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New York City has become a relatively more expensive place to live during the current economic expansion, primarily due to changes in housing costs, according to Economic Notes, a quarterly publication released today by Comptroller William C. Thompson, Jr.

New York City’s Consumer Price Index (CPI), which measures the change in prices over time, has risen faster than the nation’s for several years, with housing being the greatest factor in the increase.

“When housing is removed from the equation, the City’s trends in prices tend to look like the rest of the nation,” Thompson said. “The City’s economic prosperity and growth have led more people to move to the City in search of opportunities and an improved quality of life. This has led to a booming housing market that has become the driving force of the City’s inflation.”

The report shows that renters of unregulated apartments who pay market values for housing have been most affected by the rapid growth in housing costs – a 68 percent increase compared with 53 percent for those in rent-stabilized buildings – in the past 15 years.

New Yorkers who have owned their homes since 1990 have fared much better, providing their mortgages have been refinanced at least once. Their “user costs,” which are the monthly costs to maintain a home such as mortgages, taxes, utilities and water, have declined by 7 percent, largely because of lower interest rates.

The report shows that the user costs of a newly purchased home have increased by 45 percent between 2000 and 2005. This index is based on the median sales price of a single-family home with monthly mortgage costs estimated using the average annual 30-year mortgage rate.

The report uses examples to show how cost of living trends differed based on housing circumstances. For example, a family with a $25,000 annual income in 1990 living in a rent-stabilized apartment costing 30 percent of its gross income would have experienced a 48 percent increase in its cost of living through 2005. That cost of living change reflects a 53 percent change in housing costs and a 47 percent change in all other expenditures. In contrast, a family earning $75,000 in 1990 who purchased a median-priced home that year would have experienced a 30 percent increase in the cost of living. That increase reflects a 7 percent decrease in housing costs and the same 47 percent change in all other items.

“Moderate- and middle-income families have been hardest hit by the rise in inflation due housing costs,” Thompson said. “Since 2000, the growth in the cost of a new home purchase has made it difficult for families to make the transition from renters to buyers.”

Thompson’s report also shows that New York City began the first quarter of 2006 with a robust economy, the highest increase in payroll jobs since 2001, and the lowest rate of unemployment in over five years.

The number of New Yorkers holding jobs reached its highest level ever during the first quarter of 2006, as did the City’s labor force participation rate. “The City has experienced record-breaking job growth,” Thompson said. “The City’s economy bounced back from a period of slow economic growth late last year to record numbers of residents entering the labor force and holding jobs this quarter.”

According to the publication, New York City’s Gross City Product – an inflation-adjusted measure of the overall City economy – shows the City’s economy grew by 4.3 percent this quarter. In addition, the City’s unemployment rate fell to 5.7 percent and payroll jobs grew at a seasonally adjusted annualized rate of 2.7 percent.

Economic Notes also includes the following New York City data:

• Real Gross City Product (GCP), a measure of the overall City economy, grew 4.3 percent in 1Q06, below the 5.3 percent U.S. rate (preliminary estimate). Of five key economic indicators, four improved in the City and all improved in the nation.

• New York City payroll jobs grew at a seasonally adjusted annualized rate of 2.6 percent or by 23,900 jobs in 1Q06, the biggest gain in over five years. The City’s pace of job growth was more than the nation’s payroll employment growth of 1.8 percent. In New York City, the private sector added 23,900 jobs while the number of government jobs was unchanged. As of 1Q06, the City has regained half (118,700) of the 235,100 jobs it lost between 4Q00 and 3Q03.

• Personal income taxes withheld from paychecks were 4.4 percent greater in 1Q06 than in 1Q05. Estimated tax payments on interest income, rental income, and capital gains rose 45.6 percent. The rise in estimated tax payments is likely due to capital gains realized from increasing housing prices.

• New York City’s unemployment rate fell to 5.7 percent in 1Q06, the lowest in five years. The nation’s unemployment rate fell to 4.7 percent, also the lowest in nearly five years. The City’s labor force, employed residents, labor-force-participation rate, and employment-population ratio were all at a record high in the first quarter.

• The average Manhattan commercial vacancy rate fell to 8.4 percent in 1Q06, from 10.4 percent in 1Q05. The average commercial asking rent in Manhattan rose to $43.20 per square foot in 1Q06 from $40.28 in 1Q05.

• Leading economic indexes indicate a continued, but cautious, expansion. On a year-over-year basis, the NYC business-conditions index increased 13.6 percent and the number of building permits authorized rose 8 percent in 1Q06. On a quarter-over-quarter basis, online ad volume rose one percent according to the Monster Local Employment Index and rose 24.3 percent according to the Conference Board.

Summary Table. Five Key Economic Indicators, NYC and U.S., 1Q06 vs. 4Q05
1. GCP/GDP Growth, SAAR 2. Payroll-Jobs Growth, SAAR 3. PIT Withheld, Growth, NSA 4. Inflation Rate, NSA 5. Unemployment Rate, SA
1Q06
vs. 4Q05 NYC 4.3% Better 2.7% Better 4.4% Worse 3.4% Better 5.4% Better
U.S. 5.3% Better 1.8% Better 8.0% Better 3.6% Better 4.7% Better
NSA means Not Seasonally Adjusted. SA means Seasonally Adjusted. SAAR means SA Annualized Rate. PIT means Personal Income Tax. Comparisons for “Better” or “Worse” are with the prior quarter.

A copy of the report can be found at the Comptroller’s web site: www.comptroller.nyc.gov

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