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For decades, the billionaire real estate moguls of New York have controlled City Hall and manipulated tax laws to allow them to pay a small fraction of the property taxes that they would otherwise have had to pay. However, with the new liberal activist mayor in charge, the pendulum seems to be swinging toward the affordable housing rights groups. All of the stars are aligning against the moguls.
Since the global financial collapse of 2008, the Federal reserve has created a free money environment of zero interest rates which has inflated another housing bubble. Along with the high prices has come exorbitantly high rent. What used to consume less than 30% of the average person’s income is now consuming more than 50% in many cases, as the average cost for a one-bedroom apartment in the city is $3,000 per month.
The high cost of living has recently driven most people with normal incomes out of their neighborhoods in the Lower East Side, Tribeca, Battery Park, and Greenwich Village. SoHo was long ago gentrified in the 1990’s. Now, even the outer boroughs have undergone gentrification and price increases making Brooklyn too pricey as well.
Mayor de Blasio seems to be serious about his pledge to increase the number of apartments labeled as “affordable housing”. His proposed plan would build 80,000 new units. To get his legislation passed, he is using as leverage the threat of not renewing the 421a tax break laws. If the 421a laws were to expire, suddenly all of the billionaire real estate moguls would have to pay millions in tax per building.
The New York Times is exposing in a five-part series just how shady the real estate market is in New York, and the 421a law is a focus. Some of the newly constructed skyscraper apartments along Central Park, with apartments selling for well more than $5 Million, generate almost no tax revenue for the city due to the 421a law. Also, the wealthy “residents” actually live outside of the city, dodging city income and sales taxes.
The political environment in Albany and City Hall also seems to be turning against the billionaires. With the arrest and demise of State Assembly Speaker Sheldon Silver, the biggest enabler of the real estate moguls, Governor Cuomo and city officials are now less able to flagrantly play the game of pay-to-play cronyism. As the investigations of U.S. attorney Preet Bharara intensify, scandals that might have been ignored in the past are leading to the ouster of the one-percenters. For example, Howard Milstein, the biggest real estate mogul in Battery Park, “resigned” last week from his Chairman position of the state Thruway Authority after scandals erupted. Despite being a big fundraiser for Governor Cuomo, the heat was too strong and he is out. Likewise, the wealthy Chairman of the BPCA, Dennis Mehiel, is feeling the pressure from multiple investigations into scandals created under his watch, sources close to the BPCA inform BatteryPark.TV.
The new State Assembly Speaker replacing Sheldon Silver is also going to make affordable housing his main agenda item. The Post reported, “New Assembly Speaker Carl Heastie capped off his whirlwind weekend Sunday with a visit to a Brooklyn apartment complex, where he vowed that affordable housing would be his top priority. Heastie met Mayor de Blasio and tenants from the Ebbets Field Apartments in Flatbush, where he discussed the need to strengthen rent-stabilization regulations.”
On the global macro level, things are also getting worse for the real estate moguls. Russian billionaires seeking safe havens for their money outside of the unstable Russian economy have been purchasing with cash the apartments in New York costing tens of millions. With the drop in oil prices and collapse of the Russian currency, those buyers have dried up. The China economy is also slowing down. The final pin to burst the housing bubble would be the decision by the Fed to raise interest rates this year.
What does this mean locally to Battery Park? The largest “affordable housing” complex was supposed to be Gateway plaza, but Sheldon Silver allowed that to become market rate apartments to please his big donor, Sam LeFrak, owner of Gateway. LeFrak has also gotten away with gross neglect of the building, avoiding the cost to replace the leaky windows and bad heaters. With Mr. Silver no longer a power broker in Albany, will LeFrak’s ability to run a slum in BPC end?
Also, Mayor de Blasio want to build more affordable units. The BPCA generated $236 Million in revenue in 2014, with $167 Million earmarked to the city for affordable housing. Could the mayor decide to demolish Gateway and build true affordable housing using the BPCA money? Stay tuned.