Gray Paper - Why is New York City so Expensive?

I think it is safe to say that the average cost of living in New York City is fairly ridiculous. I refer to the average cost because some have found ways to run around the gauntlet instead of having to run through it. It is one of the greatest cities in the world, in a generic, platitude sense, but this does not excuse the exorbitant prices frequently encountered. In fact, if you have lived in New York City at any length and perhaps worked in Midtown, the Financial District or a similar neighborhood, airport prices will no longer seem so ridiculous as one becomes used to paying them on a daily basis. As a man with no training in economics, finance or any other money-related discipline, and not having done any research, I have come up with three reasons why this is the case.  I present this as a layman with no research.  Commence the inaugural Gray Paper.

One of the facets of life that makes the cost of living expensive is housing. Rents and purchase prices are something approaching insane. During the course of my secular employment, a possible reason for this has started to become clear; construction costs.

New York City labor has to be some of the most expensive anywhere in the universe. Let me give a few examples from experience and prevailing wage worksheets provided by the New York City Comptroller (ok, so I did a little bit of research):

 • A carpenter working in a commercial building is scheduled to earn $52.50 per hour in addition to $46.28 per hour in benefits.  One carpenter working an eight hour day, which probably includes a paid lunch hour, a coffee break and potential other concessions, will cost somebody $790.24.  Assuming no overtime and 22 work days a month, one carpenter on a three month project costs $52,155.84.  This is not including multiple workers, the other trades, the cost of material, profit for the employer and so on.  Just for the sake of comparison, a carpenter in the 90th percentile in the rest of the country will earn $32.00 per hour.

• A laborer (most of the work done can be classified as unskilled) doing foundation or concrete work is scheduled to earn $41.00 per hour in addition to $38.63 per hour in benefits.  One laborer working an eight hour day, and my goodness don’t let there be overtime, will cost somebody $637.04.  Taking the same assumptions as the previous bullet, over three months one laborer will cost $42,044.64.

• A brush and roller painter is scheduled to earn $42.50 per hour in addition to $26.62 per hour in benefits.  One painter working a seven hour day (eight hours will be overtime) will cost somebody $483.84.  Over the course of three months, one painter will cost $31,933.44.

• An electrician, at least one of the many designation on the prevailing wage schedule, is scheduled to earn $54.00 per hour in addition to $51.86 per hour in benefits (whatever you do, do not give an electrician overtime).  One electrician working a seven hour day will cost somebody $741.02.  Over the course of three months, one electrician will cost $48,907.32.

• As a final total, if you have a three month project with one carpenter, one laborer, one painter and one electrician at the above rates and conditions, it will cost you $175,041.24.  I would like to reiterate that this assumes only one worker from each trade, assumes there is no overtime, does not include the cost of equipment and material, does not include profit, does not include overhead, does not include permitting, does not include a safety supervisor… I think you get the point. 

 

I don’t think it takes much imagination to realize how quickly these numbers can add up.  Granted, there has seemingly been a rise in privately funded work that pays considerably less than prevailing wage, but historically the higher prices have held sway. 

I would be negligent if I failed to mention the influence that unions have had on construction costs… Or, without euphemizing, the influence that strong-arming by the unions and their representatives has had on construction costs.  I am all for everyone being able to make a fair, honest living, and even being able to live comfortably, but some of these collective bargaining agreements lie on the very outskirts of reality due to all the strange stipulations and caveats contained therein (not to mention the resistance to any overlapping of work that would prevent another union member from getting a job at a particular site).  Corruption within unions and affiliation to organized crime have been factors as well, but even without the direct influence of these latter elements, the spirit of extortion is still present.  (There is much more history involved as I recently found out after doing some reading recently, but I will stay at the surface of the problems for now)

How does this lead to an ever more unaffordable New York City? Once a developer, the catch-all phrase for the purposes of this writing, has spent boatloads of money building a structure or developing a piece of property, the only way to break even (getting filthy rich is more realistically the goal) is to charge incredible prices to recoup the money spent.  And as stated, the money spent can be considerable.

The second reason for the extreme and rising cost of living in New York, which is at least somewhat related to the first, has to do with covering losses caused by vacancies. During a booming economy, expensive property, particularly in New York City may still do well, but the economy is cyclical. When you have busts, in particular all-time busts such as took place in 2007-08 and which spilled into the following years, the market for overpriced homes will suffer (I guess the marker for middle of the road homes will suffer as well).  Add to this what has happened recently; the most populous city in the country and one of the most populous in the world has done nothing but build more unreasonably priced residential space at an ungodly pace.  There are probably an incredible number of vacant apartments in the city and more soon to be vacant apartments currently being constructed.  Vacant apartments don't make money. So, how do developers stay on top, or at the very least avoid losing the shirts off their backs? Overcharge for the apartments that are not vacant.  In short, we the customers are being fleeced and in a growing number of cases are covering for the lack of other customers.  

In some cases the fleecing is not so direct.   The “deals” developers make with the city and state may also end up subsidizing their costs (I hope to touch on “Affordable Housing” at some later point in time).  The city and state are not entities earning their own money; they use citizens’ money.  Hence, more cost to the average tax payer.

Recently, and call this research if you want, I read that landlords and leasing companies are offering all types of weird concessions to get people to take apartments off their hands, the only concession not offered being lower prices.  I would imagine that the real estate powers-that-be are afraid of letting the word out that it is more of a buyer’s market than the facade may actually reveal.

Another issue which is a more recent phenomenon, at least as far as I can tell, is that many of the residences going up are being built in conjunction with an unruly stepchild, commercial real estate. My goodness is commercial real estate suffering!  It would only make sense that these commercial spaces are built with the intention that they will generate revenue and private jet wealth. Some of the commercial spaces that I have seen with my own eyes have been empty for years. And thanks to Amazon and companies of similar ilk, the likelihood of these spaces ever being home to profitable retail establishments is slim to none (not to mention that the health of the economy is not what data-heads may purport them to be). 

What does this mean? To keep from losing the shirts off their backs yet again, in addition to developers having to charge and maintain unreasonably high prices to cover construction, which is incredibly expensive, they also have to cover these no-income generating empty spaces that were imprudently built since no one wants, needs or can afford them. (Even a Charter School, another fleece machine, located on 125th Street was built with attached commercial space for lease… Is that legal?).

Lastly, there is something about New York State that I have never quite understood; why are taxes so high? The revenue base from which taxes could potentially be collected is enormous. Wall Street is located here, correct?  Salaries are on the average higher here, no? If the investment banker, CEO, COO, bond analyst and union plumber were taxed at the same rate I am, New York would be paving the streets in cash.  Something is amiss with the income tax system here, or, the amount of money being wasted or stolen is a number too staggering to fathom.  Oh, and let me not forget to mention the fact that sales tax here is one of the highest. Real estate tax is high.  I may keel over in distress if I think too hard about how ridiculous the tolls are.  And I am sure there are a dozen or so other instances of unusually high taxes or fees charged by the state that could be listed here.  Somewhere, math and a dose of reasonableness has gone awry.

I am no economist, but it seems that New Yorkers should get a break as do residents of other places with an industry that provides a lot of income for its state (Florida, Texas and Nevada which have the theme parks, oil and casinos, respectively, come to mind). This is not the case and in fact the opposite is true. No doubt the abundance of social programs that give money away have added to this issue.  The number of people illegitimately or unethically on public assistance would be an interesting number to see.  As stated earlier, I don’t have all these numbers in front of me, but I feel comfortable saying that even those factors do not quite explain it.  So somewhere, due to ungodly incompetence, perfidious grafting, or an egregious combination of the two, everything touching New York has an inflated price.  Perhaps it is just the tax of living in the “Greatest City in the World”.

The Sad State of News - Part 1

I will not be the first to complain about news, news coverage or journalism (likely to be referred to as NEWS going forward).  I have heard those that are more qualified and conversant in these areas air their grievances, so I realize it is recognized as a problem.  Thankfully, though, there are still those that hone their craft and are really good at reporting, breaking stories and bringing attention to matters that are important, albeit not necessarily appealing to the masses.  But trying to find truly worthwhile news covered in a manner that is at least an attempt at being unbiased, sans hysteria, has become increasingly difficult.  There is not much I can do about it, so I will complain about it below and in entries to come.

1.  One of the issues with NEWS is that there is too much of it.  Without getting bogged down with semantics, my point is that there are multiple 24-hour news networks that, based on their designation, have to air something for 24 hours.  Other networks air several hours of news programming on any given day.  That being the case, a lot of worthless stuff makes it to the airwaves and also onto the internet.  Since there is typically not enough substance, or at least no one willing to produce any, things that are not really newsworthy, in my opinion, (Brad Pitt buys new dog) receive more attention than they are worth.  What has also become popular is having panels of people to discuss and analyze every minutiae of an occurrence or situation.  Similar to the issue noted above, having several people under contract to sit and talk about stuff means that they are going to sit around and talk about stuff even when there is nothing worthwhile to sit around and talk about.  Thus we are inundated with news with much of it being repetitive and a large chunk of it being worthless.    

NYC and Commercial Real Estate

(As previously posted on Tumblr)

The last things that New York City needs are more people, housing and commerical real estate.  Unfortunately, the only things New York City now builds are housing, which leads to more people, and space for commercial use.  It is beyond outrageous with no end in site.

I am not an expert in anything, but it has become glaringly obvious that something is amiss in the world of commercial real estate (“greed” is probably an appropriate one word summary).  I have never, ever, including during the aftermath of the economic collapse circa 2009, seen so many commercial spaces for lease or rent.  It is truly mind-boggling.  But what takes the mind-boggling to levels not seen since Pete Carroll called a pass play on the goal line during the Superbowl, is that more and more are being built.  Every residential space that is being built, at least so it seems, inevitably comes with store fronts and commerical space to be leased.  Even a new Charter School that was built on 125th street in Manhattan (I find this particularly scandalous by the way, Charter Schools being a perpetual financial quagmire) came equipped with retail space for lease.  Can we please learn to build something else?  

I would also like to add that New York City has long been overcrowded.  The powers that be that in one breath talk about having to expand subway service and add congestion pricing for Manhattan to accommodate a burgeoning population, have answered this problem by allowing brick upon brick of residential space to be built in every nook and cranny in the city.  The irony (I wish I had a larger vocabulary to better classify this) of this is that there is always this fight for more affordable housing.  There are empty apartments galore and developers are having no problem at all getting their buildings built.  Why is this still an issue?

Maybe at a future date we can discuss (as if there is a second party to this) the fact that the subways have become large-scale sardine cans, the fact that there are long lines everywhere and for everything and that these new street configurations, courtesy of New York City Department of Transportation, have only exacerbated the problem.  

Until the next complaint…