The Bottom LineThe Bottom Line

Is the Starter Home Dead in Queens? Time Is Running Out

Investor dollars are driving up prices for first-time homebuyers, but there's still a path.

Homes in Elmhurst, Queens

Neighborhoods that were once considered the starting point for many immigrants' American Dream are seeing home prices driven up. (Photo by Paul Sableman / CC BY 2.0)

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My grandmother named me after my grandfather. He died in a house fire in the Philippines when my father, their eldest of four, was a teenager. With four growing mouths to feed, my grandmother felt her only viable choices were to remarry or move to the United States to find work — born under colonial rule, she already had dual citizenship even though her Filipino-born children didn’t.

In 1973, my grandmother and her four kids arrived in New York City, where they took up residence in her brother’s basement on 45th Drive in the Bayside section of Queens. They worked out a rough plan — my grandmother would get a job, and my father would work until the next sibling finished high school and could get a job, then he would go back to school to get a degree, and so on until everyone had the education my grandmother wanted them to have.

Everything didn’t go exactly according to plan, but my grandmother and her kids eventually moved into their own apartment in Queens, and my father did eventually get a bachelor’s degree from Queensborough College. My grandmother has never remarried.

In certain neighborhoods of Queens, every home on every block seems to have their own version of that story. But now, local community advocates are sounding the alarm that investor dollars are setting off market speculation that threaten to price out the first-time homebuyers, many of them immigrants, that made those neighborhoods such reliable places to sprout roots.

“The path was difficult, but there was a path,” says Annetta Seecharran, executive director at Chhaya Community Development Corporation. “That’s the story of immigrants, that’s the story of New York. But the New York we’re seeing today is not the New York of the past. Now it feels like the path is disappearing.”

In a report from earlier this year, Chhaya analyzed home mortgage data from the Consumer Financial Protection Bureau and private databases, and found that mortgages for non-owner-occupied homes in Queens is now roughly triple what it was before the housing market crash of 2008. In three key neighborhoods that Chhaya has long considered a safe bet for first-time immigrant homebuyers, non-owner-occupied home mortgages accounted for 20-30 percent of home purchases in 2017.

It’s not 100 percent clear that the heightened activity of non-owner occupied mortgages represents larger investors buying up homes, but community advocates working in the homeownership space are saying their clients are no longer able to buy homes in these neighborhoods, and brokers are also saying first-time homebuyers in these neighborhoods are increasingly unable to buy.

Investors buying and flipping homes goes back before 2008, but the data point to the new, larger-scale investor presence in certain markets that once offered reliably affordable homeownership opportunities for recent immigrants and others. The 2008 housing crash itself had a lot to do with sparking large-scale investor interest in such markets.

A decade ago, in the aftermath of the subprime mortgage implosion, the Federal Housing Administration (FHA) faced a massive dilemma: The largest mortgage insurer in the world, it had insured thousands upon thousands of mortgages that had fallen into distress. In a foreclosure of an FHA-insured mortgage, the FHA makes a payout to protect lenders against any losses. But the volume of distressed mortgages after the subprime crisis was such that if lenders foreclosed, the FHA would owe more in payouts than the cash it had available to pay out.

So instead of having lenders foreclose on thousands upon thousands of mortgages, the FHA offered to serve as a kind of middle-man, arranging massive auctions where investors would bid on distressed mortgages, acquiring them en masse and taking them off the books of the lenders that had originally made those speculative loans. It eventually came to be known as the “Distressed Asset Stabilization Program,” or DASP. From 2010-2016, the FHA sold 116,660 mortgages through DASP auctions, nearly all of them to private equity firms that went on to foreclose on about half of them — turning those single-family homes into market-rate rentals.

And it wasn’t just the FHA. Fannie Mae, the nation’s largest mortgage financier, started conducting its own auctions of “non-performing loans.” It just sold another 20,800 mortgages to investors last month.

Those sales whetted large investor taste for single-family rentals. By 2014, the private equity firm Blackstone was already the nation’s largest single-family residential landlord. By 2017 Blackstone’s single-family residential subsidiary had spun off into its own company, Invitation Homes, which started merging with other private equity-backed single-family residential rental companies.

Ironically, much of the money private equity firms have been raising to acquire these homes comes from overseas or from public pensions, meaning those dollars are winning out against potential homebuyers who are immigrants, or those who are civil servants who are otherwise beneficiaries of public pension funds.

While it’s true that the majority of housing in New York City is in buildings of five or more units, large parts of Queens — the city’s second most populous borough after Brooklyn — are an exception to that rule. Eastern Queens especially — neighborhoods like Bayside or Jamaica — is dominated by the single-family housing that immigrant families who work with groups like Chhaya still prefer to buy.

The impact of large investors in the single-family residential market goes beyond higher prices — many transactions are now conducted entirely in cash, no mortgage needed (and no mortgage recording fee). Sellers are coming to expect all-cash transactions, further marginalizing first-time homebuyers who may need to seek down payment assistance and a second mortgage just to compete at the prices large investors are willing to pay. Most just can’t compete.

As program director for housing justice at Chhaya, Will Spisak conducted Chhaya’s research into home mortgage data in Queens. He also oversees the nonprofit’s first-time homebuyer counseling team.

“The idea [to do the research] came from doing check-ins with our counselors and this persistent problem popping up in my notes from the check-ins,” Spisak says. “Clients were ready for homeownership but prices are too high. I just started asking who’s buying these homes, if not our clients.”

The growth in investor buyers comes at a time when Chhaya’s first-time homebuyer education and assistance programs have never been more popular. Five or six years ago, the nonprofit’s annual first-time homebuyer fair attracted 100 people, tops, but this past year Seecharran says it attracted more than 800 participants. The nonprofit offers one-on-one homebuyer counseling in Hindi, Nepali, Tibetan, Bangla, Punjabi, and Spanish as well as English.

Not everyone who comes to Chhaya’s homebuyer fair or the occasional first-time homebuyer workshop eventually comes in for one-on-one homebuyer counseling, and not everyone who makes it to counseling makes it to closing on a home. But Spisak says starting from initial contact at the fair or a workshop, about eight percent of those clients over the past few years have made it all the way to closing.

“Some clients we work with for years before we get them to the point of closing, but it’s certainly at a lower point today than it has been in the past,” Spisak says.

Investor appetite for single-family housing has continued to grow. In almost any city, but especially in predominantly black or brown neighborhoods, it can be seen in the little nondescript placards stapled to telephone poles with nothing but a phone number and “WE BUY HOUSES, CASH.”

Rafael Jose has worked for 15 years as a real estate broker in Brooklyn, Queens and Long Island. He started out working in neighborhoods closer to Manhattan, but has found himself working further and further east because the working class, first-time homebuyers he wanted to work with just couldn’t compete in those neighborhoods anymore.

“But then that whole thing that was happening out west started affecting here,” Jose says. “People started flooding this area in the past three or four years and making homeownership unaffordable for the people who are living here. I remember in 2017 there were some houses where people put in 30 or 40 offers.”

Jose says he’s seen smaller investors jumping into the fray. “Regional and local investors, accumulating 10, 15 homes, some 40 or 50, it could be just three or four,” he says. “But if it’s single-family homes and they buy to hold, they’ll rent out every room separately and take up all the parking on the block. A lot of people are complaining about it.”

Chhaya’s report warns that the investor speculation is are starting to recreate the conditions that led up to the 2008 housing market crash. The Jamaica section of Queens, where Jose spends much of his working hours these days, was the center of the subprime foreclosure crisis in New York City.

The Chhaya report’s top recommendation is furthering the use of community land trusts as a tool to discourage house flipping and speculation, preserving land trust homes as affordable rentals or homeownership opportunities. Community land trusts are nonprofit entities that take ownership of land, leasing or selling buildings on that land for social purposes like affordable housing. They’re typically governed by a mix of residents, other community members, and outside experts in real estate management and finance.

The first citywide land trust in NYC, Interboro Community Land Trust, will have a focus on single-family homes, but it is still in its early stages and has yet to acquire any properties. Other community land trusts in NYC, focusing on multi-family housing, have struggled to take off. Cooper Square CLT remains the only community land trust in NYC that has acquired and leased up a portfolio of properties, and it took almost 40 years to get to that point.

Financing acquisitions has been a key obstacle for community land trusts. On the west coast, community organizers have found early success using private offerings and state-specific securities exemptions to finance community acquisition and rehab of property. So far in New York, community organizers are still relying on public channels to acquire properties, such as tax foreclosure sales or other public land.

“We would love to see a real commitment on the level we’ve seen in other cities like Boston where the municipality is willing to take public land and ensure it becomes part of a community land trust,” Spisak says. “The city has for decades given land away to developers for a dollar. They could start to prioritize communities in the same way.”

Jose doesn’t think his first-time homebuyer clients have time to wait for policymakers to come around. Working with an urban planner and a pair of securities lawyers, he’s now seeking out socially-minded investors for a new venture that would acquire single-family properties in all-cash transactions with first-time homebuyers already lined up to repurchase them, prequalified for down payment assistance and other subsidized loan products.

Jose says his venture probably wouldn’t work in neighborhoods where speculative investors have already driven up prices beyond what first-time homebuyers can afford. But he still sees plenty of opportunity in Jamaica or western Long Island where first-time homebuyers can still qualify for assistance and large enough loans to re-purchase properties from the new venture in exchange for a modest return to investors.

“At that point the seller can have a good story, because they’re not selling to a creepy investor, but a first-time homebuyer,” Jose says. “There are some homeowners who do still care about the story, they care about who they’re selling to. But in most instances now they have no choice.”

This article is part of The Bottom Line, a series exploring scalable solutions for problems related to affordability, inclusive economic growth and access to capital. Click here to subscribe to our Bottom Line newsletter.

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Oscar is Next City's senior economic justice correspondent. He previously served as Next City’s editor from 2018-2019, and was a Next City Equitable Cities Fellow from 2015-2016. Since 2011, Oscar has covered community development finance, community banking, impact investing, economic development, housing and more for media outlets such as Shelterforce, B Magazine, Impact Alpha and Fast Company.

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Tags: new york cityhomebuying

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