Felix Salmon has been bending over backwards listening to and reporting on Andrew Schiff’s claim that he’s suffering making ends meet on $350,000 a year and only wants to give his kids a “middle class lifestyle” in New York City.
For those who missed the salient points of Schiff’s Howard Beale moment, he’s unhappy because he is making less money than last year and is feeling pinched financially. He is paying for a child in private school ($32,000 a year), a summer rental, saves, and complains that he can’t afford to trade up from his 1200 square foot duplex in Cobble Hill and worries he will feel even more strained when his 7 year old starts to attend private school.
Schiff’s argument to Felix as to why his critics have it all wrong is that the cost of what would have been a “middle class lifestyle” in 1987 has risen much faster than incomes. Felix tried running down some indicators and didn’t reach any firm conclusions, save pointing out that the competition among the rich (which means the proliferating hedgies and private equity barons) has driven up “positional goods” in New York like real estate much faster than wages. (Note to Felix: if you really are going to try to do this more rigorously, you need to factor in the changes in tax rates too).
I’m not about to reach any hard and fast answers either, but that’s in large measure because Schiff’s “middle class” claim is bollocks. I’ve lived in Manhattan since 1981, save two years in Sydney (2002 to 2004). On the one hand, it is absolutely undeniable that the cost of real estate, both rentals and purchases, has gone up so much that it has driven a ton of people into less desirable neighborhoods. You used to have a lot of artists and writers living in Manhattan, along with teachers, small firm lawyers, ad agency professionals, and so on. The more favorably priced areas, such as Manhattan on the West Side just below Columbia, Chelsea, Little India, Harlem, the West 50s, keep gentrifying, and true middle class people either live in smaller space or face longer commutes. I dated artists when I first came to Manhattan, when they lived in artist in residence or illegal loft space in Soho. If you saw one other person on a block there on a Sunday morning, that was a lot. The city has become a lot tidier looking and much less diverse.
On the other hand, what Salmon and Schiff miss is that someone “middle class” in the 1980s would have been very unlikely to raise kids in the five boroughs (Schiff and Salmon really mean upper middle class). The city was not considered safe for children. When I first came to Manhattan, pretty much everyone I knew who did not live in a doorman building had had an apartment break-in. I had my wallet stolen on two occasions in 1987. The subways were gross and no woman would dare ride them wearing real or real-looking jewelry (gold chain snatchings were a regular occurrence). I was a member of the 1% then (although not in terms of Manhattan incomes, trust me, there was a huge amount of headroom between me and them) and I lived in a 1100 square foot apartment on 69th Street between Park and Madison, which is a nice block (yes this was a glam apartment, a wreck I had renovated, long shaggy story as to why I no longer have it). I’d be the first out of the building in the morning. The townhouse kept the inner door locked and the outer door unlocked. I’d always have to step over a homeless man sleeping between the two doors.
So in the 1980s and even into the early 1990s, only the comfortably affluent (those who lived in large apartments in doorman buildings or could afford an entire townhouse, which in those days were cheaper than the bigger apartments in good addresses) expected to stay in the city if they had kids. Everyone else moved to the ‘burbs either as soon as the arrival of a child made their living arrangements unduly cramped or no later than when the young ‘un was going to go to elementary school. And that family would have gone to a nice suburb, ideally one where the children could have gone to public school till at least 6th or 8th grade, and gotten a home with a decent sized yard and would not have spent on a summer rental, but on a nice summer vacation and maybe a winter or spring break getaway.
So Felix’s trying to price out what it would have cost in the late 1980s for a Schiff equivalent to live in the better parts of Brooklyn or the nice but less than prime parts of Manhattan is the wrong comparable. It isn’t what people like Schiff did back then. It didn’t become common to raise kids in the city until into the 1990s. I’ve seen it in my own building (I’ve been here 20 years) and with couples in my peer group (the ones that stayed in the city had two high earners, often one member of the pair in private equity or M&A, the other a partner in a law firm, or else a male super high earner, and they’d have only one or two kids). There was all of one child in the building when I arrived and she was the only one until the early 2000s. Now we seem to have between 6 and 8 (there is also more turnover in the building than there once was).
So the pressure on real estate prices wasn’t simply due to rising Wall Street incomes, although that has been the biggest driver. It has also come from more couples in all professions being more likely to stay in the city once they have kids. You can see it in what has happened to townhouses. Many that had been divided into apartments have been reassembled into single family homes. Similarly, my building, like many other in the city, has been putting one bedrooms together and making them into larger apartments. And on top of that, both with the city being safer and the dollar falling over time, more foreigners have been buying apartments too.
The other part is what it takes to be “middle class” has changed. As Elizabeth Warren pointed out in the Two Income Trap, good quality public education has become more scarce, leading to escalating real estate prices in districts seen as having good schools (note that yours truly only went intermittently to schools that would have been considered pretty good, since I lived mainly in hick towns, but even so did well academically in college. I doubt someone who now went to the schools I had attended would have a shot at going to an Ivy unless they had an obvious sign of achievement, like winning a major math competition). But on top of that, people eat out more (partly due to more working spouses, but it is also a broader cultural shift), spend more on household help, entertainment, even Starbucks. There are a lot of routine spending items now that weren’t routine back then.
So the people who take Schiff on are correct. He has assumed he would have upward mobility in a society where that is no longer generally the case, even for those in finance. And his adjustment to new normal is a lot less painful than that being experienced by most people in their 40s. So instead of grousing, he ought to consider himself lucky.