How Does Manhattan Work in the Face
of Escalating Land Prices?

Edward J. Dodson

[Reprinted from GroundSwell, March-April, 2006]

I admit to being perplexed. We constantly hear about the global economy and the pressures on businesses located in the United States to achieve acceptable profit margins while absorbing the high cost of doing business located in the United States. And, certainly New York City is one of the nation's highest cost markets.

One can understand the importance to banks, law firms, brokerage houses and other firms associated with the "financial services sector" of the economy having offices in Manhattan. These firms provide compensation to their executives that makes any differences in the cost of living between one city and another irrelevant. Over the last few decades, these firms have relocated what are referred to as 'back office' functions out of Manhattan to suburban or even more remote locations in order to reduce the cost of leasing or owning space in Manhattan.

Cost aside, Manhattan continues to have a magnetic attraction to people and to commerce. Land prices began to climb once again in the mid-1990s and have continued upward, to levels that reason suggests cannot be sustained And, in fact a just published report in an industry newsletter , states: "Downtown rents have risen 10-20% over the last two months for Class B and C Buildings" and that "space is renting quickly." Manhattan is not one market, of course. Every section has its charms, its amenities, and differences in land prices that translate into higher or lower costs of doing business. As the industry newsletter reported: "Downtown Incentives are still available and combined with lower rents than Midtown a large number of companies are moving Downtown."

Manhattan is also experiencing an even more intensive process of gentrification than most other U.S. cities. This process is today taking over much of Harlem and has extended to New York City's other boroughs. Population demographics are creating greater and greater demand for residential units in Manhattan. Many older office buildings are being converted to residential use. Nationally, fully one-third of all residential property sales are for second homes to the well-to-do. I have not been able to learn whether this ratio holds true for Manhattan, but my intuition tells me that the ratio there must be even higher - if only because of the higher prices charged and obtained.

What, then, is happening to the lives of the people who work in the public sector, for the schools, hospitals and universities, in the restaurants, hotels and the rest of the service sector businesses? The median household income for people living in metropolitan New York City is considerably higher than all the other cities on the East Coast. Yet, so is the cost of housing in the private sector. The rate of homeownership in the region is far lower than in many other cities, probably no more than 35 percent. So, although millions of people have profited by selling their properties during periods of rising land prices, renters have a very different story to tell. Some, those who continue to lease apartments in buildings subject to "rent stabilization" restrictions, have beat the system, so to speak. Millions of others must constantly absorb increases in their leasing costs or struggle to find lower cost accommodations further and further away from their places of employment. Thousands of people ~ some with jobs, and many intact families - are forced into homelessness and a reliance on shelters and other public services.

And still, more and more people come ~ from all over the globe - to share the experience of living in one of the world's most dynamic urban environments.

Once more, I point to Fred Harrison's forecast that the 18-year land market cycle is just a few years from another collapse (or, at minimum, a steep and prolonged downturn). Will New York be more or less affected than other cities? Is it an advantage, as some economists suggest, to have such a large population of renters able to more easily relocate in search of employment?

To our fellow Georgists who live and work in New York, what is your sense of the situation there? Is New York more or less at risk than other parts of the country? Are New Yorkers confident in the future or deeply worried? How are they reacting to the ongoing rise in land prices? Let us hear from you.