Waiting For The Boom To End

New York City, with its plethora of investment bankers and consultants, is a city of numbers. Here are a few to consider: The average price of a Manhattan apartment in 2008: $1.7 million. Dinner for four at a top New York restaurant: at least $500. The chance that the financial crisis will send rents and prices plummeting? Priceless.

Well, maybe not priceless—even schadenfreude has its limits. But there's no doubt that for many New Yorkers, particularly those who don't work for Goldman Sachs or Lehman Brothers, the credit crunch has its proverbial silver lining. Manhattan, after all, is a borough where the average rent for a one-bedroom apartment is $2,600 a month, and many of the borough's 1.6 million residents pay much, much more than that. It would take a person with a Gandhian sense of empathy—or a broker's license—to wish for a swift return to the frothy real-estate market of last year. Instead, much of the city is hoping for a crash—or at least a minor dust-up—that will send rents and other prices tumbling back to reasonable levels.

The creative classes, in particular, feel it's time to reclaim a slice of the city. These are the actors, artists, writers and designers who in recent years have been priced out of neighborhoods they once considered their birthright. That includes the Lower East Side, once a grungy community, a kind of East Coast Haight-Ashbury, which last year received its first luxury high-rise: the Ludlow, replete with doorman, sun deck, valet and one-bedroom apartments that go for about $4,000 a month. The absurd prices have sparked fears of a creative exodus. "It's getting incredibly competitive," says Richard Florida, author of "The Flight of the Creative Class" and director of the Martin Prosperity Institute, an economic think-tank. "It really worries me. But as [writer and urbanist] Jane Jacobs said, if a place gets boring, even the rich people leave. As places lose that energy, they're likely not to be able to sustain themselves."

Many, then, see in the housing crisis potential salvation. The gossip Web site Gawker.com, which gives voice to the occasionally acidic irony of the "creative underclass," is one of the many sites where unguarded optimism is on display. As one recent blog post put it, "We're just hoping that with recent Wall Street busts and freakouts, things may soon be swinging in the other direction; that is, in the favor of the middlish-creative classes. Pride always cometh before the fall!" The fall in this case, of course, refers to the fate of the financiers as well as optimistic expectations for monthly rental rates.

But why the optimism? It's not as if hedge-fund energy traders and Brooklyn graphic designers occupy the same income stratum, even when the former are unemployed. Jimmy Cayne, the disgraced ex-chief of Bear Stearns, might have trouble paying the mortgage on his two (two!) new apartments in the recently renovated Plaza Hotel now that he's sold his Bear stake, once valued at more than $1 billion, for a paltry $61 million. But don't expect a Broadway understudy from a hip outer borough to swoop in and relieve him of the $27.4 million debt burden.

Still, since New York is a city dominated by the money magicians, when the financial sector catches a cold, the city will at least sniffle. Financial companies employ 11 percent of the city's workers and pay 35 percent of its wages and salaries. Since the start of the latest crunch, 6,000 or so have lost their jobs. The cadres of fresh-faced college graduates who usually arrive in New York each July and August to start two-year analyst positions at major banks are unlikely to show up this year. Those layoffs and missing hires are bound to have an impact.

Or so the logic goes. So far, the expected slack in the rental market hasn't appeared. The average rental price for a one-bedroom is up nearly 5 percent in the last year. That's less than the usual annual increase of 10 to 15 percent, says Peter Hungerford, a former broker and cofounder of the real-estate listing site UrbanSherpaNY.com. But it's a long way from a crash. The blame, he says, goes to the many potential buyers who are riding out the uncertain market and renting in the meantime. That extra demand keeps rents high. "Everybody's looking for a drop in prices; everybody's hoping for it," he says. "But I haven't seen it."

Developers are changing plans, too, rezoning buildings from condos to rentals to avoid selling in a bear market. That's keeping upward pressure on sales prices, which climbed 33 percent since last year. They were buoyed by ultraluxury buildings like the Plaza and architect Robert A.M. Stern's elegant retro skyscraper at 15 Central Park West, whose 201 apartments sold for a total of $2 billion. But even excluding those buildings, the average sales price was still up more than 19 percent.

No wonder, then, that beneath the surface, even the housing optimists have their doubts. Sheila McClear, the reporter who wrote the Gawker post, says that it's "wishful thinking" to expect a recession to cap the cost of living—"for Christ's sake, [even] the cost of food is going up." And Florida argues that cities like New York and London are "becoming places for the global wealthy," pushing everyone else into outlying neighborhoods and cheaper metropolises. For now, at least, the dream of a New York housing crash is a dream deferred.