Landlords

February 22, 2021

Taking a break from taxes (but don't worry, we still have PLENTY to talk about there) to discuss a mythical creature all over the news since the 2019 rent laws, and even more in the pandemic: the mom and pop landlord.

While they do very much exist, they're often used as political props rather than actually listened to or supported. In NYC in particular, the vast majority of rental units are owned by larger organizations, for a multitude of reasons.

Are there plenty individual landlords? Yes. But are they the majority? No. And we need to stop pretending there is a one size fits all solution when there is so little similarity between Joe Shmo and E&M Associates, the same way there's a difference between a tenant who actually can't afford rent and one who wants something for free because it's "only fair," if his neighbor is getting a break.

And we need to stop making this a faux-moral conversation pitting sides against each other, instead looking at solutions that will actually benefit everyone.

Anna

What's the Deal?

Headline after headline is riling people up all over the country, talking about how the eviction moratorium unfairly hurts "mom and pop" landlords who are unable to pay their bills, mortgages, and expenses. Ignoring the fact that this assumes the owner could replace the evicted tenant with someone else paying enough to cover these expenses, there are other issues with this narrative. Namely, that this type of landlord is the majority and that the eviction moratorium/tenants are the issue rather than a total lack of government support.

Nationwide, a little less than half of all rental units are owned by individuals, including 70% of 1-4 unit rental properties. In NYC, the data shows that on 10% of rental units are owned by a single building/unit owner, and 72% of rental units are owned by landlords with at least 6 buildings. I'm not going to call anyone who owns 6+ NYC properties a "mom and pop" operation.

Because these numbers come from HPD they likely do not include individual condo or co-op sublets or 2-family homes where the owner rents one unit, but include 100% of buildings 3-family or above. Many co-op and condo sublets are not individuals, either, and even if we say that 15% is single-property-owners, that is still a TINY fraction of the city as a whole.

Institutional/investment landlords are also more likely to own rent regulated units, and are responsible for far more evictions. This is relevant because what everyone is freaking out over is the eviction moratorium, and again, small landlords are being used as props. When I work with an individual owner I am much more cautious about accepting a tenant than with a large company that has a certain element of risk built-in and attorneys on retainer. Which group do you think is more upset that their attorneys' hands are now tied? Which group do you think has the money/time/desire to evict in the first place?

Of course, our government is doing fuck all (technical term) to actually help -- it's easier to parade people around and use them to criticize "lazy" tenants than it is to find a solution -- when they could be either providing aid to people in the form of UBDI or to these small landlords in the form of mortgage and property tax/utility cancellation. They're choosing to do neither.

Yes, let's continue to give the Catholic Church billions of dollars in tax payer money despite the fact that they do not pay taxes. That's a much better choice than giving people $2,000/mo.

From the comment sections on many of these articles, white, middle to upper class Americans loooooove these stories, leaving incoherent responses blasting "socialist" tenants "with no savings" who should just "get a job and be responsible." So of course these magazines and papers, whose readership base is largely made up of these people, continue to publish the same story ad nauseam.

Some of them have good information, but many are written in a misleading way to get a certain emotional response, hiding the actual data between paragraphs of sob stories.

Again, I'm not trying to paint landlords like they're horrible or deserve to go bankrupt, but if a company like Blackstone (who I always pick on because ugh) is trying to increase its portfolio during the crisis, why should taxpayer money go to "bailing it out?" I also know firsthand that they did NOT reduce rents for tenants struggling to pay, and will come out of the crisis with more money and property than they had before.

mike-petrucci-c9FQyqIECds-unsplash (1).jpg

Why Does This Matter?

Because there is a false dichotomy where either the landlord or the tenant is somehow at fault, allowing the government to abdicate responsibility in a crisis, and there is a false equivalence between all kinds of landlords. There's a stupid narrative that tenants are lazy freeloaders or all landlords are evil. The reality is, obviously, somewhere in between.

It's frustrating because it's complicated, and Americans HATE complicated. Even the tenant advocacy groups calling for the city to "cancel rent" make exceptions for smaller landlords, but you won't see that in these clickbait articles. And just because a landlord is institutional doesn't mean it's BAD; it just means it doesn't need the same kind of support (and not all small landlords are good, either).

The small landlords deserve a break. I'm not sure the institutions do. You can argue that's unfair, but literally nothing about our society is fair or equal at the moment. If the recovery is K-shaped, aid can be, too. I'm not even a proponent of "cancel rent;" I think that providing cash to people in the short term, directly and consistently, that they can spend on rent would solve the problem far better and everyone, landlords and tenants alike. But if we aren't going to do that, we gotta work with what Congress actually will do (read: almost nothing).

And in that vein, if we do have state funds specifically earmarked for rent replacement, then rather than doing what NY has done thus far and put the onus on struggling tenants, many of whom don't speak english or know how to navigate complicated processes or even have access to the internet, put the onus on the LANDLORD to show need for aid.

Misinfo Monday - Real Estate Tax Abatements

February 18, 2021

A lotta tax talk in 2021, but it comes with the territory.

The big real estate tax abatements in NYC are J51 and 421a, which offer owners and developers financial incentives in exchange for either rehabbing or building new affordable housing. 421a is far more common.

Many condo buyers seek these properties out, because NY's real estate tax system is such a disaster that condos are taxed at much higher rates than brownstones. One of these tax abatements can save an owner $10's of thousands, especially after the 2017 tax law changes.

But, naturally, these programs have been rife with fraud and inefficiency, prompting questions over whether the loss in tax revenue is worth the mild gains in affordable housing. In particular, 421a has come under fire, and its fate may be tied (like everything else, apparently) to the upcoming mayoral election.

Anna

What's the Deal?

Without getting tooooo much into NY real estate tax law, stabilization, etc, J51 and 421a tax abatements were dreamt up in the '70's when "white flight" led to decay and vacancy in the city. It incentivized developers to build/renovate in the city rather than the suburbs by providing massive tax incentives, and these savings were then purchasers (if a condo) or tenants (if a rental).

Just the basics:

J51 abatement -

- rehabilitation to an old building

- up to 35 years of reduced taxes

- for tenants, rent stabilized until phase-out of abatement

- for tenants, some buildings would remain stabilized even after the abatement ends

421a abatement (ended in 2016 but renewed in part, up for reconsideration in 2022):

- new construction

- up to 25 years of reduced taxes

- on "vacant," "mostly-vacant," or "underutilized" land

- special incentives in lower income parts of Queens, Manhattan, and Brooklyn

- for tenants, rent stabilized until phase-out of abatement

For those who want more of the nitty-gritty:

"The rules for the 421a tax exemption include several "enhanced affordability areas" in parts of Manhattan, Queens, and Brooklyn. Buildings with more than 300 residential units that are located within these areas would be granted a 100% tax exemption for up to three years during construction, plus a 100% exemption for 35 years after construction is complete, provided that they comply with one of three 421-a options.
For all other buildings that do not qualify for the enhanced-affordability option, these buildings would have a tax exemption for 3 years during the construction process and 35 years after construction ends, provided that they comply with one of the three other 421a options. However, the 100% exemption would only apply during the first 25 years after the completion of construction.
Throughout the period of the exemption, the developer must pay at least the property taxes paid on the property prior to the exemption being granted. Developers do not have to pay taxes on the increased value of the property for the duration of the exemption period, with a phase out period in which the tax benefit is gradually reduced over years.
The lost property taxes would otherwise go to the city government as property tax revenue."

This costs the city BILLIONS it would normally collect.

Over the past couple decades, what 421a in particular has done is speed up gentrification in areas the city designated as "underdeveloped," like Bed Stuy and Harlem, ironically making them LESS affordable for residents. Although there are a handful of "affordable" units in each project (if they ever get built -- looking at you, Hudson Yards), the VAST majority are priced at thousands per square foot,.

Gentrification has a negative connotation not always totally deserved, but programs like this lend credence to opponents of luxury development. A lot of these developments are poorly constructed, leading to lawsuits and issues that have in turn led buyers to mistrust new development.

And when it comes to rental properties (because this doesn't just apply to condos), there is a long history of landlords breaking rent stabilization laws and taking advantage of the tax breaks while also charging higher rents.

Why Does This Matter?

Like many of the things we're talking about, this is part of the conversation about how to bring NY back financially in a way that is effective and also helps reduce growing fiscal inequality. But unfortunately it's been highly politicized and, like the pied-a-terre tax, many of the people with the loudest voices have the least information. The goal should be to look at the benefits vs. costs honestly and holistically.

My hope is that now the real estate industry seems more willing to play ball and have hard conversations (since basically everyone has turned against it), and we HAVE to think bigger about ways to close NY's budget deficit, and we will elect a new mayor this year, we can actually make some change -- both in real estate taxes and in how the city is developed -- instead of tweaking a broken system.

Market Monday - 2.1.21

February 1, 2021

Brick Underground has declared Brooklyn a "seller's market," leaving Manhattan stuck in the grey area where neither party has the upper hand. In reality, both in BK and city-wide, leverage depends on the specific product and location.

It'll be interesting to see how this headline affects BK buyers' sense of urgency as, especially recently, the press has an outsize effect on real estate consumer activity. Behavioral economics, anyone?

Remember that a "buyer's market" in NYC just means you have a chance to purchase the home of your choice, at a reasonable pace/price, using financing. Want to know what an NYC seller's market looks like? Imagine what most first time buyers around the country went through in 2020, except at a 5-10x higher price point.

But the big takeaway right now? We still don't know whether demand or supply will increase at a faster rate as we get into the "spring market," since the past 12 months have not had the typical annual cadence. I foresee a huge year, and would bet that by Q3 sellers have the definitive upper hand again, but for now (with the NYC mayoral primary in June as a huge unknown) it's TBD. I'll be back in two weeks with updates.

The Rental Corner

Since I know that my audience is split between renters and buyers/sellers (with a few landlords thrown in), here's a breakdown of current rental trends.

1. After a record number of leases signed were signed in December, inventory has decreased and months free have dropped to roughly 2 per lease term.

2. If a building is still offering 4-5 months free, the gross prices are way above market (this is typical in new builds in places like Midtown). Many landlords don't have the ability to reduce them much further due to bank loans, so you can get a great 1-2 year deal but be mindful you will need to qualify based on the gross price.

3. Landlords are feeling more confident and pushing back on longer leases or additional credits, as people return to the city with spring/reopening/vaccine optimism.

4. Don't be the person who reaches out on something that was just listed demanding rent discounts and additional concessions. It makes you look like a bargain vulture with no idea what you're doing.

5. Related, read the copy on a listing before you reach out. The number of times I've had someone email "CAN I PUT IN A FLEX WALL" on a listing where the first line is "no flex walls allowed"....

Anna

Misinformation Monday - Pied-a-Terre Tax

January 25, 2021

The proposed pied-a-terre tax, which would be paid annually and affect second (or third or tenth) homes worth roughly $5m or more, is a rare thing that put everyone else is in a tizzy while I really have no strong feelings one way or the other.

I see the arguments on both sides, but mainly I think it's part of a greater conversation about structural inequality, what is owed by people who have benefited greatly from the pandemic at the (direct or indirect) expense of others, and what happens when states are able to compete for residents by undercutting one another on cost of living/doing business and taxes.

The thing I do feel strongly about? That misleading press and grandstanding needs to stop. Do not tell me that this tax impacts "middle class" New Yorkers or that it will somehow magically close the budget deficit. Neither is true.

But again, it's a conversation, and the more open -- and honest -- discussion we can have, the more likely we are to find well thought out, useful solutions.

Anna

What's the Deal?

The pied-a-terre tax, which was introduced back in 2019 but has recently picked up support, would be an annual tax on homes in NYC with an assessed value of $300,000 or more (roughly $5m market value) that are not the owners' primary residence and are not being rented out or otherwise occupied by the owner's family, instead sitting vacant for the owners' occasional use.

How much would it actually cost these owners? I'm going to quote attorney Andrew Luftig here rather than do my own math:

Property Listed for $7 million (market value) with an assessed value of $672,306 -
$672,306 (assessed value) MINUS $300,000 (pied-a-terre tax doesn’t apply to 1st $300,000) = 372,000 * 10% (proposed tax %)
= $37,200 a year assuming the legislation implements the proposed tax in its current form.

Of course, it would be complicated because the city would be tasked with figuring out veteran/senior/disability exemptions, whether someone is using/renting the property enough for it to be considered, etc. It's also become a talking point because of the recent blue wave in Albany and the upcoming mayoral race.

In the "for" corner: New York City is facing a $5.25billion budget shortfall; people who own second homes here do not pay for services they use (police/fire/roads/garbage/etc); these homes are vacant for most of the year while over a hundred thousand New Yorkers, including many children, are homeless; these people made money during the crisis while other New Yorkers stood in hours-long food lines.

Representing the "against" side: high-income New Yorkers already pay more than their fair share (although this tax would be levied against a different group of high-earners); it would decrease price on luxury real estate and potentially hurt long-term NY tax revenue; the estimated annual revenue from the tax is far lower than initially stated ($232m annually down from $390m); this is more political spectacle than useful policy.

As I see it? Everyone's kind of right. To some extent all of these things are true. And I think this is why I don't have a strong opinion on the matter.

One other thing I'll add: To anyone who fears that these people selling their homes would cost NYC tax revenue, I'd argue that, in the short term, the sales of these units could actually benefit the state in the form of transfer taxes. Collecting roughly 2% of every sale would get us way closer to fixing the current deficit than a meager annual tax would. There's also little proof that they would actually bail on NYC rather than pay a few extra grand every month.

Why Does This Matter?

Again, because it's part of a larger conversation and debate around wealth disparity, equity, and "building back better."

We really f*cked up the stimulus because at the time the government was run by garbage monsters (technical term) who still champion trickle-down economics, a model popularized by the Koch brothers, who actually funded business schools to legitimize this laughable, repeatedly proven wrong concept.

BUT I DIGRESS.

Look, as someone who grew up in Appalachia and has spent eight years living in Harlem, I'm no stranger to the impacts of poverty on communities, whether they're white or people of color. And over my lifetime I have watched the inequality/poverty get worse, especially during the decade-of-a-year that was 2020. We need to do something about it, because this level of inequality is not sustainable. Spend 5 minutes on Gen Z eat-the-rich TikTok and you'll see the ramifications of ignoring the problem.

So yes, I do think that some people who believe they pulled themselves up by their bootstraps will end up needing to pay more than what they feel is fair. But I'm also not sure that adding this tax will be helpful. Why fuel the narrative that NYC unfairly taxes wealthy residents over a very minimal revenue increase? Seems....bad. Everyone needs to put their egos aside and think, logically and honestly, about what makes the most sense.

The First REcap of 2021 - [newsletter]

January 23, 2021

In the last six weeks we've been through a lot, and while I'll leave most of my commentary for Instagram, it does feel like we've taken a massive step forward.

Now that the many National elections and transitions are over, we can focus on the upcoming 2021 NYC City Council and Mayoral races, where housing and real estate are key topics. I am a firm believer that our government should include people from all over the political spectrum -- provided they actually want to govern and not just personally benefit -- and am excited to hear what the many candidates have to say.

We'll see how everything shakes out, and I'll be upping my weekly Monday email game (to subscribe, just reply to this email), alternating my usual Misinformation Mondays, where I correct a misconception or dig into a news story about everything from rent relief to new development, with Market Mondays, where I'll use data to explain what's happening . For those of you who only want to hear from me once a month, that's great, too.

Already the NY State Democratic super-majority is making waves re-introducing the pied-a-terre tax (which I will write about in detail on Monday). Cuomo has obviously listened to my advice and now also supports converting some Midtown office space to residential. Biden is eyeing closing the 1031 exchange loophole (which I wrote about last year). Cuomo and Schumer, amongst others, are pushing for revisions to the 2017 tax changes to remove the $10,000 SALT deduction cap that penalizes high-tax states and hurts high-end real estate. Eviction bans are coming from both the state and federal level, and hopefully expanded rent/foreclosure relief will pass as well, since we need an actual solution, not just more kicking the can.

So there's a lot to talk about! But for now, here's your first market update of the new year:

NYC is, slightly, a buyers' market but for how much longer is unknown. The more certainty and stability we have, the more control over the virus, and the more money we see flowing into states and cities, the more sales will increase. I expect 2021 to be a huge year, with buyer leverage depending on the amount of new product hitting the market and the number of active purchasers. As always, I urge you not to "time" the market. Both the rental and sales markets have already passed their lowest points and are rebounding, as the city goes from the epicenter of the virus to one of few places keeping the spread at least somewhat contained.

Stay safe and informed, and be kind. TGIF.

Anna

What I Read

Cuomo called for major infrastructure upgrades. What does that mean for NYC real estate?

The new Penn Station expansion, Moynihan Train Hall, which just opened inside the old James A. Farley Building, was just step one. Now there are proposals for everything from an expansion of Union Square Park to the redevelopment of Pier 76 to bringing the Q line up to East Harlem. As the smartest agent at Compass (not me) once said, to bring our city and country to a new level "we need to build." I'm hopeful that we are at the start of a huge infrastructure push that we desperately need.

What Else

Real Estate Brokerage Compass Taps Banks for IPO

The strongest IPO "class" in recent memory, including Lemonade and AirBnb, 2020 offered a unique opportunity to many tech companies to trim the fat, increase profits, and take advantage of all the investment capital from the "rich getting richer" aspect of our K-shaped recovery. Compass, in which I have the most minimal of equity, has announced it has taken the first steps in this process. Look out for way more Compass in the news, and ignore anything sensationalist or gossipy.