Anatomy of a housing meltdown
Five years ago, an area ridden with high crime and poverty seemed positioned to turn into a reinvigorated community by the sea, complete with new condos and co-ops. But the mortgage crisis crushed that momentum.
Today, a large swath of the Rockaway peninsula in Queens, N.Y., teeters in a vulnerable economic state -- like other neighborhoods across the country that had bought in big before the housing bust.
Meltdown in the Rockaways"The last five or six years we've seen an unprecedented housing boom," says Jonathan Gaska, the longtime district manager of Queens Community Board 14, a city agency. "Homes were selling all over the Rockaways, and then last year the music stopped. And when the music stopped, many of these private developers didn't have a chair."
An economic boom for one of New York City's poorest areas has turned into a bust, with hundreds of units sitting empty and potential buyers on the sidelines, unwilling or unable to make purchases.
The Rockaways are symptomatic of a larger national trend: runaway overbuilding. In November, the Department of Commerce reported that building permits and housing starts -- key indicators of home construction -- plummeted to record lows. Month to month, housing starts in October fell 4.5%, to 791,000 units, from September's 828,000 units. Compared with October 2007, those 791,000 units represented a 38% decline.
Residential building permits dropped 12%, to 708,000, in October from 805,000 in September. Permits fell 40.1% compared year to year.
Florida, California and Nevada have been among the chief offenders of the overbuilding, with thousands of private homes and condominiums in once-booming neighborhoods unsold. The decline in residential construction has taken its toll on local and state economies, according to a recent study by the National Association of Home Builders. In California, the NAHB estimates that the decrease in residential investment and home building accounted for $38 billion less in the growth of gross state domestic product between 2005 and 2007. The estimated loss in Florida was $29 billion.
In October, the average time it took to sell a home in Miami was 172 days -- longer than in any other major city in the U.S. -- according to a report by Altos Research. The city has had the slowest market turnover in every month since September 2007.
In the upscale neighborhood of Bayswater, at the eastern end of the Rockaway peninsula, several newly constructed houses have languished unsold for more than a year, says Edward Raskin, a zoning lawyer and resident who lives across the street.
The developer demolished the original home, subdivided the property and built four homes on the same lot, Raskin says.
The homes have been repeatedly vandalized, he says. Copper plumbing that was installed during construction had been stolen, according to the developer, who eventually hired security to patrol the site. While vacant properties are easy targets for break-ins and thefts, burglary is part of larger problem that has afflicted Far Rockaway. The area's police precinct reports a 22.7% increase in burglaries since 2006 even as crime has fallen throughout the city.
"If you've got surplus housing, it drives down the price of everything," says Raskin, who for six years was president of his neighborhood civic association. "It doesn't do any good for houses standing vacant."
Gaska says that the vacancies in the neighborhood of Far Rockaway have also created a "whole host of problems."
Residents there say that many of these properties are poorly maintained, with broken windows and garbage-strewn sidewalks. The community is littered with unfinished "skeleton" construction, making some parts of the peninsula seem like a ghost town.
Several blocks from Raskin's home in Bayswater is the not-yet-completed 15-story Metroplex on the Atlantic, a beachfront condominium development that has had trouble selling its units, which start at $280,000 for one-bedroom plans and $420,000 for two bedrooms. The developer's 14% discount doesn't seem to be working.
Metroplex sales director Linda Wu won't say how many of the condominium's units have been purchased. She does say construction is expected to be completed by the end of 2008 and that new residents can begin moving in by January. But that may be optimistic. Wu admits that if sales don't pick up, the developer may consider reconstituting the property as a residential hotel or an assisted-living facility.
Several years ago, things seemed to be going swimmingly in the cluster of neighborhoods known as the Rockaways. Even city government got on the bandwagon, partly financing a development called Arverne by the Sea, which Gaska says sold well and attracted the kind of middle-class homeowners the community was looking for.
As in many other communities across the country, lax mortgage standards allowed buyers to purchase $400,000 or $500,000 homes that they previously would not have been able to afford. Certificates of occupancy more than tripled in the area, jumping from 266 in 2000 to 835 in 2007, among the highest of any New York City community, says Josiah Madar, a research fellow at the Furman Center for Real Estate and Urban Policy at the New York University School of Law.
But starting in 2005, the number of home-purchase loans slowed significantly. In 2006, there were 63 home loans made for every 1,000 properties in the
community, and in 2007, that number dropped 43% to 36 loans. The buyers simply stopped coming before developers filled the buildings.
What are landlords doing with these units that won't sell?
Some have started to rent them to unlikely candidates: low-income and formerly homeless tenants who receive subsidized housing vouchers from the New York City Housing Authority.
"By guiding them to this community, they're creating de facto housing projects," Gaska says. "These houses were built two or three years ago and already look like they're 15 years old. Many of the residents don't have jobs. It's destabilizing the neighborhoods."
Some residents are calling on the city government to act.
William Carbine, an assistant commissioner for the city's Housing and Preservation Department, insists the city will come up with an economic strategy but says it has no timetable to announce specific plans.
Gaska says many in the community would like to see big-box stores such as Wal-Mart and Home Depot brought in to secure jobs for residents and to ramp up the local economy. Next year, a supermarket will be part of a new retail plaza near the Arverne by the Sea development. But Arverne East, a housing development that was scheduled to begin construction in 2007 on 92 vacant acres, has been delayed because of the deteriorating housing situation.
Gaska is worried that buyers may hesitate to commit to the Arverne East project unless conditions in the surrounding neighborhood also improve.
The Rockaway housing and economic situation was about to turn a corner, Gaska says. "People were starting to get excited. We don't want to start going downhill again."
