America’s cities are continuing to reel from a demographic shift which threatens their position as the pre-eminent home of the young, the beautiful and the entrepreneurial.
The trend of so-called Digital Nomads and remote working has been established for a while, but COVID has added greater haste to the flight of an increasingly mobile, talented workforce.
And as anyone who has lived or worked in America’s metropolis will recognise, when the bars, offices, great galleries, and world class theatres which made city living so desirable in the first place are closed, all that is left behind is the manic cost of city dwelling.
So, with those who have the option to leave already flown or on their way to pastures new, and those on modest incomes or key workers priced out of the downtown areas, who exactly is living in Gotham?
Let’s look at New York City, the mother of all cities.
The latest Big Apple real estate hot spot is Billionaire’s Row, which stretches along and around 57th Street just south of Central Park.
Over recent years, developers started to buy up the ‘air rights’ on surrounding buildings to the ones they owned. This is a peculiar part of property development in New York City whereby owning adjacent ‘air rights’ means not only can neighbouring properties not build high and block your views, but the surrounding rights can be combined to allow your development to go higher and higher.
This matters because today’s New York trend is for tall and skinny. Not just in your choice of latte or supermodel girlfriend, but for skyscrapers.
On Billionaire’s Row, the engineers and architects have constructed new residential towers which exceed the traditional base to height ratio of 7:1. In the case of 111W57 – the skinniest of all NYC’s towers – the ratio is an ear-popping, vertigo inducing 24:1. This engineered miracle is only 18 metres wide but 435 metres of swaying glass and steel tall.
Whereas traditional residential skyscrapers have numerous apartments on every floor, these mega-slender buildings are just one luxury apartment per floor. And because all the elevator, mechanical, heat and cooling devices must be housed within the building too, only around 60 of 111W57’s 85 floors are actual dwellings.
To make a profit on such super-engineered, low density towers the cost per apartment is astronomically high. By design, this means these addresses are exclusively reserved for those with millionaire tastes and billionaire budgets. Hedge funder Kenneth Griffin is rumoured to have paid $238million for a three-floor triplex in a skinny tower -the most expensive home ever sold in NYC.
And these developments are, unsurprisingly, not without controversy.
Local communities, human rights activists, tax and financial inspectors are all paying particular attention to these new super skinny towers, their developers, and their residents.
Actually, it is the lack of residents which is another of the very peculiar attributes of these properties.
If I was ever lucky enough to have hundreds of millions to spend on a swanky apartment, I’d sure as heck be living in it. But for many of those who do purchase these homes in the sky, they will never set foot inside.
They are simply assets, investments for the future like a Matisse, a bottle of Chateau Lafite or gold. They exist just to be owned and appreciate in value. For others, it is suggested, luxury real estate is nothing more than a safe place to park money you don’t want other people to know about or get their hands on.
Local community activists are also incensed by NY State and City rules which enable these uber-luxury homes to be built in the first place. In their opinion, and I have some sympathy, the worst offender was the obscure Tax Abatement 421-a.
TA 421-a was, like many local authority regulations, originally introduced for a good reason.
In 1971, the population of New York was also plummeting and so was the city’s associated rent and tax take. As new highways made it easy for people to flee to the suburbs of Long Island, New Jersey and Connecticut and commute to the office, the city encouraged developers to build multi-family homes on vacant lots and to transform vacant commercial space into residential. The methodology to deliver this incentive was to give a property tax break to the developer, sometimes for up to 45 years.
It worked. New homes were built. The tax abatement was passed on to the renters or buyers and affordable housing attracted residents back into the city and especially to those areas like lower Manhattan, Bronx and Brooklyn where market forces alone weren’t enough.
All seemed fine – the good city giveth, and the good city taketh away.
But in modern New York the balance has swung – like the mega towers – way off the straight and narrow.
When, after 45 years, the program expired in 2016, it was resuscitated after intense lobbying by an unholy alliance of Construction Workers’ Unions, Property Developers and Real Estate agents.
It was this program, ironically renamed Affordable New York, which was the final piece in the financial and regulatory jigsaw which enabled Billionaire’s Row to come to market.
These multi-multi-million-dollar apartments could only be built when potential buyers saw them not as new properties but as assets which could easily appreciate and be sold on for even more profit. Not having to pay the sky-high property taxes these mansions in the clouds should have been charged, was critical to that success and passing the tax break on to the already filthy rich who were considering such a purchase was the sales magic.
It is estimated New York City has and will forego billions of dollars in much needed tax take by granting 421-a status to the developers of Billionaire’s Row and their wealthy owners.
But change may be a-coming
The tax loophole extension granted in 2016 is due to expire again in 2022, and with previous Governor Andrew Cuomo now gone, his successor, Kathy Hochul, has said she is not minded to renew it again.
Activists and community lobbyists finally feel the momentum moving their way. They are pointing at other cities across North America which suffered from similar loopholes and zoning variances but who have acted to introduce new rules to bring property taxes back for the ultra-luxury apartments, set a fair tax code, and put policies in place that ensure the money recouped is spent on providing more genuinely affordable housing in the nation’s biggest cities.
I’m not anti-development, skyscraper or penthouses and mansions. There will always be demand for uber-luxury living in New York and the world’s great cities. It is, frankly, part of their character.
Similarly, there will always be a demand for more affordable housing options for those who are feeling priced out by simple market forces.
The challenge our leaders face is to find ways of providing both affordable homes and real estate attractive to those with great wealth, not one or the other.
Our cities need saving. They need to be nurtured back to being the creative, commercial, and social gathering places for diverse new ideas and innovation. Developers, city planners, politicians, and community leaders here in USA, but also in UK and elsewhere, have a key role in delivering this. They have a host of financial, regulatory, and zoning tools at their disposal and, by working together, need to use them to build the homes and communities which make cities accessible and compelling locations again.