Vol. 5 No. 3, March 2008
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Coming Home
The American Dream is defined by home ownership, but most Atlantic City workers can’t afford to buy here (yet). Will the next casino boom be followed by a housing boom?
In a July 2007 listing of the nation’s most affordable housing markets, Wells Fargo Bank and the National Association of Home Builders ranked Atlantic City in the lackluster 32 percentile—meaning only 32 percent of those who work here can also afford to live here.
In that study, published by CNN and based on reports from the first quarter of last year, the median price for an Atlantic City home was $260,000; the median income for families in the vicinity was $64,000. (Other studies put the median income at about $50,000.)
“Median income” does not denote average income, but the precise mid-point in the range—from comfortably high to just-getting-by, and everything in between. So in 2008, 30 years after the influx of casinos was supposed to bring plentiful affordable housing to Atlantic City, the data would seem to suggest that most people who work here are still priced out of the market.
Frank Formica disagrees.
“There’s a ton of people who work here with houses in other areas—young people, new blood—who could easily afford a home. That 32 percent statistic is freaking ridiculous. People want to come here, but there’s no product.”
Formica is working to change that. The baker-turned-developer is the driving force behind AC Estates, with two- and three-bedroom condominiums starting at $249,900.
“If you check with any realtor, $249,900 at 5.5 percent on a mortgage is certainly well-attainable for a couple working as dealers, assistant chefs or cooks. My bakery workers could afford it,” says Formica. The Ducktown homes are within walking distance of the casinos, the Walk, the beach and the Boardwalk. “And they’re in walking distance of my bakery café,” Formica jokes.
President since 1993 of the Ducktown Revitalization Association, Formica believes Atlantic City is becoming a viable, desirable locale for residential neighborhoods.
“Between 1990 and 2002, most casino workers wanted to live in Egg Harbor Township, Galloway or the suburbs of Ventnor and Margate,” he says. “Then an amazing thing started to happen. By 2004, there was actually a center of town, with shopping and non-casino development. There was the Convention Center, and Boardwalk Hall. There was the feeling that Atlantic City would have a revitalization, like Philadelphia, New York, Harlem. It wasn’t a bad place to live anymore. People wanted to give it a chance.”
But the development boom that’s transformed other parts of Atlantic County has been slow to reach Atlantic City. Rows of squalid single and row homes sit empty in the shadow of the Revel construction. New and flourishing neighborhoods on the island’s north end flank blocks of dilapidated homes on prime land. And the ongoing housing slump, which signals opportunity to some, is a flashing red light to others.
“Residential building permits were down in 2007 by 25 percent to 30 percent over 2006,” says Joe Seneca of the Edward J. Bloustein School of Planning and Public Policy at Rutgers. “New permits were down too.”
Contract sales—sales of new and existing homes—were also down by one-fourth last year. The stalled market is unlikely to loosen up in the first half of this year, Seneca says.
“New Jersey has all the same symptoms of the nation in terms of its housing market, and it’s going to be quite some time before housing again contributes to economic growth here.”
Even rentals are scarce. Along Atlantic Avenue, the city’s main street, space above commercial properties that could be used for housing is often turned into storage because renovation or redevelopment is too expensive.
“A lot of times when you add up the rent value versus construction costs, the credit and debit columns don’t add up,” says Ralph Triboletti, economic development director for the city’s Special Improvement District.
The Division of Community Affairs provides some underwriting for property owners who want to invest in reasonably priced housing. Incentives include up to $35,000 per unit to construct low- to moderate-income housing, $20,000 to $25,000 for moderate-income to market-rate housing, and about $15,000 for market rate and above.
That’s not much of an incentive. With renovations costing about $175 per square foot, and the average two-bedroom, 1,000-square-foot apartment renting for $900 to $1,100, owners who rehab don’t see a return.
“There is a lot of interest in living and working in Atlantic City,” says Triboletti. “But when you get to quality housing here, the word ‘affordable’ is usually not attached… Three hundred units downtown would put an extra 600, 700 people here every day, but it’s like the chicken and the egg. Without the people, it’s tough to have the marketplace. Without the marketplace, it’s tough to have the people.”
Atlantic City has a year-round population of approximately 40,000 people living in fewer than 16,000 households. Some estimates suggest that the same number of people could come to South Jersey to work when the current wave of casino construction and expansion is complete, starting in 2012. Will they, like so many others, opt to live out of the city?
“The type of downtown residential development that’s made sense in other places in New Jersey should have the same economic advantages for Atlantic City,” says Seneca. Given the wobbly housing market and the city’s less-than-stellar political and fiscal history, builders may be wary of investing here.
“You have a lot of dollars going into the economic development of Atlantic City. There’s more in the works; the collective judgment behind all that is there is a probable great opportunity,” says Seneca. “But where there is an upside potential for profit, there’s also a significant downside risk for loss.”
So where are the casino workers going when their shifts are over? According to Richard Perniciaro, director of the Center of Regional and Business Research at Atlantic Cape Community College, those in search of a bargain are going to the Bridgeton-Vineland-Millville “triangle,” to Pleasantville, Galloway or even farther afield. As they move up and earn more money, they’re choosing Egg Harbor Township, Buena, Egg Harbor City and Mays Landing.
Throughout the regional housing boom, “Atlantic City and Asbury Park are two (cities) whose housing markets remained depressed,” says Perniciaro. “Atlantic City is the last place on the shore to go through a housing renaissance.”
The city’s imminent revaluation and the increase in property taxes won’t make life any easier. “With salaries hovering around $30,000, people have been able to make ends meet because they have two wage-earners in the family. Now we are at the margin of doing that. It’s more and more difficult.”
Perniciaro isn’t sure the new casinos will bring tens of thousands of new employees (and potential homeowners) to the city.
“There are less casino employees today than 15 years ago—it’s at the lowest point since before the Taj Mahal opened. To control labor costs, the casinos have consolidated and merged (some jobs). They’ve gotten rid of coin collectors, for example. When Borgata opened, they brought no new workers in. They took people from other houses, and the other houses tightened their belts.”
No matter how many new employees come to Atlantic City in the years to come, the dream of home ownership will remain. Those who work here today may well decide to live here when enough reasonably priced homes in good neighborhoods become available.
“You have a good number of dealers and slot hosts who want to stay close to the casinos and walk to work,” says Todd Gordon, of Prudential Fox & Roach Realtors. “And we do have three-bedroom row homes and single homes for people who can spend between $150,000 and $200,000. That’s a mortgage of $1,200 or $1,500 a month.”
If things evolve as Frank Formica predicts, the neighborhoods of Atlantic City could develop like those in Hoboken and Harlem, Philadelphia’s Manayunk section, or Fishtown along the Delaware River, which became so gentrified, new residents and old now jokingly refer to it as “Haddock Heights.’”
With the revival of Ducktown in Atlantic City, maybe the neighborhood will change to Mallard Manor.
Buy Now, Appreciate Later
The sub-prime lending debacle has created a glut in the housing market with some prices down, construction on hold and For Sale signs gathering cobwebs.
Is this the time to shop for that dream home, or should you wait to see if market continues to deflate? Without a crystal ball, every decision includes an element of chance.
“If you have good credit, don’t have an existing house to sell and are able to meet tightening credit standards, you may find the current period, with falling prices and lots of choices, a pretty good time to think about buying,” says analyst Joe Seneca of Rutgers University.
“The question then is, ‘When will prices hit bottom?’ Now may be a good time to buy, but three months down the line may be even better. That’s the psychology of the market.”
A note of caution: because this is the Jersey Shore, plenty of homes are holding their value or even rising in price, because second homeowners are seldom in a rush to bargain. You’ll find the best prospect for a good deal with a motivated seller.
“However, if you have to sell a house to buy the next one, as most people do, you’re caught in the middle,” says Seneca. “Selling and buying simultaneously in a weak market is problematic.”
Dueling Analysts
It’s a real head-scratcher.
Despite daily reports of a nationwide housing slump—with stagnant inventory, plummeting prices and uneasy investors—last month it was announced that home prices are up—way up—in and around Atlantic County.
In February, the National Association of Realtors released fourth quarter 2007 housing data showing that housing prices nationwide fell 5.8 percent over the same quarter in 2006. The data also showed that the median price of a home in Atlantic County went up almost twice that amount—by 10.7 percent—in the same time period. (The median means that half the homes in the area are going for more and half for less.)
But those figures may be woefully deceptive. Here’s a (real-life) case in point: In 2003, a home in one of Northfield’s nicest neighborhoods sold for $520,000. The new homeowners sank well over $70,000 into improvements like a finished basement with state-of-the-art media center, an all-new new kitchen and new fencing. Two years later the same house, with all its magnificent upgrades, went on the market at $700,000—and sold for $570,000.
Though the value of their house seemed to jump by $50,000 in two years, the homeowners took a loss of more than $30,000. And they certainly didn’t realize the appreciation they were banking on.
That unfortunate couple got in on the tail end of the housing boom, when flipping houses seemed like the one get-rich-quick scheme that could not fail, and would never go away.
Michael Kinsley predicted today’s slump—some would call it an inevitable correction—way back in February 2005, just before the bubble burst, when “experts” were still forecasting steady growth in perpetuity.
In the Washington Post, Kinsley wrote, “Whatever ‘experts’ say, it is not the nature of price explosions to segue gracefully into more moderate growth. When today's run-ups are based on beliefs about tomorrow's run-ups, the self-feeding frenzy goes into reverse when those assumptions are dashed.”
So, before accepting as gospel the NAR data, which suggests Atlantic County homes are gaining in value while prices around the country continue a downward spiral, look at other analyses. A report from the Otteau Valuation Group of New Brunswick indicates home prices were flat in the last three months of 2007. The Standard & Poors Case Shiller Home Price Index says home prices in Atlantic County were actually down by 6.5 percent in the third quarter of 2007.
Who’s right? Who’s wrong? As real estate expert James Bednar observed in an interview with the Star-Ledger, “How does that old saying go? A man with two clocks never knows what time it is.”
