Do you mean to tell me, Katie Scarlett O'Hara, that Tara, that land doesn't mean anything to you? Why, land is the only thing in the world worth workin' for, worth fightin' for, worth dyin' for, because it's the only thing that lasts.
-- Gerald O’Hara (Gone with the Wind, 1939)
Do not pursue what is illusory - property and position: all that is gained at the expense of your nerves decade after decade and can be confiscated in one fell night.
--Alexander Solzhenitsyn (1918 - )
Only the most optimistic of real estate agents who is still paying off the new Range Rover purchased a year ago, would tell you that real estate is selling well in the Hamptons.
In fact, even at the height of the market as the bubble was forming, East End property agents bemoaned the disappearance of the historical two selling seasons – fall and spring.
While not all areas have been affected similarly, East Hampton was an exception last year and Quogue to some extent this year. For the most part, there is now one season (March to May) during which some buying activity is really expected. Properties priced at up to $600,000 and listed for over $10,000,000 have buyers. Mortgages are as scarce as true Democratic politicians on the East End.
Most real estate brokers have a phrase to describe the current market: “It’s very quiet.”
There are lookers but the bidders automatically come in anywhere from 20 to 50 percent under the asking price. And, sellers are not budging. Yet.
Considering the fact that the Hamptons is a wealthy resort whose primary source of income is real estate, one would expect the local government to be supportive of that industry. It would be natural to expect that since property taxes from non-residents, transfer tax fees for property purchases, local durable goods orders, hard and soft costs involving the building and construction industry, and the thousands of small businesses that employ local labor – support the economy – that local government would do anything possible to create a net during what appears to be a long and difficult recession about to arrive. Not to mention the Community Preservation Fund – that big kitty where New Yorkers pay $60 to $100 million per year so that the local politicians can raid the piggy bank whenever they can’t find the money anywhere else. Recently, a meeting was held deciding whether the Fund needed to be raided again to buy a bowling alley or support some local salaries that they Villages and Towns can’t afford to pay for – with the local money they collect. It’s hit the Fund again – and Thank God for real estate.
It was in the 1970’s that the invincibility theory of Hamptons real estate first raised its freckled head. A charming, waspy broker by the name of Tilman Match actually carried around printed cards which he gave to prospective buyers that described the year upon year of consistent appreciation in home values. As most investment-oriented sales people, he described with clear certainty how real estate would appreciate while rentals would pay the cost of the financing. It was an investment that could not lose. With plenty of young families, students who rented in the winter months and young single people who rented houses in the summer, it was an investor’s haven. Even the local government counted on investment property so that they did not have to provide affordable housing for local people.
It was a mantra that was adopted by many brokers from Remsenburg to Southampton, from Water Mill to East Hampton and beyond.
In the late 1960’s, there were artists, professors and students in the winter, and families and single share houses in the summer. The Hamptons was an exciting, fun place all year long for different reasons. Sometimes desolate in winter, rarely crowded in the summer, it was part bohemian, part elegant, and part local character. In those years, the divide between local residents and the out of town population was more real. The locals were making lots of money and they put up with the annoyance from the summer people who arrived in May and left by September. Hence, Tumbleweed Tuesday – after the summer people left town.
As the values of property increased, so did the exclusivity pitch from brokers. As local people made more and more money – there were more and more local people. And, there were many more local builders who migrated from up the Island and developed cozy relationships with the Town government. Meaning – that a trend began which started the migration from New York City’s outer boroughs, Nassau County and New Jersey – to the Hamptons. The new local people, the new residents, were now many of the same people who spent vacation time and summers in the Hamptons because they saw the flow of money. And, that is where the change in essential Hamptons character started to change.
By the late 1980’s and early 1990’s, the Hamptons was no longer an enclave of farmers who considered someone a “local” if they hadn’t lived there for more than 70 years. The farmers sold their development rights to either a developer or the Land Trust and were now taking it easy. The big box stores had moved in – from Hampton Bays to Bridgehampton – and émigrés from up the island and the outer boroughs had made their way into local politics to try to wrest away some of the wealth. And, they succeeded.
Skip Heaney, the recent 3-term Supervisor of the Town of Southampton was brought in by his father who had a hardware store in Hampton Bays when he first ran for Town Board. Ask many of the civil service employees and local politicians how long they’ve lived in the Hamptons or when did their families move into town. Interesting confabulations will follow.
But, what this new crowd brought with them was not a love of the land. What they brought with them was a sense of entitlement, greed and a sense of escape. Greed for the money and greed for power. And many were escaping from scrutiny to an area of natural beauty and avoidance of accountability. They also brought the attitude of the “last one in” mentality – “Now that I’m here, I can do that but you’re not one of us, so you can’t do that!” That is the essence of Hamptons Politics. We were here first.
And, that leads directly to the current state of neo-conservative thinking, which has given rise to racism, conservative Republicanism, and an anti-“outsider” mentality.
It worked well when the investment came in and left without asserting any property or voting rights. But, as those who invested money started to stay for longer than a few months a year – asking for voting rights and demanding participation in the economic and political decisions – the government started to move even further to the right.
The question is, what will happen now that the flow of money starts to only trickle in.
The financial instruments of the real estate age have started to unwind. Whether they are CDO’s, SIV’s, credit-default swaps, short-term municipal paper auctions, bundled mortgage securities, or hedge funds trading in derivatives – trillions, not just billions are about to be lost. And, they will continue to be lost as The Great Real Estate bubble blows up. We are still only at the beginning of this slide.
This has affected investors, homebuyers, and local governments. Many expect some County governments to declare bankruptcy due to the fact that they cannot renegotiate debt at manageable rates while their tax receipts slow. California is borrowing heavily, New York is under water, and New York City is starting to tighten its belt. The Hamptons are raiding the Community Preservation Fund with the help of Fred Thiele.
As all of this is taking place, the Town of Southampton has increased its residential tax rate and is contemplating raising the commercial tax rate. The government has also embarked upon a much-hyped “Safety” program – using Code Enforcement under the direction of Cheryl Kraft and Michael Sendlenski of the Town Attorneys office – intended to rid the Town of Latinos. This Final Solution to rid the Town of Latinos is in progress under the guise of a new rental law and it is expected that the temporary “affordable housing program” which for decades has been left to private investors to solve for the Town -- will now be eliminated. What was sanctioned by the Town, so that the government did not have to make any investment, is now being dismantled to satisfy the neo-Con “last-in” mentality population of the Hamptons. Within two years, investment property and rental housing will be reduced as the need for affordable housing increases.
Most of the investment property in Southampton will now likely be sold – during a recession and during a severe housing shortage. Here are some of the numbers.
With about 6000 properties for sale on the South Fork of Long Island, during the last quarter, only a handful of properties have sold in East Hampton. In Southampton, the average sale price between the end of 2006 and 2007 has dropped from $2.3 million to $753,000 – a drop of 67.7%.
The effect upon those who are just now considering selling their houses in the Hamptons is simple. With investment property about to be dumped on the market due to the racist policy being implemented by the Town of Southampton, with the independent downward spiral occurring in the real estate business, and with the reduction in tax receipts from the lack of sales (also severely reducing the Community Preservation tax income) – we are about to witness a perfect storm of financial distress.
Those who must sell will not be able to sell. Those who are unable to sell will have property whose value is less than the underlying mortgage – as has already happened to roughly 10% of all homes in America.
And, as that happens, more and more houses will sit on the market, vacant and unused.
The “safety” policy, used to evict Latinos under the guise of a local anti-immigrant policy will destroy investors, seniors, second homeowners and all other local homeowners that need to extract themselves from financial ruin.
Entire neighborhoods will be for sale and there will be no buyers.
This is the new Hamptons Economics.
So, if you are considering buying in the Hamptons, wait. Prices will be much better in another year or two. And, by that time the prices in Manhattan will have started to drop.