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Building More Housing Does Not Necessarily Lead to Cheaper Housing Without Government Regulation

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I have long railed against simplistic ideas that the solution for housing costs in cities is to simply build more housing. First, the so-called “law of supply and demand” is more of a simplistic ideological construction of capitalism than a reality, yet it’s power in our society blinds people to the many factors that go into to determining economic markets. Housing is one example. Given that the cost differences between constructing urban housing for the poor and urban housing for the wealthy are not that great, all the profit margin for developers is at the high end. And while the supposed law of supply and demand says that if those high-end apartments remain empty that costs will come down, that’s not actually true, as we are seeing in New York.

There’s a hidden city in the five boroughs. Though its permanent population is zero, it is growing faster than any other neighborhood.

Early numbers from the Census Bureau’s Housing and Vacancy Survey show the unoccupied city has ballooned by 65,406 apartments since 2014, an astonishing 35% jump in size in the three years since the last survey.

Today, 247,977 units — equivalent to more than 11% of all rental apartments in New York City — sit either empty or scarcely occupied, even as many New Yorkers struggle to find an apartment they can afford.

The Vacant City — let’s call it that, with a tip of the hat to the 1948 movie and old TV series “Naked City” — has tripled in 30 years. A generation ago, there were just 72,051 apartments in the Vacant City. Back in 1987, when rents were cheap by today’s standards at a median $395 a month, the Vacant City made up less than 4% of rental apartments.

Today, the median rent is $1,450, having risen twice as fast as inflation, even while the Vacant City tripled in size.

The numbers just don’t add up the way conventional wisdom said they should.

For years, development officials, the real estate industry and think tanks have told us that artificially low rents are holding the city back. Higher rents, the argument went, would free landlords to make a reasonable amount of money and serve as an incentive to increase the housing supply.

Nope!

The article goes on to state that AirBNB may be one reason for this, and in cities like New York and Seattle, where you really do have a shortage of hotels, I don’t doubt it is. But also, it just makes no financial sense for the developers to move their high-end places for less money, not when they figure New York will continue going through financial boom cycles. What is actually required is government action to more tightly regulate what sorts of housing is built and who is it is for. The government has to ensure that there is affordable housing for people in cities. And yes, that should include public housing projects, which were always a good idea in theory. It was in execution, i.e., blindly assuming that they would pay for themselves and thus having no backup funding plan when they became housing for the truly poor, that they failed. It doesn’t have to be that way and we should be proposing a vigorous public housing program in our cities. Right now, you have a major homelessness crisis in New York and many other cities around the nation and there are hardly any real answers on what to do about it. Going back to the article:

We’ve largely conquered dilapidation and abandonment. Statistically, there are no more slums in New York City. But we’ve achieved this through a supply-side fantasy that created an unaffordable and increasingly vacant city.

More than 63,000 New Yorkers are living in homeless shelters (almost three times more than in 1987), and 30% of city households are shelling out more than half their income in rent. What they and all New Yorkers need is not simply the construction of more housing, but better means to keep rents within reach.

Yes.

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