While house flipping has become popular entertainment on TV, for many affordable New York City neighborhoods it is a reality show that too often ends with families displaced from their communities.
In neighborhoods like East New York in Brooklyn and Jamaica in Queens, properties that working- and middle-class New Yorkers could once dream of owning are being bought by LLCs and resold, often in a span of a few months, for immense profits.
This fuels displacement as house prices inflate, attracting more affluent residents from outside the community and leaving locals priced out — hallmarks of gentrification. Meanwhile, properties that were once family-owned become income-generating investments for speculators.
The Center for NYC Neighborhoods analyzed the impact of real estate speculation on the owners and tenants of small homes throughout the five boroughs, and found that while house flipping declined after the 2008 housing crash, today it is creeping back up — and making housing less affordable in several Brooklyn and Queens neighborhoods that have long been havens of affordability for working New Yorkers.
“There’s a real rush to make money in our neighborhoods because you can get such a higher return here and what that’s doing is creating these false markets,” Christie Peale, executive director of the Center for NYC Neighborhoods, told NY1.
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The Center examined property flipping of 1-4 unit homes in New York City from 2003 to 2015 and found that speculation has become dramatically more profitable in recent years. In 2015, flipped properties produced a median resale profit of $215,000, or a 75% gross return on investment. In some cases, investors saw profits of 200 to 300%.
Not only does this mean that flipping is putting homes out of reach of working- and middle-class buyers, it’s also depleting a vital source of affordable rental units. That’s because investors who buy these small homes, which are often divided into apartments for multiple families, are likely to raise rents to capitalize on the increasing popularity of the neighborhoods.
The Center also found that neighborhoods in Brooklyn and southeast Queens had more flips than other parts of New York City. East New York — a community being reshaped by development as it undergoes a rezoning that the City says will generate more affordable housing in the neighborhood — had the highest number of flips in 2015. Bedford-Stuyvesant in Brooklyn, Jamaica, St. Albans and Springfield Gardens in Queens, also had high numbers of flips.
But Brooklyn is seeing some of the most rapid changes, with higher profit margins than any other borough in the city. Four of the top five neighborhoods with the largest gross returns from flipping were located in Brooklyn. Cypress Hills led all neighborhoods in 2015 with a median gross return of 125%.
Flipping also had a particularly powerful impact on sales prices in the borough. For all 2015 flips in Brooklyn, the median price of the first sales was affordable to family with a low-downpayment mortgage making about $74,000, or 95%, of Area Median Income. However, after the flip, the median price of the second sale was affordable to a family with the same low-downpayment mortgage making $127,000, or 163%, of AMI.