Why are Long Island homes so expensive?

One house. Twenty sets of buyers. The lines outside open houses have been an in-your-face example of Long Island’s housing affordability challenges.

The imbalance between the number of houses available for sale and the demand for homes drove prices to record highs last year, and they’ve since cooled only slightly despite a doubling of interest rates.

There were fewer than 5,000 houses on the market across Long Island at the end of June. Over the past 35 years, there have been nearly four times that many available properties on average at that time of the year, according to OneKey MLS data. The lack of supply has pitted buyers against each other.

Delmy Flores, 31, knows firsthand how competitive homebuying can be on Long Island, particularly for first-timers like she and her husband, Jerry, 33. The couple has been searching for a home in Suffolk County for about a year and a half. After making more than 20 offers, they think they've found a house, in Shirley. 

The couple started looking in early 2022, when mortgage rates were around 3%, checking out 70 houses, sometimes five in a day. Delmy Flores, who grew up in Brentwood, said they focused their search in areas of Suffolk where homes and property taxes are more affordable, including Bellport, Mastic and Central Islip.

Those areas saw some of the highest rates of bidding wars in recent years.

The couple was looking for homes priced around $450,000 but found they needed to look well below that to have any chance at landing the deal. That's because around half of homes on Long Island sell for above their asking prices.  

“Everyone was overbidding,” Flores said. “It was kind of like buying an old shoe at full price. You knew that the houses weren’t worth the extra $50,000 or $75,000 and it went to the point where I was putting bids on houses that people were paying in cash. I’m sitting there like, ‘How can you just put $400,000 down in cash?’ ”

Across the Island, the COVID-19 pandemic ushered in a real estate boom that drove home prices to new records. The median home price on Long Island, excluding the East End, was $600,000 last year, or 66% higher than in 2013, according to a report from real estate brokerage Douglas Elliman and appraisal firm Miller Samuel. The rate of inflation for all items excluding shelter increased 19% during that time in the metropolitan area.

"I never thought I would see a property going over $1 million in Levittown," said Andy Yakubovsky, manager of Signature Premier Properties in Wantagh, who has worked in real estate since 1986. 

At least four homes there have sold for more than $1 million so far this year.

"When I started, you could pick up a handyman Cape for about $89,000," Yakubovsky said. "Now, $89,000 is a down payment."

Solving Long Island’s housing problem is likely to become a perennial challenge for the region’s elected leaders. Proponents of building more housing, including Gov. Kathy Hochul, say construction is needed to meet demand­ — not to mention to help local employers convince workers to live nearby.

"People want to be here. The employers want to be here, businesses want to come here, but where are the employees going to live?" Hochul said during a March speech promoting her ill-fated housing plan at the Patchogue Family YMCA. "We've created so many more jobs than ever before, but we've not kept pace with building the housing."

The governor's plan, which would have required municipalities to approve more housing or face a state override of local zoning rules, didn't make it into this year's state budget. In July, Hochul announced her own initiative that will give pro-housing communities priority in allocating $650 million in discretionary funding.

America's first suburb

Long Island’s housing affordability issues are not new, and local housing experts say the history of the Island’s development has played an important role in how it got to this point.

The creation of the Federal Housing Administration in 1934 by Congress and President Franklin Roosevelt helped make home loans accessible to a broader swath of people, by insuring mortgages to cover 80% of home prices, according to Richard Rothstein’s suburban history, "The Color of Law."

But it didn’t do so equally. The FHA rarely insured homes in low-income Black neighborhoods in the 1930s, denying potential homebuyers access to affordable loans.

From 1940 to 1960, the population of Long Island more than tripled, to nearly 2 million. In 1947, Levitt & Sons broke ground on Levittown, building more than 17,000 homes to meet the demand caused by the post-World War II baby boom. The scale of building on Long Island helped keep up with that demand, which was fueled in part by the GI Bill’s backing of veterans’ home loans.

The housing expansion and federal subsidies helped make single-family homeownership available to more people. The Cape Cod and ranch-style homes in Levittown initially rented for $60 a month, which translates to about $800 today. Houses sold there in 1949 for $7,990, or the equivalent of $102,000 today, with veterans allowed to buy without down payments. 

"The only reason people were able to buy those homes, in terms of the down payment that they put down as it correlated to their actual income, was because the government provided a huge subsidy," said Gwen O’Shea, CEO of the Community Development Corp. of Long Island.

These benefits also were applied unequally as the Levitt homes included restrictive covenants that said they could not "be used or occupied by any person other than members of the Caucasian race."

The U.S. Supreme Court ruled in May 1948 that such covenants could not be enforced, and the Fair Housing Act of 1968 prohibited racial discrimination in housing and home lending. But local housing experts say today's zoning policies in some Long Island communities, which prevent certain types of development, such as apartment buildings, can be traced back to those earlier restrictions.

The zoning restrictions, said Laura Harding, president of Syosset-based civil rights nonprofit ERASE Racism, make it harder for people to find places to live that they can afford.

"If you keep it exclusive, then you keep out the people you don’t want," Harding said. "But what you end up doing is keeping out your family and your seniors as well. You have instances where grandparents are living in these huge homes that they can’t get rid of because if they want to remain in their community, there’s nowhere for them to live that they can afford.”

Local control of zoning rules by towns and villages has been a defining feature in the development of Long Island, said Lawrence Levy, executive dean of suburban studies at Hofstra University. About 82% own their homes here compared with about 65% of households nationwide. 

"Local control by small villages is probably the best and worst thing going for Long Island, depending on your point of view," Levy said. "It makes these communities very attractive to some people and repulsive to others."

Those frustrated by local control include everyone from developers, who must spend years trying to get their projects approved, to people of color with lower incomes who feel zoning rules are designed to keep them out of certain communities, Levy said.

Affordable home construction lagging

Research on Long Island housing has shown the region has fallen behind its peer suburbs in building. New housing in Nassau and Suffolk counties was built at a slower pace from 2010 to 2018 than in the Los Angeles and San Francisco Bay-area suburbs, as well as all but one suburban county in Massachusetts, Connecticut, New Jersey, Pennsylvania, Maryland, or Northern Virginia, according to a 2020 report published by the NYU Furman Center.

The Hudson Valley region, including Westchester, Dutchess, Orange, Rockland, Sullivan and Ulster counties, issued about 36% more housing permits than Long Island from 2001 to 2018, despite being home to 500,000 fewer people, according to that report.

Levy noted that unlike the suburbs in, say Philadelphia or Washington, D.C., which can grow in several directions, Long Island has been limited because it's surrounded by water. Officials also must carefully consider the effect of development on its sole-source aquifer that provides its drinking water, he said. 

"You have a limited amount of land and you have a water supply that needs to be treated with TLC," he said. 

Building additional types of housing, such as townhomes and apartments, can give seniors the option to sell their single-family houses and move to homes that are easier to maintain as they age, said Mike Florio, CEO of the Long Island Builders Institute.

"We need everything," Florio said. "We need affordable housing, starter housing, senior housing, rental housing."

When home builders can find the land, the scale of projects to build single-family homes is much smaller than in the past, Florio said.

"There’s no Levittowns out there. There’s no development of 100 homes; maybe you get 20 homes," he said, noting much of that development has happened on the East End, while large-scale, single-family development projects are rare in Nassau.

Florio said he and his members would like to see town zoning rules in Suffolk adjusted to allow homes to be built on smaller lots if the builders agree to provide advanced septic systems.

"We can build more housing if you divide the land up and your price per lot is cheaper," said Florio, the former chief of staff for ex-Rep. Thomas Suozzi. "We can solve both our housing and affordability issues by building smaller, cheaper homes, and we solve the environmental issue because we’re putting the I/A [septic systems] in."

Down payment, interest rate help

While the housing market is challenging for first-time homebuyers, there are resources available to help people secure their first home. One option is to look to the State of New York Mortgage Agency, or SONYMA, loan programs to find a lower interest rate.

SONYMA’s Achieving the Dream and Low Interest Rate programs for first-time buyers offer rates that can be more competitive than private lenders and allow for down payments of as low as 3%. Down payment assistance also is available for these loans.

Aaron Tomlinson, 26, used a SONYMA loan last fall to reduce his interest rate for the purchase of a $200,000 co-op in Great Neck. Tomlinson was shopping for a loan at a time when mortgage rates were surging at the fastest pace since the early 1980s. They eclipsed 7% in late October after starting 2022 around 3%.

Tomlinson, who works as a paramedic, had saved money while living with his parents in Manhasset during the pandemic, and with little else to do in 2020, he was able to accumulate cash from working overtime.

He planned to search co-op communities on the North Shore, in areas such as Glen Cove, Oyster Bay, Roslyn and Great Neck, priced between $350,000 and $400,000. But after creating a budget, he realized he would have to set his sights lower. After three years working through the pandemic, he wanted to save for a vacation and had planned a trip to a destination wedding in Greece.

"I would have been making a lot of sacrifices in other areas of my life," Tomlinson said. "That’s where I wanted to settle down, and I capped myself at $280,000."

Tomlinson earns about $7,000 a month, supplementing his income working seasonally as a bay constable and as a paid paramedic for the Glenwood Fire Co. He said he spends $1,800 on his housing costs, including his mortgage, taxes and homeowner’s association fees. Through the SONYMA loan, he got a 6.25% mortgage rate. "In the time I was working out the contract, the rates had gone up," he said.

The average mortgage rate last fall, around the time Tomlinson was shopping, was 6.5% to 7%, according to Freddie Mac, so the SONYMA rate helped lower his monthly payment.

"I wanted a place that I would have to fix up a bit, something that was slightly dated, because I knew I was handy," Tomlinson said. "I wanted to treat it as an investment … I knew if I bought something dated that was probably priced a little lower, I could put some work into it myself over the next five to 10 years.

"My thought is that with the work I put into this place, what I eventually sell it for will be enough to make a down payment on a home."

Melville-based Community Development Corp. of Long Island offers homebuyer education to help Long Islanders prepare their finances for homeownership. That includes classes focused on budgeting, improving credit scores, applying for a mortgage and choosing a Realtor.

It also offers low-interest down payment assistance and closing cost loans to help first-time homebuyers avoid paying private mortgage insurance. To qualify, buyers must earn 120% or less of the area median income. That translates to $131,300 for a single person or $187,550 for a family of four on Long Island, according to 2023 federal guidelines.

Loans of up to $75,000 are available, and if that funding, combined with borrowers’ funds, represents a down payment of 20%, homebuyers can avoid hundreds of dollars a month in private mortgage insurance costs.

"It creates more disposable income on a monthly basis," O'Shea said. "That helps pay the utility bills, buy groceries, or save in case there needs to be a car repair." 

But the aid the nonprofit provides only goes so far to address housing needs, O'Shea said.

"We’re seeing a lot of really frustrated individuals" she said. " … They’re feeling really empowered and educated on how to engage with lenders, think about down payment assistance and work with an attorney to go to closing, and then they find there’s really nothing available. There’s just a lack of inventory."

Melissa and Dan Arena have been able to capitalize on grants to help pay for renovations to their Patchogue home, which they purchased a decade ago for $200,000. They knew when they bought the house, built in 1910, that they would need to devote time and money to make repairs.

The couple saved money by doing most projects themselves, except electrical work. That included overhauling the kitchen, as well as an upstairs bedroom and bathroom, fixing a sinking porch and renovating a detached shed in the back that Melissa, who runs her own graphic design business, uses as her studio.

Several grants helped the Arenas modernize their home. In 2013, the couple received $13,350 from Community Development Corp. of Long Island to make necessary repairs. The nonprofit administers funding from the New York State Affordable Housing Corp., which provides grants for home rehabilitation projects to owners who meet income and asset requirements. A lien on the home was removed after the family met the program's 10-year occupancy requirement, which was based on the size of the grant. The program currently has a two-year waitlist, according to CDCLI's website.

In addition, the family received a $15,550 grant from the Town of Brookhaven for home repairs in 2015, which came with a lien on the house that the family can pay back when it is sold. In February, National Grid installed a new gas heating system for the family at no cost through the HEAT program. The program provides energy-efficiency upgrades to households that meet the income requirements.

“We wouldn’t have been able to do it if we didn’t get those grants,” Melissa Arena said.

The couple earns less than $80,000 a year, with income fluctuating based on Melissa’s business. She said their $1,200 mortgage, including a low tax bill of about $4,000, has been a major help.

“To be able to live in an expensive area on a not-so-crazy income, you really need to take advantage of resources, and that's how we've been able to get by,” Melissa Arena said. “It's been 10 years, and we didn't need help from family or anyone giving us money. We just used the resources that we found through the county that are available to everyone else.”

'Something that's your own'

More than a year later, Delmy Flores is hopeful her family will be moving into a new home in Shirley later this year. It has a basement, a garage and a window that faces the backyard, so she can watch her kids play. But Flores couldn’t help but feel frustrated when she saw the house last sold about 30 years ago for $112,000.

As Flores works to finalize her loan, she estimates the monthly payment will be around $4,000 for the house, which was last listed at $499,000, based on the couple's 3.5% down payment. That's more than she and her husband wanted to spend, but within what they can afford. 

“I’m excited, relieved and nervous,” Flores said. “It’s just a mixture of emotions because you finally found something after searching for so long, and it’s kind of like you finally made it … I’m super excited because it’s a new chapter that we have to start. Of course a house is a lot of responsibility, but now it’s something that’s your own.”

Newsday wants to hear from Long Islanders about how they face the region's cost of living. Tell us your story here.

By Jonathan LaMantia

jonathan.lamantia@newsday.com@jonlamantia

Jonathan LaMantia covers residential real estate and other business news on Long Island. He previously covered the business of health care for Crain's New York Business.