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New York City's property tax hike of 18.5 percent, which became law in December 2002, will transfer an additional $837 million from homeowners into the city's budget this year. This is just the latest example of how homeowners, who occupy nearly one million households in New York City, are shouldering unanticipated higher housing costs.

This turn of events mirrors a national trend recently reported by the Center for Housing Policy, the research affiliate of the Washington DC-based National Housing Conference.

"Today, homeowners comprise the majority of working families with critical housing needs," reports the author of America's Working Families and the Housing Landscape - 1997 - 2001 (in pdf format). The study found a 60 percent increase in the number of working families with critical housing needs, defined as either paying more than 50 percent of income for housing costs or living in substandard housing conditions. It defined working families as those earning between $10,712 and 120 percent of their area's median income.

Previous versions of the study had found that renters were more likely than homeowners to have critical housing needs. But in 2001, 53 percent of the families with troubled finances owned their homes.

Brooklyn and the Bronx top the national list of counties whose homeowners are burdened by tough housing cost/income ratios, according to data from the 2000 census, reported in the New York Times. Homeowners in those boroughs have the nation's highest percentages of homeowners paying more than 35 percent of their income on housing, although lenders have traditionally kept mortgage payments to no more than 28 percent of income.

That standard has relaxed in recent years and may be contributing to increases in mortgage defaults.

Default can be a result of unexpected unemployment. "With the economy getting worse over the last few years it seems likely that homeowners are affected and are taking a hit on the income side," said Barbara Lipman, research director for the Center for Housing Policy.

But higher housing costs from property taxes and rising insurance premiums can also put owners in danger of defaulting on mortgages and tax payments, which can begin a cycle of abandonment.

"A number of owners, especially those in low income areas, have voiced a lot of concern about their tax bill, combined with new water bills, along with the cost of insurance and the price of oil which has not gone down in three years," said Frank Ricci, of the Rent Stabilization Association, a landlord group. "We have a lot of people very concerned with how long they will be able to last.

"You don't see the effects right away," he said. "The typical owner may start operating at a deficit six months from now. Most of our small owners work another job and they'll start subsidizing the building, and that can only go on for so long."

In tough times like these, some experts say the smart money should rent. Renters are able to adjust their housing/income ratios more easily by simply moving into an apartment that better suits their needs. And while renters might eventually shoulder the burden of increased property taxes or insurance costs, they can also bid rents lower, as has happened in parts of the city over the past year.

Nationally, homeownership is near its all-time high, at 68 percent, even as housing prices have far outpaced inflation and earnings gains, leading to talk of a housing bubble. Since 1995, the country's home prices have increased by 47 percent while overall inflation has been 17 percent, according to Bankrate.com, a website that aggregates financial data.

Homeownership has increased in New York City too, albeit much more modestly. It went from 30.0 to 31.9 percent from 1996 to 1999, according to the New York City Housing and Vacancy Surveys.

Rebecca Webber is a journalist who has covered housing issues for Gotham Gazette since July 2000.


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