Recently, the Nobel laureate economist Paul Krugman wrote in the New York Times about the causes of unaffordable housing in New York City. He blamed the crisis on a few things, including a powerful financial “monoculture” in the city, NIMBYs, and the city itself blocking new construction. That last element, however—that the city blocks new construction—is an increasingly popular myth that needs examination.
When we look at construction in New York, we see that the city is not an economic monoculture. Property taxes are the largest revenue source for the city, and both New York City and New York State work to increase property taxes by subsidizing new development with zoning changes, planning policies, new interpretations of zoning and building regulations, economic development plans for rebuilding, the use of eminent domain, tax abatements and credits, public-private capital projects, and sweetheart real estate deals for major political donors—and this is only a partial list.
It all adds up to billions of dollars in direct and indirect subsidies for billionaire developers like Stephen Ross, Steve Roth, and Gary Barnett. So much for the idea that New York “blocks” construction.
Please note: the first three rules of real estate are traditionally “location, location, location.” The following discussion about affordable and unaffordable housing is specific to New York City in our time.