The Lockwood Files: Not New York's First Housing Bubble

This is the first in a series of posts by Charles Lockwood, author of the brownstone bible Bricks and Brownstone and the “consummate authority” on New York City brownstone, according to The New Yorker. Tune in on Brownstoner every few weeks for a new installment. In the meantime, you can pick up a copy of his must-have book here.

Talk of a real estate bubble is so pervasive among New Yorkers—including Brooklyn brownstone owners—that you’d think this generation had invented soaring housing values…and was the first to face the risk of price reversals because of Wall Street gyrations or a national recession. Not true. Look back to nineteenth-century where high housing prices and whiplash-like boom-bust cycles were a regular occurrence in Brooklyn, Manhattan, and other cities. The litany of today’s housing woes—including the risks of real estate bubbles—sound remarkably like the problems of nineteenth-century New York.

Housing Shortage. As the city boomed after the 1825 completion of the Erie Canal, housing was so scarce—and construction workers were often so far behind schedule—that families sometimes moved into unfinished buildings. Well-dressed families are observed to be occupying houses of which the builders do not appear to have accomplished the work so far as to have fully closed them in by doors and windows, declared the Niles Weekly Register in 1825.

At least, those families had a roof over their heads. Some early nineteenth-century New Yorkers, who could not find temporary housing when their leases expired, sought short-term refuge in the city jails.

The transformation of Brooklyn from farms, forest, and a few villages into a rapidly growing city started in the 1820s when this shortage of housing in Manhattan—and the existence of regularly scheduled East River ferry service from the foot of Fulton Street in Manhattan to the foot of Fulton Street in Brooklyn—encouraged New Yorkers to buy lots and build homes on Clover Hill, a bluff overlooking the East River which became known as Brooklyn Heights.

High Prices. Year after year from the 1840s onward, New York newspapers complained that Manhattan was becoming a city of only the rich and the poor. The nineteenth-century brownstones in Brooklyn and Williamsburg, which are so coveted today, were originally built for middle class families who were priced out of Manhattan, and who often viewed Manhattan as overcrowded, dangerous, and full of undesirable immigrants.

New York landlords were just as unpopular in the nineteenth century as they are today. The landlords are ‘masters of the position’, and are careful to let their tenants know as much, complained the New York Herald in 1857. They took advantage of every opportunity to boost rents, particularly during the Civil War when many construction workers were fighting in the Army, not building needed housing.
Middle-class houses that had rented for $900 to $1,000 a year in 1860 fetched $1,200 to $1,500 a year by 1865, and the tenants, reported the New York Times on February 18, 1865, have to go a begging to get them for that. Those Civil War-era high prices drove more Manhattanites to more reasonably priced Brooklyn, where block after block of brownstones were built in the post-Civil War boom, particularly in Cobble Hill, Carroll Gardens, Boerum Hill, Fort Greene, Clinton Hill, the lower streets of Park Slope and Prospect Heights, and the innermost section of today’s Bedford Stuvyesant.

Real Estate Speculation. Today’s speculators, who buy brownstones and condominiums in expectation of even higher prices, are minor league players compared to their nineteenth-century New York brethren.

In the 1790s and afterwards, John Jacob Astor—New York’s first millionaire and founder of the Astor family fortune—was buying farmland several miles north of the city’s built-up area. In 1803, for example, he purchased a 70-acre farm between Broadway and the Hudson River in today’s West Forties—i.e., a large portion of today’s Times Square district.

Some speculators made their fortunes by selling off land to the gullible public, who hoped to make their own profits off risky purchases. During the 1850s boom—when built-up Brooklyn consisted of close-to-Manhattan neighborhoods like Brooklyn Heights, Cobble Hills, and the Fulton Street retail district, speculators were selling building lots in distant neighborhoods which lacked gas lighting, piped water, sewers, and paved streets, not to mention easy access to jobs in downtown Brooklyn or lower Manhattan.

Housing Busts. Every 20 years or so—in 1837, 1857, 1873, and 1893—a New York residential boom ended in a bust, and housing prices collapsed. Real estate speculation has become one of the bubbles of the day, wrote ex-New York Mayor Philip Hone in his diary during the mid-1830s boom. House lots, which had sold for $100 to $150 ten years earlier, rose to upwards of $2,000 by 1836 and 1837, according to British novelist Frederick Marryat, who visited New York as the [real estate] epidemic raged. In Brooklyn, where development did not extend much beyond today’s downtown and Brooklyn Heights, lots were marked out to an extent of fourteen miles, wrote Marryat, and these were eagerly speculated in.

In early 1837, several banks failed, the national economy fell into a depresson, New York real estate prices started declining, and construction dropped precipitously. The evil day has arrived which has been so truly predicted, lamented Philip Hone.
Lots in the West 100s (more than four miles from the outer edge of the city) which had cost $480 apiece in September 1836 were selling for $50 in April 1837. Lots in then-remote sections of Brooklyn like Fort Green or Boerum Hill experienced similar collapses in value. The immense fortunes which we heard so much about in the days of speculation, have melted away like the snow before an April sun, wrote Hone.

In 1873, a crisis on Wall Street triggered the Panic of 1873, a national depression which lasted until 1877, and caused declines in real estate values throughout Brooklyn, Manhattan, and the United States.

A glimpse of the Brooklyn Eagle real estate advertisements during the Panic of 1873 reveals the distress among homeowners, who were forced to sell their homes, and builders who had started construction projects before the crash, but had to sell during the slump.

The bottom ad reads…FOR SALE—HOUSE—AT A SACRIFICE for cash—The two-story and basement, high stoop brick house, 52 Second St., between Smith and Hoyt streets. Only those meaning business need apply. To such, a bargain will be offered.

One hard-pressed owner admitted in a March 27, 1876 advertisement that he needed a quick sale. FOR SALE—HAMILTON STREET—Splendid three-story, basement and cellar brick house; all modern improvements . . . must be sold at once. I want an offer. Great bargain.

The Conselyra & Co. real estate brokers at 679 DeKalb Avenue, near Nostrand Avenue, quite simply, offered a variety of properties at prices to suit the times, according to its March 27, 1876 advertisement.

Even owners of large brownstones in Brooklyn Heights and mansions on Clinton and Washington Avenues felt the pinch of the several-year-long depression. One March 27, 1876 Eagle advertisement offered the very grand 142 Montague Street—a first class four-story and basement brown stone, 25.6 x 56 x 100, frescoed throughout, and in perfect order—at a bargain and on easy terms, if applied for soon. Possession at once.

Today’s Wall Street volatility and the risk of spreading economic troubles must be giving Brooklyn and Manhattan brownstone owners some worries about their property values. Brooklyn brownstones—like Manhattan brownstones, coops, and condos—are some of the few markets in the U.S. not to experience a decline in values this year.

Today’s homeowners should also reflect upon the lessons of past real estate booms and busts. In nineteenth-century Brooklyn and Manhattan, residential mortgages acted as a brake (not accelerator) on real estate speculation, because they required substantial down payments. No zero down mortgages encouraged homebuyers or speculators to buy in ever-escalating nineteenth-century markets.

Significantly, most New York’s housing busts were caused by recessions (or panics) in the national economy in years like 1837, 1857, 1873, and 1893. Today, the reverse could prove true. A continued downturn in today’s U.S. housing markets (including still-resilient Brooklyn and Manhattan) could trigger a nationwide recession.

But there’s a silver lining to the real estate bubbles of the nineteenth century that can also be found today: The periodic bursting of earlier New York’s bubbles ruined many speculators, but they also pushed down residential prices and made housing more affordable for a time. The same thing could happen today.