On The Value Of Manhattan Real Estate

The legend is that Manhattan Island was purchased from the Indians in 1626 for $24 worth of trinkets.  The current issue of the New York State Bar Association Journal contains a fascinating article by Paul Otto (unfortunately no link available) giving some detailed history of the transaction.  Was it the best real estate deal of all time?  The story illustrates that different people, for very good reasons, may value the same thing very differently.

Otto points out that the historical letters that are the basis for our knowledge of the purchase mention the value placed by the Dutch on the traded items -- 60 guilders -- but do not mention what the items were.  Thus there is a 1626 letter from one Pieter Schagen, representative of the States General in the West India Company, reporting on the arrival in Amsterdam of a ship from the colony, and stating that the Dutch "have purchased the Island Manhattes from the Indians for the value of 60 guilders"; and a further 1630 letter from West India Company director Johannes de Laet, informing the other directors that there was an island called "Manhattes or Manhatans Island, because this nation of Indians happened to possess the same, and by them it had been sold to the Company."

But even though there is no specific historical reference to the goods traded for Manhattan, Otto points out that there were other, similar transactions at the time, for example one involving what is now Hoboken, New Jersey, and another for Staten Island.  In the case of Staten Island, one document describes the trade goods in question as follows: "Duffles, Kittles, Axes, Hoes, Wampum, Drilling Awls, Jews harps, and diverse other small wares."  Do those seem like "trinkets" to you?  Actually, it is easy to see why the Indians might place tremendous value on these things.  "Duffles" were coarse cloth, which could be used for clothing or blankets; previously the Indians had used deer skins for these purposes.  If you can imagine what it might be like to get through New York winters with nothing but deerskin to cover you, you can see how valuable simple coarse cloth might be.  And then there are axes and hoes.  Before the Europeans came, the Indians had only stone tools.  That means that they had had to build their famous "longhouses" by the backbreaking effort of chopping down trees with only stone axes.  If you have nothing else to do for, say, two weeks, try chopping down a single tree with a stone axe; and you will then understand why the Indians must have viewed metal axes as a godsend.

In fact Otto reports that the European trade goods substantially transformed Indian life, as they stopped trying to be self-sufficient in a hopelessly inefficient stone age economy, and instead devoted their efforts to producing trade goods (largely fur pelts).

Demand for duffels also indicates the Indians' growing dependency upon European goods.  As the Munsees increased the time they spent harvesting furs or producing wampum, they would have less time to produce basic necessities such as clothing, forcing them to acquire these items from the Dutch.

March forward about four centuries to the present, and the value of Manhattan real estate is about as illiquid as ever.  The New York YIMBY ("Yes In My Back Yard") website reports yesterday on the sale of a development site on the North side of Delancey Street for $7.5 million.  The site has a development potential of about 20,000 square feet, so the transaction values the building rights as about $375 per square foot -- and that's with some burden imposed by the so-called "inclusionary zoning" that requires a portion of any apartments built to be "affordable."

But meanwhile, across on the South side of Delancey Street -- where sits the SPURA urban renewal site that has so frequently been a subject of this blog -- the City sold the rights to build 1.9 million square feet for only $180 million.  That's less than $100 per square foot.  But we're getting 500 "affordable" apartments!  Yes, but the difference between $100 psf and $375 psf for 1.9 million square feet is over $500 million -- in other words, over $1 million per "affordable" apartment.  By the way, income limits for the so-called "affordable" apartments are to reach well upwards of $100,000 per year for many of the apartments.

I can understand why the Indians placed such big value on duffles and metal tools.  Why we give up $500 million for a handful of "affordable" apartments when the same people can be housed for a small fraction of the money in a cheaper place -- that I can't understand.