The major housing problem in my neighborhood, Park Slope, Brooklyn, is hyper-inflation of housing prices. In this paper, I seek to describe the neighborhood’s housing market, identify the major institutions that are involved in this market, detail some of the causes and effects of hyper-inflation, and discuss how demand-side approaches relating to closing the “wage gap” can affect housing market failure.
Park Slope is located in the northwest section of Brooklyn, roughly bounded by Flatbush Avenue, Prospect Park, the Prospect Expressway and Fourth Avenue. It is primarily a residential area, with two local commercial strips running its length along Fifth and Seventh Avenues. The major employment and commercial centers of Downtown Brooklyn, Lower Manhattan and Midtown Manhattan are easily reachable by bus and subway.
Park Slope has a notable collection of features and amenities that are attractive to a broad range of housing seekers, including:
- good public and private schools
- convenient shopping
- free recreation in the adjacent Prospect Park
- a diverse array of active synagogues and churches
- a culturally diverse population
- nearby cultural institutions including the Brooklyn Museum of Art, Brooklyn Botanic Garden, and Brooklyn Academy of Music
- cohesive neighborhood character
- a better-than-average share of community and social services, including athletic leagues, daycare and summer day camps, medical services, etc.
The neighborhood’s rare combination of good transit access to regional employment and commercial centers and its own features and amenities help make Park Slope one of the most attractive areas of New York City to a wide variety of households.
Park Slope’s housing stock is composed mainly of 3- and 4-story walkup row houses. Many of these, particularly in the northeast section and along Prospect Park, are architecturally distinctive Brownstones built in the 1880s and 1890s. Much of this part of the neighborhood was designated an Historic Landmark District in 1974. There are also a number of 6- to 10-story apartment buildings, also mainly concentrated in the northeast section.
There are no public housing projects in Park Slope, although two large projects, Wyckoff Gardens and Gowanus Houses are nearby. A few thousand “affordable” housing units, built as a result of a various forms of public financing and housing programs during the last thirty years, are sprinkled throughout Park Slope, though mainly concentrated in the northwest section. According to the CUNY Center for Urban Research, the number of “scattered-site” Section 8 voucher units in Park Slope is disproportionately low for a neighborhood its size when compared with the rest of the Brooklyn and New York City.
The major institutional players in Park Slope’s housing market include: real estate brokers and banking institutions, many of whom have recently entered or increased their activity in the local housing market; a number of real estate developers who sponsor co-op conversions of both apartment buildings and row houses; and The Fifth Avenue Committee, a multi-issue local nonprofit organization that has been particularly active on housing issues.
I believe the major housing problem in Park Slope is hyper-inflation of housing prices. By “hyper-inflation” I refer to a sudden increase in resale prices and rents that dramatically exceeds the average inflation of housing prices citywide and across the region.
For at least the past five years, the increases in Park Slope’s housing prices have ranked among the highest in the city. According to a recent article in The New York Times, housing prices in Park Slope increased more than 15% over just the past year. (The inflation rate could actually have been much higher than 15%; the Times article placed Park Slope in its highest category, “15%+.”) This hyper-inflation applies to both home and apartment sales and rents.
Of course, these increases are not altogether new to Park Slope. The neighborhood’s housing market has been experiencing spurts of inflation for at least thirty years. What is often called “gentrification” is a long-term trend in Park Slope.
Whether one calls it gentrification or hyper-inflation, the phenomenon has a number of negative effects, including:
- displacement of low-, moderate-, and middle-income households
- the loss of opportunities for neighborhood residents to find either similar or slightly better housing in the neighborhood should they choose or be forced to move
- conversions of row houses from multi-family apartment dwellings to single-family homes and a consequent loss of housing units
- conversions of single-family homes occupied by low- and moderate-income households to multi-unit apartment buildings to be occupied by higher-income households
- conversion of manufacturing buildings to upper-income residential properties and/or “artists lofts” and the consequent loss of space for small manufacturing firms and the jobs they provide
- an increase of socio-economic segregation as concentrations of upper-income households displace those of other income levels, who are in turn limited in their housing choices to a smaller range of neighborhood markets — i.e. each neighborhood becomes less and less economically and socially diverse
- spillover effects on the neighborhood’s local commercial real estate markets that can displace local businesses and deplete the stock of affordable commercial spaces and harm the neighborhood’s diversity of commercial and non-commercial services and offerings.
Most observers agree that the recent wave of hyper-inflation in Park Slope is the result of intense new demand from households in the upper-income brackets.
“You have a huge demand and a limited supply,” says Steve Sommers, who sells real estate in Park Slope. Even buyers ready to spend $500,000, he says, are unable to find property. Feeding the buying frenzy are “the people with bucks who have been made wealthy by the stock market.” (Brooklyn Bridge, p. 45. March 1999.)
Tim Ross, Ph.D., a researcher for the Center for Urban Research, also says the current wave of hyper-inflation results from Wall Street profits. He says the hypercompetitive housing market in Manhattan has forced many well-paid professionals to look to the outer boroughs. When they do, they limit their search to just a few attractive neighborhoods, of which Park Slope is one of the most prominent. “These folks simply won’t think of living in vast swaths of the city,” says Ross, “so their demand is focused narrowly on just a handful of neighborhoods.
The result is a kind of cascading effect, in which already gentrified neighborhoods become unaffordable even for the middle-income professionals who were moving to them just a few years ago. In turn, middle-income professionals seek new territory in (usually) adjacent neighborhoods that have not been prime targets for them in the past.
In neighborhoods like Williamsburg, where gentrification has been occurring at a slower pace and in a more varied pattern, gentrification has begun to accelerate. Meanwhile, neighborhoods that have, thus far, been little touched by gentrification — Harlem, Bedford-Stuyvesant — are now experiencing their “first wave” of this process, often to the satisfaction of real estate brokers who have been waiting years for their areas to “ripen.”
With a booming stock market and steady growth of jobs in the city’s service industries, gentrification continues a steady march across the city. Furthermore, as housing prices soar in the most “desirable” neighborhoods, housing prices in all the city’s neighborhoods get pulled upward; “the rising tide raises all the boats,” goes the saying. But in New York City’s housing markets, many poor and lower-income people are tied down by low wages and a stagnant “blue collar” job market. These individuals are left struggling for air as the rising tide slips over their heads.
As I see it, gentrification, or the hyper-inflation of housing prices results from highly uneven demand from different income groups that results from widely-divergent wages in the city’s and nation’s two-tier economy. Most workers simply don’t earn enough to pay for housing and other essentials. Meanwhile, a growing pool of highly-paid service-sector workers is able to outbid moderate- and low-income workers for the limited supply of the city’s housing. As a result, there is little or no significant growth of housing supply except at the luxury end of the market. With so little new housing being produced, construction costs remain high so that it becomes impossible to build affordable housing without subsidies.
In other words, gentrification is only one feature of a larger economic problem that results from globalization. Therefore, in a search for solutions, we must look to the economic causes of gentrification; we must deal with the “wage gap” and the “rent gap.”
In economic terms, most proposed solutions to housing problems take on either a “supply-side” approach — such as building more housing — or a “demand-side” approach. In this paper I will limit my discussion to demand-side approaches, which seek to increase the number of housing seekers and increasing their ability to pay for housing. The most common demand-side approach is some form of subsidy, such as HUD’s Section 8 vouchers, that individuals use to supplement their wages in order to pay market rates for housing. This can be seen as a means for dealing with the wage gap.
But subsidies are unpopular in the current national political climate, so it appears subsidies may be an unsustainable option since they are subject to changing political trends. It can also be argued that housing supplements like Section 8 vouchers are ultimately a form of corporate welfare, since they allow employers to pay less than a living wage. Although I doubt the currently small number of Section 8 vouchers is actually large enough to be a prime factor in keeping wages low, it is conceivable that if housing subsidies such as Section 8 were to be massively expanded it might result in such an effect.
In actuality, the declining power of unions in the nation’s changing economy is probably more responsible for stagnating wages. Many labor advocates argue that government policies that would help manufacturing industries to grow again in U.S. urban centers would have a positive impact on poorer, urban workers. Providing good-paying manufacturing jobs — jobs that do pay a living wage — would be a key to spurring demand for housing by shoring up the ability of those in the lower half of the income scale to pay for housing. The solution to the housing problem, this argument holds, is to increase demand by spurring job growth in a sector that could meet its labor needs with the same pool of people who currently cannot afford adequate housing.
There is much value to this approach, and I believe it is part of the solution. However, the sorts of manufacturing businesses that can provide these jobs are not going to be large factories making standardized goods with unskilled labor. Rather, the key lies in smaller manufacturing firms that produce specialized goods with skilled labor. Unfortunately, smaller firms such as these are more difficult to unionize, particularly given the shop-by-shop approach unions must adhere to under United States laws. The pattern of wages in smaller, “craft” manufacturing in the U.S. is erratic: many such firms, in the garment and high-tech industries, do not often pay a “living wage” to their manufacturing employees. Innovations such as employee ownership and location-based union organizing (rather than industry, and shop-based organizing) will be necessary parts of this strategy.
I am optimistic that this approach make a significant difference, however, because current trends in production appear to be leading to more specialized forms of production. The question remains, however, whether our education system can produce the skilled labor pool that will be needed.
In any case, spurring job growth in the manufacturing sector can contribute to a shrinking of the wage gap. However, a national “Living Wage Law” would do a great deal more. The use of prison labor must also be ended; it is not only a blatant form of corporate welfare, it is a horrendous abuse of human rights under the guise of “job training.”
Increasing the number of workers who earn enough to pay for adequate housing should increase the demand for housing from the lower half of the income scale. However, the high costs of housing finance and construction will still limit the production of housing to satisfy increasing demand. Therefore, there will also need to be a focus on supply-side strategies that can lower the costs of housing construction and finance. Otherwise, new housing that gets built will be mostly reserved for those who can pay premium housing prices, and problems like gentrification will persist.