How house flipping reduces affordability in NYC neighborhoods of color
- New report finds flippers target undervalued homes in neighborhoods in the early stages of gentrification
- Community Districts with the top 10 rates of home flipping were more than 90 percent people of color
- A proposed state bill would create a tax of 65 percent on gains from property flipping within one year
A rally in support of the End Toxic Flipping Act, co-sponsored by State Senator Julia Salazar, left, was hosted on the steps of City Hall yesterday by Council member Sandy Nurse.
Gerardo Romo/NYC Council
On television, house flipping seems like a benign way to improve properties and raise comps. But in New York City, flipping is having a harmful impact, according to a new report that finds it severely reduces affordability in neighborhoods of color. Shoddy upgrades in a quickly renovated property can also trip up unsuspecting buyers.
The new report by the Pratt Center, a university-based community development organization, analyzed NYC sales of one- to three-family houses from 2019-2023 and determined that flippers are most active in neighborhoods where home values are lower than the citywide median. The median price paid by house flippers in 2021 was nearly 50 percent less than the citywide median home value, the report said.
Unsurprisingly, there is a racial component to the findings, said Sylvia Morse, senior program manager of research and policy at the Pratt Center and author of the report. The Community Districts with the top 10 rates of house flipping citywide were more than 90 percent people of color, and more than half were majority-Black, the report found.
Concentrations of one- to three-unit houses sold within two years of initial purchase, 2019-2023. Source: ACRIS, DOF annualized sales report, NYC PLUTO, DCP
What flippers are looking for
It’s not a Manhattan issue, Morse said. Flipping occurs citywide but is most concentrated in a few neighborhoods in the Bronx, Queens, and Brooklyn, as the chart above illustrates.
House flippers—increasingly backed by private equity firms—typically target NYC sellers who are in distress, and transactions can also involve deed fraud.
But purchases by flippers don’t need to involve deception to be harmful to a community. Flippers are seeking out undervalued houses by targeting neighborhoods “that are in the early stages of gentrification,” Morse said. “They are not flipping homes at the highest end and not at the lowest.”
Instead, flippers are exploiting areas where they can buy low and sell (or rent) for much more than is typical for the neighborhood.
Since 2020, flips have been increasing and prices for fixed-up properties are climbing faster than before. In 2019, the median price per square foot of flipped houses was 1.5 percent higher than non-flips, but in 2023, flips were 7.5 percent more expensive, the report found.
Buyers can get hurt by flipping too
There’s a tendency to assume the upgrades done as part of a flip involve a big investment, Morse said, but buyers of these properties can run into problems.
She shared an anecdote about a couple that saved their money for years and bought a flipped house. The sellers persuaded the buyers to use their inspector. Ultimately, the buyers found that property wasn’t meaningfully improved.
Why focus on one- to three-family houses?
Unlike other parts of the U.S., NYC is a city where most residents are renters—over two-third of them, but not all renters live in apartment buildings.
Small houses can be renter-occupied too and flippers are incentivized to evict low-income tenants. The Pratt Center report found the eviction rate among flipped homes (3.36 percent) was six times higher than among non-flips (0.56 percent).
New York’s new Good Cause eviction law has several major loopholes that leave low-income renters vulnerable to eviction, Morse noted, including rules about a landlord’s portfolio. Buildings owned by landlords with fewer than 10 apartments are not covered by Good Cause. Properties with up to 10 units where the landlord lives in the building are also exempt.
“Small houses represent a significant portion of NYC’s housing stock,” Morse said. “If this issue goes unaddressed, we would be ignoring a significant cause of displacement,” adding that “preserving affordability of homes in outer boroughs” is a key part of solving the housing crisis.
What can be done to curb home flipping in NY?
The report suggests a new tax to disincentivize house flipping and other reforms to protect low- and moderate-income homeowners of color from predatory speculators.
That's the goal of End Toxic Home Flipping Act, a bill co-sponsored by State Senator Julia Salazar and other elected officials. It would establish a steep tax on the gains from property flipping: When the flip is within one year, the tax is 65 percent of the difference between the purchase and sales price. When the flip is greater than one year but less than two, the tax is 50 percent of the difference between the purchase and sales price.
Also recommended is an exemption for low- and moderate-income homebuyers from mortgage recording taxes to help them compete with speculators purchasing houses in cash.
Other suggestions from the report include: Expanding cease and desist zones, regulating and enforcing against deed fraud and other deed schemes, increasing investment in foreclosure prevention programs, permanently abolishing the Tax Lien Sale, strengthening LLC transparency laws, expanding tenant protections in small houses, and investing in collective ownership models and deeply affordable homeownership programs.
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