Why national average rent and housing prices go down, while apartments for rent in Manhattan hit new record high?

Consider your rent to be too dang high? Taking a glance at the most recent statistics from Manhattan may make you feel better in contrast.

The average rent for a one-bedroom apartment in Manhattan increased to $5,113 in July, according to CBS News. This is an incredible $1,000 increase from the previous year and a new record high. These rent prices are exorbitant and unaffordable for everyone but the wealthiest New Yorkers.

But before you blame capitalism or selfish developers, let’s examine in further detail how New York City rents got so out of hand.

Introduction to Rental Markets and Supply and Demand

How are rental rates established to begin with? In a free market, however, supply and demand interact to determine the price. Initially, rents will be high if there is a significant imbalance between housing demand and supply in a particular location. However, these high rents will stimulate additional builders to enter the market, therefore expanding the housing supply and bringing the price down.

In areas like New York City, however, local governments have made this transition difficult by imposing supply limitations. As predictable as it is dangerous, artificially limiting housing supply in a high-demand location leads to high prices and a housing crisis.

How Has New York City Limited Supply?

Government intervention in the New York City rental market has a lengthy and complex history. However, the following are some of the most significant instances in which local government have impeded the market’s capacity to produce affordable housing.

1. Single-Family Zoning & Height Limits

The local government has decreed through zoning that vast sections of the city’s land may only contain single-family homes. This makes no sense in a metropolis with millions of inhabitants.

According to the advocacy organization Open New York, around 15% of New York City’s land area is still classified as single-family-only, prohibiting apartments or multi-unit residences of any size, even those with only two units. These constraints are extremely wasteful and prohibit the creation of large-scale housing, such as flats, which may significantly expand the housing supply compared to a single-family dwelling.

Likewise, many New York City homes continue to be subject to arbitrary height constraints. In the sake of scenic beauty or preserving special interests, they force landlords to supply fewer units per lot than they would otherwise be able to, worsening the affordability issue and pricing New Yorkers out of homes.

2. Extremely Strict Permitting Procedure

The administration of Additional York City has made it exceedingly difficult to obtain clearance to construct new dwellings.

“New York City housing permitting has cratered to lows not seen since the Great Recession, and it’s not for lack of demand,” housing policy expert Nolan Gray told me. “NYC [has] had some of the strictest zoning rules in the country, making it hard to legally build much of anything.”

Consider the graph below, which depicts the amount of housing (related to population) that various cities have authorized in recent years. New York City is located at the very bottom.

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This Was Perfectly Predictable

Rents have soared because the supply of new homes has been so clearly constrained. Given the numerous government constraints on New York City’s housing market, this is just what the economic laws expected.

However, many uninformed observers may blame the market for the exorbitant rents of $5,000 or more that are appearing in Manhattan, while the government’s restrictions on the free market are to blame. They may even respond to the obvious unfairness of this affordability dilemma by advocating for more of the appealing-sounding, big-government programs that got us into this situation.

Nonetheless, it is hoped that individuals would go deeper and identify the true core factors at play here. Because New Yorkers will continue to endure hardship until politicians wake up and liberate the rental market for good.

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