Hypocritical New Yorkers Whine about High Housing Prices while Supporting High-Price Policies

The New York Post today has a story on what it describes as “new hipsters fight[ing] old hipsters in Brooklyn.” The gist of it is that a wave of relatively wealthy gentrifiers moved into the neighborhood of Bushwick a decade ago and now a second wave of even wealthier residents is flocking to the hip neighborhood, driving up housing prices.

The first wave is not happy with the rising rents associated with the second wave, and is demanding “affordable housing” concessions from developers who dare build middle-upper income rental units. This response is sadly typical. Rising real estate prices are a natural consequence of urban redevelopment. But the real estate market in New York City is anything but natural and a large share of the sky-high housing prices can be attributed to land-use controls such as zoning and rent stabilization laws. Unfortunately, those who advocate for “affordable housing” (note: this is not housing affordability) often make the problem worse by supporting policies that actually further reduce the stock of available housing — artificial supply restrictions that drive up prices.

Neighboring Manhattan has been a favorite research subject for economists seeking to understand the impact of land-use regulations on the real estate market. Economists Edward Glaeser, Joseph Gyourko, and Raven Saks authored an influential study that appeared in the October 2005 issue of the Journal of Law and Economics. They concluded that upwards of 50 percent of the price of a Manhattan condominium could be thought of as a hidden land-use regulatory tax due to policies that restrict the construction of new housing units.

Rent control compounds this affordability problem by placing price ceilings on housing units, which further deters new development and reduces the quality of the controlled housing stock. But the problem doesn’t end there. Rent control also creates housing misallocations among denizens — residents who find themselves in apartments that are either smaller or larger, or of higher or lower quality, than they would prefer in a free market. In a 2003 article for the American Economic Review, Glaeser and Erzo Luttmer estimated that approximately 20 percent of Manhattan apartments are misallocated due to rent control.

Now, of course there are other reasons for New York’s high housing prices. After all, New York is very geographically constrained and already quite dense, meaning adding additional housing units typically means building up rather than building out, which is inherently more costly. High property taxes, NIMBY activism, and other regulatory interventions such as minimum parking requirements and “affordable housing” mandates also play a role. But the main problems are related to ostensibly pro-resident land-use and rent control policies.

The upshot is that much of the housing affordability problem in New York City can be attributed to the wrongheaded policies supported by many New Yorkers and their elected officials. With the recent election of a left-wing mayor — supported in large margins by both waves of Bushwick’s hipster gentrifiers — who strongly favors economically illiterate housing policies, New York’s housing affordability problem will almost certainly get worse. And New Yorkers themselves deserve most of the blame.