Follow the Money

I’m not ready yet with my next installment in the gentrification series, so I’ll return to one of my other recurring topics, a small-business association whose stated goal is preventing 7‑Eleven stores from opening in the East Village. I am referring, of course, to No 7‑Eleven NYC. They posted a flurry of tweets two days before the law was to go into effect banning the sale of sugary drinks in cups or containers larger than 16 ounces. Here is one of them:

In another tweet No 7‑Eleven NYC posted, they advance the idea that once in place, the law will be ineffective, because people will go into 7‑Elevens and bodegas to buy their sodas (which they seem to think they will then be permitted to take into restaurants and movie theaters), but in the one above they claim that the ban will hurt bodegas. The fact is that, while the ban would not have affected 7‑Eleven, neither would it have affected bodegas. Bodegas don’t sell sugary drinks in cups, and bottles and cans would not have been affected by the law.

But there are bigger issues than this. Back in January they tweeted:

The day after Judge Milton Tingling blocked the ban from going into effect, the NY Times ran an article detailing the relationship between the soft-drink industry and community groups around the country:

    Dozens of Hispanic and African-American civil rights groups, health advocacy organizations and business associations have joined the beverage industry in opposing soda regulation around the country in recent years, arguing that such measures — perhaps the greatest regulatory threat the soft-drink industry has ever faced — are discriminatory, paternalistic or ineffective.

    Many of these groups have something else in common: They are among the recipients of tens of millions of dollars from the beverage industry that has flowed to nonprofit and educational organizations serving blacks and Hispanics over the last decade, according to a review by The New York Times of charity records and other documents.

These activities echo those of the tobacco industry, that for decades contributed to minority and women’s organizations, encouraging them to focus on concerns other than smoking. Leaders faced a real conflict: either accept the money, or speak out about the disproportionate toll of tobacco on the health of minority populations. Women’s groups, heavily supported and buoyed by support for events like the Virginia Slims Tennis Tour, were silent on the rapidly escalating epidemic of lung cancer in women, focusing instead on breast cancer and other problems. (Advocacy Institute 1998).

When speaking publicly about their products, the beverage industry uses a playbook similar to that used by the tobacco industry, that focusses on “personal responsibility,” raises fears of government action destroying personal freedom and civil liberties, criticizes studies that hurt the industry as “junk science,” and promotes physical activity over diet.

Both industries’ tactics rely heavily on “personal responsibility” arguments that claim regulation isn’t necessary because it’s up to consumers to make healthy choices, yet they spend hundreds of millions of dollars annually to undermine personal responsibility. On February 24, the NY Times published an article describing the efforts food companies have made over the years to addict people to their products:

    As the sensory intensity (say, of sweetness) increases, consumers first say that they like the product more, but eventually, with a middle level of sweetness, consumers like the product the most (this is their optimum, or “bliss,” point). …

    “[M]outh feel.” This is the way a product interacts with the mouth, as defined more specifically by a host of related sensations, from dryness to gumminess to moisture release. … [T]he mouth feel of soda and many other food items, especially those high in fat, is second only to the bliss point in its ability to predict how much craving a product will induce. …

    “[S]ensory-specific satiety.” In lay terms, it is the tendency for big, distinct flavors to overwhelm the brain, which responds by depressing your desire to have more. … The biggest hits — be they Coca-Cola or Doritos — owe their success to complex formulas that pique the taste buds enough to be alluring but don’t have a distinct, overriding single flavor that tells the brain to stop eating.

Efforts to encourage these industries to self-regulate are failing. Instead, the companies are consolidating power by building financial connections with health agencies and non-governmental organizations — and using that power to lobby politicians to oppose health reforms. In the February 23 issue of the English medical journal The Lancet, a team of researchers from around the world wrote:

    [T]hrough the sale and promotion of tobacco, alcohol, and ultra-processed food and drink (unhealthy commodities), transnational corporations are major drivers of global epidemics of [non-communicable diseases] NCDs. … Despite the common reliance on industry self-regulation and public—private partnerships, there is no evidence of their effectiveness or safety. Public regulation and market intervention are the only evidence-based mechanisms to prevent harm caused by the unhealthy commodity industries.

On the day the ban was halted, No 7‑Eleven NYC retweeted:

That’s where they stand.

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Further reading:

Luxury Listings NYC

Somehow, my wife got her name onto the distribution list of a magazine (of sorts) called Luxury Listings NYC. It’s delivered right to our doorstep! We received the first copy a couple of months ago, but neither one of us looked at it. We’re not really in the market for a multi-million dollar penthouse apartment. This time, though, with the recent institution of this here blog, I browsed through it when it arrived. It was Sunday morning, and no one else was awake yet. It seemed like a good time.

I was going to scan some of the pages, but then, in my ever-resourceful resourcefulness, I had the idea to search on Google for ‘“Luxury Listings NYC” PDF’ instead, and found it! You can view non-downloadable PDFs of the first issue, Jan/Feb, and of the current issue, Mar/Apr.

The magazine covers every neighborhood-product in Manhattan below 110th Street: Upper East Side; Upper West Side; Midtown; Gramercy; Chelsea; Greenwich Village; Soho; Tribeca; Lower East Side; and Financial District. Every section has a “Celeb real estate in the neighborhood” listing too, telling which celebrities also live in that neighborhood — a strong selling point for Wall Street types!

I took some screen shots of a few of the fascinating tidbits of information you can find there, but none of the ads for apartments themselves.

If you live in Manhattan, you can subscribe for free. Outside of Manhattan, a subscription is $95/year.

General
This is the one that surprised me the most. I’m not shocked to see selling prices in the tens of millions of dollars, but I don’t think I’ve ever considered a rental above ~$5,000/month. (I’ve also never considered rents outside the neighborhoods I’ve lived in).

llnyc-v1i2-manhat-priciest
By way of comparison, the median annual income in Manhattan is $67,204;
NYC: $51,270; NYS: $56,951; US: $52,762.

Speaking of medians, which neighborhood in New York is the most expensive?
The results may surprise you.
llnyc-v1i2-nyc-highest-median-price

If it’s any consolation, it’s always worse somewhere else (there’s a quote by Arthur Schopenhauer: “The most effective consolation in every misfortune and every afflication is to observe others who are more unfortunate than we: and everyone can do this. But what does that say for the condition of the whole?”):
llnyc-v1i2-top-10-cities

What keeps the 1% up at night?
llnyc-v1i2-au-pair

Biggest Community News Affecting Local Real Estate
Upper East Side
llnyc-v1i2-ues-news

Upper West Side
Money can’t always buy peace of mind! Not when bedbugs are concerned.
llnyc-v1i2-uws-bedbugs

Midtown
It seems in real estate cartography, Midtown stretches from river to river. No more Hells Kitchen, no more Clinton, not even Midtown West. Just Midtown.
llnyc-v1i2-midtown-news

Gramercy
llnyc-v1i2-gramercy-news

Chelsea
llnyc-v1i2-chelsea-news

Soho
llnyc-v1i2-soho-news

Lower East Side
llnyc-v1i2-les-condos

Finally, like all good magazines, Luxury Listings NYC has a humor page. Celebrities say the darndest things!
llnyc-v1i2-celeb-headline
llnyc-v1i2-celeb1
llnyc-v1i2-celeb2
llnyc-v1i2-celeb3
Ha ha ha! Those are some real knee-slappers!

Well, I hope you’ve enjoyed this little romp through the joys and woes of the 1%’s search for luxury digs. Come back again!

David Harvey in Athens

I’ve seen David Harvey speak before. He’s amazing. He can speak for an hour in a focussed and comprehensive way and not use a single note!

Video

Capital Devalorization in the Inner City

This follows up on Investment in the Built Environment — Prologue, but I changed the title to “Capital Devalorization in the Inner City”.

The physical deterioration and economic devalorization of inner-city neighborhoods is a strictly logical, “rational” outcome of the operation of the land and housing markets. What follows is a rather schematic attempt to explain the historic decline of inner-city neighborhoods in terms of their institutions, actors, and economic forces involved. We might think of this explanation as a production-side corrective to traditional “filtering” theory. … It is assumed from the start that the neighborhoods concerned are relatively homogeneous as regards the age and quality of housing, and, indeed, this tends to be the case with areas experiencing redevelopment.

When a neighborhood is newly built the price of housing reflects the value of the structure and improvements put in place plus the enhanced ground rent captured by the landowner. But eventually sustained devalorization of neighborhood housing can take hold. This has three sources: advances in the productiveness of labor (allowing a similar structure to be produced at a lower value than was previously possible); style obsolescence; and physical wear and tear.

Clearly, property owners in many neighborhoods succeed in making major repairs and maintaining or even enhancing the value of an area’s housing. These areas remain stable. Equally clearly, there are areas of owner-occupied housing which experience the first stage of devalorization. Homeowners, aware of imminent decline unless repairs are made, may sell out and seek newer homes where their investment will be safer. At this point, after a first or subsequent cycle of use, there is a tendency for the neighborhood to convert toward a higher level of rental tenancy unless repairs are made. And since landlords use buildings for different purposes than owner-occupiers, a different pattern of maintenance will ensue. Owner-occupiers in the housing market are simultaneously both consumers and investors; as investors, their primary return comes as the increment of sale price over purchase price. The landlord, on the other hand, receives his or her return mainly in the form of house rent, and under certain conditions may have a lesser incentive for carrying out repairs so long as he or she can still command rent. Since the transition from owner-occupancy to tenancy is generally associated with a declining market, some degree of under-maintenance could be expected. With sustained under-maintenance in a neighborhood however, it may become difficult for landlords to sell their properties, particularly since the larger financial institutions will now be less forthcoming with mortgage funds; sales become fewer and more expensive to the landlord. Thus, there is even less incentive to invest in the area beyond what is necessary to retain the present revenue flow. This pattern of decline is likely to be reversed only if a shortage of higher-quality accommodations occurs, allowing rents to be raised and making improved maintenance worthwhile. Otherwise, the area is likely to experience a net outflow of capital, which will be small at first since landlords still have substantial investments to protect. Under these conditions it becomes very difficult for the individual landlord or owner to struggle against the economic declining which they have helped to induce. House values are falling and the levels of capitalized ground rent for the area are dropping below the potential ground rent (see Figure 3.2). The individual who did not under-maintain his property would be forced to charge higher than average rent for the area with little hope of attracting tenants earning higher than average income which would capitalize the full ground rent.

newurbanfrontier-3.2
Figure 3.2 The devalorization cycle and the evolution of the rent gap.

Real estate agents exploit racist sentiments in white neighborhoods that are experiencing declining sale prices; they buy houses relatively cheaply, and then resell at a considerable markup to African-American, Latino or other “minority” families, many of whom may be struggling to own their first home. [P]roperty values are usually declining before blockbusting takes place and do not begin declining simply as a result of racial changes in ownership. Once blockbusting has taken place, however, further decline in house values is likely, not just because of the racism of the housing market but also because of the inflated prices at which houses were sold and the consequent lack of resources for maintenance and mortgage payment suffered by incoming families.

Under-maintenance gives way to more active disinvestment as capital depreciates further and the landlord’s stake diminishes: house value and capitalized ground rent fall, producing further decreases in sale price. Disinvestment by landlords is accompanied by an equally “rational” disinvestment by financial institutions, which cease supplying mortgage money to the area. … In addition to mortgage redlining, there is also redlining on the part of homeowner insurance companies, which further induces economic disinvestment. What loans do occur at this stage allow properties to change hands but do little to encourage reinvestment in maintenance so the process of decline can simply be lubricated. Vandalism, sub-dividing of apartments, and refusal to make any repairs soon follow.

When landlords can no longer collect enough house rent to cover the necessary costs (utilities and taxes), building are abandoned. This is a neighborhood-scale phenomenon: the abandonments of isolated properties in otherwise stable areas is rare. Much abandoned housing is structurally sound, which seems paradoxical. But then buildings are abandoned not because they are unusable, but because they cannot be used profitably At this stage of declining, there is a certain incentive for landlords to destroy their own property through arson and collect the substantial insurance payment.

Gentrification is generally preceded by such a cycle, although the process need not occur fully for gentrification to ensue. … The objective mechanism underlying filtering is the depreciation and devalorization of capital invested in residential inner-city neighborhoods. This devalorization produces the objective economic conditions that make capital revaluation (gentrification) a rational market response. Of fundamental importance here is what I call the rent gap.

The rent gap is the disparity between the potential ground rent level and the actual ground rent capitalized under the present land use. As filtering and neighborhood decline proceed, the rent gap widens. Gentrification occurs when the gap is sufficiently wide that developers can purchase structures cheaply, can pay the builder’s costs and profit for rehabilitation, can pay interest on mortgage and construction loans, and can then sell the end product for a sale price that leaves a satisfactory return for the developer.

The process is initiated not by the exercise of individual consumer preferences, but by some form of collective social action at the neighborhood level. The state, for example, initiated much of the early gentrification in the US as a continuation of urban renewal projects, and though it plays a lesser role today, state subsidies and sponsorship of gentrification remain important. More commonly today, with private-market gentrification, one or more financial institutions will reverse a long-standing redlining policy and actively target a neighborhood as a potential market for construction loans and mortgages. All the consumer preference in the world will amount to naught unless this long-absent source of funding reappears; mortgage capital, in some form or another, is a prerequisite.

Three kinds of developers typically operate in recycling neighborhoods: (a) professional developers who purchase property, redevelop it, and resell for profit: (b) occupier developers who buy and redevelop property and inhabit it after completion; and (c) landlord developers who rent to tenants after rehabilitation. … Professional and landlord developers are important … but occupier developers are more active in rehabilitation than they are in any other sector of housing construction. Since the land has already been developed and an intricate pattern of property rights laid down, it is not always easy for the professional developer to assemble sufficient land and properties to make involvement worthwhile. The fragmented structure of property ownership has made the occupier developer, who is generally an inefficient operator in the construction industry, into a plausible vehicle for remaking devalorized neighborhoods.

Gentrification is a structural product of the land and housing markets. Capital flows where the rate of return is highest, and the movement of capital to the suburbs, along with the continual devalorization of inner-city capital, eventually produces the rent gap. When this gap grows sufficiently large, rehabilitation (or, for that matter, redevelopment) can begin to challenge the rates of return available elsewhere, and capital flows back in. Gentrification is a back-to-the-city movement all right, but a back-to-the-city movement by capital rather than people.

* * *

Definitions

House Value
It will be necessary to separate the value of a house from its price. Only in the marketplace is value translated into price. And although the price of a house reflects its value, the two cannot be mechanically be equated since price (unlike value) is also directly affected by supply and demand conditions. Thus value considerations set the level about which the price fluctuates. Now with housing the situation is further complicated insofar as individual houses return periodically to the market for resale. The house’s value will also depend, therefore, on its rate of devalorization through use, versus its rate of revalorization through the addition of more value. The latter occurs when further labor is performed for maintenance, replacement, extensions, etc.

Sale Price
A further complication with housing is that the sale price represents not only the value of the house, but an additional component for rent since the land is generally sold along with the structures it accommodates. Here it is preferable to talk of ground rent rather than land value, since the price of land does not reflect a quantity of labor power applied to it, as with the value of commodities proper.

Capitalized Ground Rent
Ground rent is a claim made by landowners on users of their land; it represents a reduction from the surplus value created over and above cost price by producers on the site. Capitalized ground rent is the actual quantity of ground rent that is appropriated by the landowner, given the present land use. Thus, assuming for the moment an equation between price and value, sale price = house value + capitalized ground rent.

Potential Ground Rent
Under its present use, a site or neighborhood is able to capitalize a certain quantity of ground rent. For reasons of location, usually, such an area may be able to capitalize higher quantities of ground rent under a different land use. Potential ground rent is the amount that could be capitalized under the land’s “highest and best use” (in planners’ parlance) — or at least under a higher and better use. This concept is particularly important in explaining gentrification.

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Neil Smith, The New Urban Frontier (London/New York: Routledge, 1996) 61-71.

Unmasked

It will come as no surprise to regular readers of Quilas that I’ve been wary of No 7‑Eleven NYC from the beginning, but it’s starting to spread to those who may have been followers until now. On February 28, EV Grieve wrote:

evg-bowery-poetry-story

One of the comments to the above-mentioned post:

evg-comment-re-bob-holman-0301

Bob Holman is one of the founders, if not the founder, of No 7‑Eleven NYC.

A search for Bowery Alliance of Neighbors yields:

invite200res.55174433_std

There’s no question that this area has an important history, but there isn’t a single aspect of that history left. Nothing of the past is being preserved, nor would any of them want to preserve it. In fact, they’re not preserving anything, as you’ll soon see. What they’re doing is creating the Bowery Theme Park.

[T]his project will enable the Chinatown, Little Italy, Lower East Side,
and now, the Bowery communities to develop a comprehensive approach
to community planning, centered around history, culture, and
economic development.

Take a look at what National Register designation confers:

Eligibility of property owners (and in certain cases lessees) for federal tax credits on qualifying rehabilitation of historic buildings within the historic district. Owners of depreciable, certified historic properties may take a 20 percent federal income tax credit for the costs of substantial rehabilitation as provided for under the Tax Reform Act of 1986. Any contributing, income-producing building would be eligible for the federal investment tax credit.

Owners of contributing buildings within distressed census tracts are eligible for additional New York State tax credits. Distressed census tracts are those identified as being at or below 100% of the state median family income ($51,691) in the most recent census. On the Bowery, this includes properties on the east side of the street south of East 3rd Street and on the west side south of East Houston Street. …

Private property owners of contributing buildings are eligible for grants and loans administered by New York City Landmarks Preservation Commission and other sources

Municipal and not-for-profit owners of listed historic properties may apply for matching state historic preservation grants

Registered properties and properties determined eligible for the Register receive a measure of protection from the effects of federal and/or state agency sponsored, licensed or assisted projects through a notice, review, and consultation process.

What it doesn’t provide is any real protection:

National Register status is an honorific designation. Unlike New York City Landmarks designation, which is not being sought as a part of this effort, there are no restrictions placed on private owners of registered properties in a National Register Historic District. Private property owners may sell, alter or dispose of their property as they wish, although an owner who demolishes a certified registered property may not deduct the costs of demolition from his/her federal income tax.

So that’s what they’ll be gathering to celebrate on the 20th: a host of tax credits and deductions for building- and land-owners.

Democratic control over neighborhoods is not an impossibility. The residents of this area could band together as well. Of course, they wouldn’t have the backing of the city government, or celebrities, or the banks lining up to fund this “preservation”, but they can provide a necessary counter-balance to the gentrification effort.

By way of example, the Clinton Special District Coalition was formed to protect the people who lived in the Clinton Special District (located on the West Side between 41st and 59th Street, from 8th Avenue to the Hudson River). The CSDC fights for social and economic justice, for the rights of poor, low-income and working individuals and families, with a primary focus on strengthening and preserving affordable housing.

The organizers of the Bowery Alliance of Neighbors would run screaming if such an initiative were proposed!

Swedish House Mafia

I’m adding a new tag today: Swedish House Mafia. Why, you ask?

I recently did a search on Google for “shmnyc”, to see what would turn up. I discovered there was a group (or band, or “crew”) called Swedish House Mafia, that some people abbreviate as SHM:

shmnyc-google-search

I guess shmnyc refers to when the Swedish House Mafia plays in New York City. Kids these days, with their txtspk! It’s bad enough that smh is a dyslexic ordering of my initials.

Why do I bring this up? It’s not as if sharing initials with some pop band is uncommon, or even worth mentioning. It’s that I get tweets attempting to reference them, such as:

So as a bonus feature for my readers, I will post these whenever I get them. It’s probably not as interesting as Kenneth Goldsmith reading the fan mail he got that was intended for Kenny G, back when he was at WFMU, but hey… you get what you get, and you don’t get upset.

East Village Gated Community

Earlier this week, this came to me:

If you step back for a second, and don’t think about 7‑Eleven in itself (the garish façade, Slurpees), and think instead about the goals of No 7‑Eleven NYC — defining an area wherein businesses only of a certain type are permitted to exist — you will quickly see that the types of businesses that will thrive, given the fact that rents will continue to rise, will be expensive boutiques/restaurants/etc. No 7‑Eleven NYC has as its inevitable end the “gating” of the East Village. It’s a revanche effort, after years of gentrification have made the neighborhood appealing to larger corporations. They seek to preserve this area for a wealthy elite, there’s no question about this. They ride on the backs of bodega owners, but they will quickly discard them when the opportunity arises.

Believe me, I do not relish appearing to defend 7‑Eleven, or chain stores in general, but the way things are going there are only two outcomes: a neighborhood filled with chain stores (it’s half-way there already); or a neighborhood filled with quaint boutiques that only the wealthy can afford. No 7‑Eleven NYC does not seek to stop, let alone reverse, “whitewashing the community”. It aims to carefully direct it.

Welcome to the East Village Gated Community.

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