This July, the average rent for a one-bedroom apartment in Manhattan rose to $5,113, according to CBS News. That’s $1,000 more per month than it was last year, and a new record high rent level. Why is it so high?
It’s “the result of artificially-constrained housing supply in a high-demand area,” says the Foundation for Economic Education. New York City’s government has “a long and complicated history of government meddling” in the rental market; “here are a few of the biggest ways local officials have hindered the market’s ability to provide affordable housing”:
1. Single-Family Zoning & Height Limits
Through zoning, the local government has declared that large swaths of the city’s property may only host single-family residences. This doesn’t make much sense in a city with millions of people.
According to the advocacy group Open New York, “Roughly 15% of New York City’s land area is still zoned as single-family-only land, banning apartments or multiple-unit dwellings of any size, including those with only two units.” These restrictions are highly inefficient and prevent the development of large-scale housing, like apartments, that could greatly increase the supply compared to a single home.
So, too, arbitrary restrictions on height limits remain in place on many NYC properties. These force landlords to provide fewer apartments per lot than they’d otherwise be able to, fueling the affordability crisis and pricing New Yorkers out of homes, often in the name of scenic beauty or protecting special interests.
2. Highly Restrictive Permitting Process
New York City’s government has made it very hard to get approval to build new housing.
“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.”
The result is that “New York City” is “at the very bottom” when it comes to issuing permits for housing, compared to its population. Austin issues permits at a rate of 19 per thousand residents; New York City issues permits at a rate of only 2 per thousand residents. Miami issues permits at a rate of over 13 per thousand, while Philadelphia issues permits at a rate of 16 per thousand. Austin, Miami, and Philadelphia all have much cheaper rents than New York City, and issue far more housing permits.
Economists support getting rid of many zoning and permitting regulations. As Professor Ilya Somin notes,
The case for cutting back on zoning restrictions unites economists and housing policy experts across the political spectrum. That includes both pro-free market experts and prominent left-liberals such as Nobel Prize-winning economist Paul Krugman…and Jason Furman, Chair of President Obama’s Council of Economic Advisers. In addition to greatly increasing housing costs, zoning also cuts off many poor and lower-middle class Americans from valuable job opportunities, thereby also greatly reducing economic growth.
Restrictions on housing construction have also made housing prices rise a lot in California and Oregon. These states place many areas off limits to homebuilders and discourage new housing elsewhere with a maze of complicated permitting and construction requirements.
California has more space than the entire nation of Japan, and less than a third of Japan’s population. Japan is very densely populated and poorer than the United States. But even in Japan’s capital Tokyo—the center of the world’s most populous metropolitan area—people are able to afford housing. Why? Fewer zoning restrictions.
As Nolan Gray notes at Market Urbanism:
Japanese zoning is relatively liberal, with few bulk and density controls, limited use segregation, and no regulatory distinction between apartments and single-family homes. Most development in Japan happens “as-of-right,” meaning that securing permits doesn’t require a lengthy review process. Taken as a whole, Japan’s zoning system makes it easy to build walkable, mixed-use neighborhoods, which is why cities like Tokyo are among the most affordable in the developed world.
As the Wall Street Journal notes, although housing has gotten much more expensive in 32 major cities across the globe,
one major city has had stable housing prices as a result of pumping out housing supply to keep up with rising demand. Tokyo is one of the few cities in which supply has kept up with demand, keeping a crisis from developing. But that is due largely to deregulated housing policies that other countries would have a hard time reproducing.
As another article in the Journal notes,
In the past two decades, home prices in some leading North American and European cities have skyrocketed. In Tokyo, however, they’ve flatlined. So why no affordable-housing crisis in Japan? A big factor, experts say, is the country’s relatively deregulated housing policies, which have allowed housing supply to keep up with demand in the 21st century. With no rent controls and fewer restrictions on height and density, Tokyo appears to be a city where the market is under control—where supply is keeping home prices from rising as drastically as they have in many other major world cities.….The Japanese government began relaxing regulations that had restricted supply, allowing taller and denser buildings in Japan’s capital. Private consultants were given permission to issue building permits to speed up construction. “This created something like a free-trade zone in Tokyo,” Mr. Sorensen said.
Allowing more dense housing is key:
Two of Japan’s largest housing construction companies, Daiwa House Industry Co. and Sekisui House Ltd, both say that the easing of land and construction regulations has helped them build in Tokyo. The companies say that deregulation has benefited them particularly in their ability to expand housing units by replacing low-rise residential complexes with much higher ones. “A good environment for housing construction is being created,” says Daiwa House managing executive officer Yoshinori Ariyoshi.