Why the Rent Is So High in New York
economix.blogs.nytimes.com
economix.blogs.nytimes.com
* Geographic constraints to adding housing, plus a difficult regulatory and business environment to do new construction in.
* 0.8% of houses are owned as speculative investments, not housing.
* Prices capture access to the world's best public transportation system and all the shops and restaurants connected to it.
* Salaries are higher and so there's less pressure from tenant price ceilings.
I'm not sure I understand why the investment property thing is such a potent force, even though it was given multiple grafs and an chart in the article.
In other words, almost 2/3 of private-market housing is rent-regulated!
One of the things that's not often mentioned in this connection is that housing regulation has ripple effects through time. It takes time to build up a wide array of housing stock for different price points. Most housing stock in major cities was built in the 1960's-1980's. So New York doesn't just suffer from its rent regulations now, it suffers from the rent regulations that constrained housing construction over the last several decades.
Compare Chicago, which has very affordable housing, and which has never really had rent-control (with the exception of federally-mandated rent control during World War II) and where there is a state-wide ban on rent-control ordinances at the municipal level (since 1996). See also Philadelphia, which also has no rent controls and very affordable housing. Of course, these cities are not built as densely New York, and you'd expect to pay a premium in a place like New York simply by virtue of the lack of space. But had New York allowed the construction of high-density housing to meet demand in the 1970's and 1980's, you'd see far more affordable prices today (and see far less "waste" in the form of vast swaths of low-rise buildings on much of an island that has no business having low-rise buildings).
Also the harsh reality is that the most desirable location is Manhattan, and being an island there is a hard limit on what's available -- so things can only go up.
Yes, Manhatten is a popular island and will be naturally expensive. But its a lot more expensive than it would be if developers were allowed to flood the market with supply. Think about all the low-rise housing all over the city. Those buildings themselves are worth nothing--they're old tenement housing for the most part. If I owned one of those 20 unit buildings in say the east village, the vast majority of the value of my property is in the land. Given the prevailing high rents, why wouldn't I tear down that building and put up a 300 unit high-rise instead? That's what happens in a market. Markets hate profits. If prices are really high, producers will ramp up supply until prices just equal marginal cost.
Because of the limited space in Manhattan there's no such thing as a true free market: In that way it's like a very finite resource like Picasso paintings (only more of them). If you were in Williamsburg during the "recession" you would have seen buildings going up without pause. And the only reason for that was because it's slightly cheaper than Manhattan.
In fact even after 9/11 I was shocked to see that real estate actually went up because everyone assumed that they would game the suckers who would flee the city. NYC real estate may be one of the few places where there is no such thing as gravity. In fact when people would talk about a housing bubble these past few years it was like they were describing an alien life form outside our solar system.
In fact I would say that if I had the free capital I would invest in NYC real estate as a more sure thing than anything else.
Compare a place like Toronto, which is also a high-demand market and seeing an incredible building boom right now as old buildings are torn down and skyscrapers are put up.