"They say the world has become too complex for simple answers. They are wrong. There are no easy answers, but there are simple answers.” -Ronald Raegan
Housing affordability is the single most pressing issue in urban America. When people cannot comfortably afford a home, we have failed a fundamental social test, we have sided with market forces over human dignity. A new report[1] has shown that US home affordability has dropped to a 10- year low. More families than ever before are living on the brink of homelessness; spending nearly half of their take home pay on housing, leaving little else for food, clothing and other necessities. It’s easy to blame landlords and developers, but if you live in a desirable part of a major American city the real enemy is your neighbors.
The problem is simple, there are not as many homes as there are residents who want to live there. That’s why a 500 square foot studio apartment for $2,200 per month in New York City’s West Village. There are so few homes in that neighborhood that people will pay whatever it takes in order to live there. It’s basic economics, when demand is greater than supply, prices rise until the market clears. Not to be pedantic, but if there were only 1,000 avocados available nationally, you could talk me into paying $100 per fruit. Consumer behavior is strange.
The demand for urban living has risen consistently since the 1970s but market actors have been prevented from increasing housing supply. These constraints are self imposed and regulatory in nature.
Restrictive zoning and historic preservation codes place artificial barriers on density. The West Village suffers from both issues. Located in a relatively low-density zone, developers are prevented from building upwards and creating more housing units out of a single plot of land. Further, the West Village is historic, it’s housing stock was created when New York City was 1/8th the size it is today. Historic preservation laws prevent developers from demolishing the older buildings and replacing them with newer, more dense structures. As New York City grew, historic preservation prevented its housing stock to grow along with it.
The solution to the regulatory issue is not easy, but it is simple; remove or eliminate the government imposed supply constraints and allow the free market to take care of the rest. The short term consequences will be an unparalleled construction boom that floods supply into the market to meet the pent up demand and reducing prices. Local businesses will gain multitudes of newfound customers and neighborhoods once reserved for the elite and ultra-wealthy will once again be diverse and accessible.
Ironically, the residents of high-end communities are the most steadfast supporters of artificial supply constraints. Using their resources to leverage the regulatory process to prohibit growth that would alter the “character” of their communities. These actions pervert democracy and oppose the public interest.
Current practices like rent control and affordable housing set asides ineffectively treat the symptoms but not the disease. 20-30% affordable housing set asides in select new buildings across the city are the ideological equivalent of emptying the Hudson River with a tablespoon; it may look like you’re working hard but you’re not really getting anywhere. The crisis is too large to deal with piecemeal, wholesale reform is necessary. Allow housing stock to grow alongside the population, remove the barriers to development and strip power from the anti-development elite and special interest groups. Politicians need to clear the playing field, step aside and let the free market do its job.