Condos Galore! How the development craze is creating a housing crisis

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In August in New York City, Otoniel Santiago joined over 100 other East Harlem residents in a protest against greedy landlords. With add-on charges, Santiago’s base monthly rent of $1,100 had soared to as much as $3,000. He believes his landlord is tacking them on in a scheme to get current tenants out of the building and raise rents permanently. His is a familiar story to East Harlem dwellers, where housing costs rose more than 39 percent from 2005 to 2006.

West Harlem residents and workers, meanwhile, are fighting Columbia University’s plans to demolish 17 acres of low-income apartments and small shops for a new biotech center. The community has an alternative plan that would enable Columbia and residents to coexist, but officials aren’t interested. The university wants New York officials to use eminent domain to declare the area “blighted” and force tenants out.

From New York to Los Angeles, lower-income residents are being pushed from their homes by commercial development and gentrification, as affordable housing is destroyed to make way for densely packed units for the affluent.

Studies show that the majority of inhabitants displaced by redevelopment end up paying higher prices for less housing when they move. And lower-income people are being pushed outside the heart of the city, where mass transit and other essential services are concentrated. In a complete reversal of earlier trends, more poor people now live in suburbs than in cities.

The stampede of investors and speculators into the housing market hinged on the gamble that someone would buy all the new luxury condos, posh townhouses and trophy mansions. But the “invisible hand of the free market” miscalculated.

Loans to develop condominiums rose to $30 billion in 2007, up from under $10 billion in 2003. Now, with unsold condos starting to stack up, investors are becoming worried. Toll, a top builder of trophy homes, saw profits plunge by 84 percent in July as orders were cancelled. The drive for short-term profits in housing is creating chaos.

One big binge. As the housing bubble bursts, a lot of attention has focused on foreclosures among homeowners with weak credit. But this is only one part of the picture.

Global investors and big financial institutions like Lehman Brothers have dumped billions of dollars into real estate. Lenders did this not to meet everyone’s need for shelter, but to make huge profits fast.

The methods vary: predatory loans; redeveloping depressed neighborhoods with modest homes into dense, upscale neighborhoods; “flipping,” or buying units and reselling them at a steeper price; charging high rents in the tightening rental market.

But the national market is becoming swamped, with new condos numbering 102,800 in 2007 — up from 41,900 in 2003. The result is that developers are more frequently being stung by their own ambition. In Atlanta, one shady developer secured a loan for more than $180 million to finance two condo conversions, only to see them flop.

However, even as sales grow sluggish, more condos are in the pipeline.

Meanwhile, rental units that are affordable for most people are becoming scarce. In Los Angeles, more than 11,000 rent-controlled apartments have disappeared since 2001. Many were converted into expensive condos. In Seattle, 2,352 apartments were converted to condos in 2006, up from 430 in 2004.

 Renters of different income levels are being forced to compete for a shrinking supply of affordable units. Consequently, landlords can charge more, and people with the least money and fewest options are getting squeezed. One-quarter of renters now spend at least half of their monthly income on rent.

Skyrocketing housing costs, fueled by the investment frenzy, have particularly hurt people of color and women, especially single mothers and seniors. Women and people of color already typically earn less because of discrimination in hiring and wages. But they are also less likely to be treated fairly in securing home loans.

One study showed that African Americans and Latinos are almost one-third more likely to get stuck with high-interest loans than are whites with similar credit scores. Lower wages and unequal access to loans mean that people of color, especially Blacks, bear the brunt of gentrification.

Welfare for developers. Rather than helping poor people survive the housing bubble, Democrat and Republican politicians are aiding developers.

Tax breaks for the rich and a minimum wage totally out of sync with living costs have widened the wealth gap. In 2005, millionaires numbered 303,817, up 26 percent, while incomes dropped for the majority of people. Almost half of all U.S. residents make less than $30,000 per year, according to IRS statistics.

So, while spending a greater share of wages on housing than ever before, the average worker is also in competition for available housing with deep-pocketed developers and other speculators. And the whole system is rigged in favor of the latter. Here are a few examples:

• Loose lending regulations enable loan sharks to prey on poor people by setting up mortgages with outrageous interest rates (subprime loans).

• Tax exemptions for developers to build “affordable housing” often facilitate the replacement of low-income rental apartments with units that cost more. These exemptions also raise the tax burden on workingclass homeowners.

• Public housing is being privatized and redeveloped into “mixed-income” communities that fewer low-income people can afford. The lists for still existing public housing keep growing longer, and lower-income recipients of help through the government’s Section 8 rental subsidies are having a difficult time finding places to live.

• Tax giveaways are common. Philadelphia, for example, gives developers money to improve building facades.

• Property owners have wide latitude to run neighborhoods down, as Columbia is doing in Harlem, to force redevelopment.

The morning after. With home prices falling, there is still no guarantee that people of average means — renters or homeowners — will fare any better. Credit policies and low-interest loans that enabled people to buy homes are tightening.

Layoffs are rising as mortgage companies go belly up, and the housing letdown is spreading to other related industries such as renovation. Meanwhile, foreclosures are up. As of June 30, almost one in four subprime loans serviced by Countrywide Financial was delinquent.

Champions of capitalism have had their chance to run the housing market, and have caused disaster. Profiteering has no place in housing. Comfortable shelter, like air and water, should be guaranteed.

Make housing a human right! In several cities, grass-roots groups are agitating toward just that goal. In New York City’s Chinatown, rent strikes and tenant union organizing have forced landlords to stop evictions and rent hikes. Tenants have also won longer-term leases that give them more security.

In Miami, activists are demanding community and resident control of their city’s public housing authority to stop local and federal officials from abusing the agency for the benefit of private developers.

In New Orleans, defenders of public housing have occupied projects to stop government bureaucrats from bulldozing homes.

But, although significant, these are all isolated battles, many over specific neighborhoods, that will have to be endlessly waged again. What housing activists really need is a national movement to fight for shelter for all — a movement that would be able to advance much more strongly with the participation of organized labor. Here are a few demands that such a movement could take up:

Set the minimum wage to reflect real living costs, including housing.

Implement nationwide rent control with a sliding scale of housing prices to match people’s incomes.

Massively expand public housing to provide for all in need within five years. Reinstate one-for-one replacement of low-income housing and put it under the control of residents, the local community, and public housing workers.

Outlaw discriminatory and predatory lending practices!

Institute “right of first refusal,” allowing tenants or nonprofit developers the first chance to buy buildings landlords want to sell.

Use the governmental right of eminent domain to ensure adequate low-income housing and to appropriate vacant buildings for transitional shelter.

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