It’s going to take a lot more than a pair of ruby slippers.

Remember last year? When saying there was a fast approaching conflagration in housing and the financial markets drunk with the foolish optimism (or craven short-sightedness) that those same markets were a foolproof way to mint profits would get you mauled by brokers and their lapdogs like fresh venison covered in honey in a bear den? Housing goes up just like rocks fall down: always and anon. Never mind places like Amsterdam (where prices returned to their previous high — in 1736 — just last year; I bet they didn’t stay there long either). Everyone seemed to have forgot that any time someone tells you a financial instrument is a sure thing that your immediate reaction should be to reach for your wallet — to make sure it hasn’t been lifted.

The song and dance from the broker and broken community over the past year is that Europe — no Russia! — no, the super-rich who are insulated from day to day vagaries are going to save the Manhattan real estate market from the absolute implosion experienced everywhere else in the known universe. It recalls the scene at the end of It’s a Mad, Mad, Mad, Mad World, where the Dorothy Provine character realizes the location of the treasure before everyone else, indulging in a short fantasy of wealth before concluding wistfully, “Well, it was a nice dream, while it lasted.”

Though the particulars are hard to parse, the sharp drops in the outer boroughs is telling, and anecdotes such as apartments being ‘flipped’ for a loss at the Plaza, the contraction in value of Stuy Town of 10% since Tishman bet $5 billion of your money (via Fannie Mae and Freddie Mac) they could evict rent stabilized tenants with more alacrity than the sorts of people who would invite crackheads into building lobbies (leading to such drastic measures such as charging tenants for their utilities) and what some would call anemic sales at trophy properties in TriBeCa point to a winds of change. Though it may be that sharply contracting values might not lead to foreclosures at 740 Park, it also means that the smart money will sit considerably tighter. After all, why race to drop $60 million on an apartment you don’t need if you are reasonably confident it can be had for $50 million in six months (expecting that you would lose less in real estate than in equities at this point)?

Historically, contractions hammer studio and one-bedroom owners. Even with the crazed pace of ultra-luxury housing developed that scoffs at the quaint notion of a one-bedroom, froth at the bottom end will have the same causal effect that credit squeezes and capital support requirements for CDOs have had on financial markets. Ripples will become tidal waves in no time.

So now that we have crowned our Mayor for Life (and, look, I’m voting for him again — in two years he will probably own the only going private concern in the city and manage all the public sector jobs to boot), it’s time to take a page from Nouriel Roubini’s book and declare the city is in an outright housing panic. Better still, that we have a real estate crisis across the board.

The reason we are in crisis that the many of the deals that enabled the buying and building frenzy are unwinding, meaning we may see more Macklowe-like fire sales of commercial properties, just as major building initiatives are pressing forward (WTC, anyone?) and the financial services titans that could normally be counted on to swallow up huge swaths of floor space are imploding into each other daily.

Thousands of condos are slated to come to market in the next year or two, all predicated on numbers that are looking more unsustainable each day. Tricks like rent-to-own, or straight rentals will work at the middle range of the market for a few more months, but even though it’s likely New York’s historically tight rental market will persist, those buildings will go wanting for tenants as people scramble to ratchet down their housing costs.

And this is where the Bloomberg promise of 160,000 units of affordable housing (the accounting for which was always dodgy) looks pathetic, and recent milestones — the rezoning of the Willamsburg waterfront, and the shunting of the 11,000 units of Stuy Town from Mitchell Lama to the aggressive attempt at ‘market rate’ pricing come immediately to mind — look terribly shortsighted. ‘Middle-income’ housing (to say nothing of stabilized rental units or creative programs to make ownership anything besides a vague dream for median income earners) was sorely needed before this crash, from a cultural or humanist perspective. Now we need it for purely economic reasons, since the people who will forestall savings or other types of economic advancement in pursuit of lives heavy on service and cultural spending, and will accept below median wages to live that dream were being priced into the Bronx and beyond for the past two decades with the glib argument that financial service lunkheads who supplanted them might not be the best substitute in the broadest sense, but their excess of dollars would, um, trickle-down, or prop up the shining Sodom on the Hill that is Manhattan. Those days have come to a grinding, nasty halt.

So the first step is admitting you have a problem, and it’s not clear that we’ve actually done that. Well some people have, they just aren’t people spending all their time getting reelected. When the manic expansion of real estate values, and the concomitant growth it brought (construction jobs, tax receipts, absurd growth in personal income at the upper echelons and the ridiculous luxury services sector that raced after the proceeds) was seemingly endless, the only evidence of a housing policy was restricted to softening the already spongy edges of regulation: the 421(a) mapping fiasco, the increasing allowance of developers to shift moderate and low income units off-site when applying for mortgage tax breaks, and tepid attempts to find ways to extend Mitchell Lama.

So the city lacks any tools to deal with the impending issue of systemic failure in the condo market, while the feds and state retreated from the business of social housing around the time people thought the Laffer Curve would make us all rich, in a trickly sort of way. The time it will take to kick start programs, shove through the necessary legislation and then actually start, you know, building things — provided there’s any money left in the coffers — it may well be too late to have any immediate benefit. Increasing affordable housing stock in always a good long term strategy. But since the government just poured $90BN in to a local company (and that might just be the beginning) to prop up the remnants of an easily identified real estate bubble, maybe we can argue for peeling off a couple billion for some local investment that can have a more tangible social benefit and operate within a reasonable expectation of return.

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