housing – J. W. Mason

After the Rent Freeze

(This piece was originally published at Phenomenal World, in cooperation with the New York Policy Project.)

With the failure of Eric Adams’s last-ditch effort to stack the Rent Guidelines Board (RGB), Mayor Zohran Mamdani is now in a position to fulfill his promise to freeze the rent. The nine-member RGB sets maximum rent increases for New York’s million-plus rent-regulated apartments, determining rents for over half of the city’s renters.

The RGB is tasked with balancing the interests of tenants and building owners, considering a wide range of factors including the cost of operating rent-regulated buildings, the cost of living for tenants, and the overall state of the housing market. In practice, they have wide discretion. The RGB delivered a 0 percent increase in regulated rents three times during the De Blasio administration. Most discussion of rent regulation in New York City focuses on the legal intricacies of who, where, and when the RGB guidelines will bite. But this risks losing sight of the bigger-picture questions about the financial terms on which housing is bought, owned, and sold in New York City—terms which may have to fundamentally change to make affordability possible in New York City.

To understand the implications of Mamdani’s rent freeze, we must consider the broader economics of housing in New York. Any discussion of rent regulation has to grapple with the fact that owners of residential buildings pay most of their rent earnings not on maintenance or operations, but to service their debts to their creditors. With the kind of leverage typical for investor-owned residential buildings, any significant slowing of rent growth is likely to see many building owners unable to make their mortgage payments.

The great majority of residential buildings have rental income well above their operating costs, and they could be profitably operated even with rents much lower than today’s. So in principle, there is space for the RGB not just to freeze the rent, but roll back regulated rents by some significant percent. The big obstacle to a mandated rent reduction is not the real costs of providing housing, but the financial commitments inherited from the past. A building underwater on its mortgage is unfortunate for the owner; it can be disastrous for tenants. A plan to freeze regulated rents, or even to limit them to modest increases, needs to be combined with a plan to ensure a quick resolution for apartment buildings in financial distress.

Waiting for a market solution to this dilemma through the bankruptcy courts would be disastrous for tenants, who would bear the brunt of cost savings in the form of decaying living conditions while landlords wait for a better deal. Instead, the city’s plan to freeze or reduce rents must be combined with a quick resolution for apartment buildings in financial distress. This resolution must take account of the major dynamics that shape the rental market in the city—high rent burdens, inadequate investment in previous decades, and the distinct circumstances of landlords controlling old buildings versus developers looking to build new ones. After a rent freeze, true housing affordability will call for a model of alternative, including public, ownership.

The rent-stabilized market

It’s easy enough to predict the argument against freezing the rent—without rent increases, many building owners will face financial distress, leading to deferred maintenance or abandonment. A recent piece in The City describes how property owners have struggled to make mortgage payments and cover operating expenses:

Every month, Langsam Property Services collects dozens of rent checks from two buildings it manages in The Bronx. But that’s not enough to cover the mortgage and operating expenses. So every month, the buildings’ owner sends another check—for at least $30,000, just to meet the mortgage.

The kinds of buildings…where all or almost all of the apartments are rent regulated…face extreme financial distress. Rent increases failed to keep up with costs for most of the last decade, and changes to state law in 2019 made it virtually impossible to renovate vacant units and raise the rents, putting such landlords in a bind…A four-year rent freeze could result in the kind of abandonment that happened in the 1970s.

It’s important to take these concerns seriously. The landlords quoted here are honest when they describe their difficulties paying their mortgages. But we should distinguish between debt service and other costs. Operating and maintenance costs reflect the actual costs of operating a building in the city. Debt service, on the other hand, reflects how much the current owner paid for the building. Combining these two sets of costs is common in discussions of rent regulation. Another recent story, for instance, quotes the executive director of the Association for Neighborhood and Housing Development: “You can’t continue to run a building without paying the mortgage and without paying your insurance.” Insurance is indeed a cost of running a building, but the mortgage is not. At most, it is a cost of owning it.

As we think about the economics of rent regulation, we should keep this distinction clear. Operating and maintenance costs are necessary costs of providing housing; mortgage payments are not. Essentially none of the debt owed by owners of rent-regulated buildings is construction loans, and very little of it is financed capital improvements. The cost of servicing that debt is not part of the cost of providing housing. It rather reflects how much the owner has borrowed against it. The problems faced by owners of rent-regulated apartment buildings look very different in this light.

There is plenty of data on the incomes and expenses of residential buildings in the city, in particular the detailed (though not always complete) records of the New York City Department of Finance (DOF). Research and advocacy organizations like the Furman Center and the Community Service Society regularly put out useful reports based on this. For present purposes, the RGB’s annual Income and Expense Study, based on the DOF data, is enough to give the broad picture.

In buildings with rent stabilized apartments, reports the RGB, rent averaged $1,600 per unit; landlords on average collected another $200 per unit from other income sources—parking, retail space, cell-tower rent, and so on. Maintenance and operating costs, meanwhile, averaged a bit less than $1,200 per unit, including taxes (a bit over $300 per unit) and insurance (almost $100 per unit, and the component that has increased most rapidly in recent years). For the average rent-regulated building, net income is around $600 per unit, about 50 percent above operating costs.

This relationship between costs and income seems fairly stable over time, albeit with some short-term ups and downs. Over the past two years, landlord income has increased by 15 percent, while costs have increased by only 10 percent. But this was in large part making up for the pandemic period, when income increased more slowly than rents. Over the long run, the two have kept pace almost exactly—over the past twenty years, landlords’ incomes have increased at an average annual rate of 3.8 percent, while their costs have increased at 3.7 percent.

These averages mask a great deal of variation across individual buildings. Still, over 70 percent of buildings with rent stabilized units had operating and maintenance costs less than 80 percent of income, and fewer than 10 percent had operating and maintenance costs greater than income. This minority of buildings are a serious concern, and their numbers do seem to have increased somewhat in recent years, but they remain a fraction of rent-regulated buildings.

Yes, if rents on stabilized units were frozen forever, there would come a point when operating costs exceeded income for an increasing share of buildings. But why are building owners facing distress today? The answer in most cases is that they borrowed too much to buy buildings at inflated prices, based on an expectation that rents would rise faster than they actually did.

Landlord economics

The price that an investor will pay for a building, and the size of the mortgage that bank will give them to do so, is a function of the rent that the building is assumed to generate in the future. Lenders will typically accept a debt-service ratio of 1.25, and some will go as low as 1.1, meaning that they will lend as long as the expected rental income net of operating costs is 1.1 to 1.25 times as great as the payments the mortgage requires each month. To say that a building’s net rental income is 1.25 times its debt service costs is the same as saying that 80 percent of rental income after operating costs will go to mortgage payments, if the building performs as expected.

Furthermore, investors in multifamily buildings often refinance in order to extract equity when a building has increased in value. Say a building is valued at $10 million and is currently carrying a mortgage of $7 million, meaning that the owner’s equity is worth $3 million. If a lender would be willing to accept the building as collateral against $8 million of debt, the owner can take out a new mortgage, reducing their equity to $2 million and leaving them with $1 million in cash—which they will presumably put toward acquiring another building.

This sort of “cash-out” refinancing was seen as a troubling aberration when it became popular among homeowners during the 2000s housing boom. But for real-estate investors, it is an established business practice—borrowing against one’s existing properties is the easiest way to finance the acquisition of new ones. From an investor’s point of view, a building carrying a smaller mortgage than what lenders would accept is money left on the table. Careful observers of the housing market believe that this kind of equity extraction may account for the bulk of the debt carried by rental properties in the city.

This means that even buildings that have not changed hands in many years often carry mortgages close to the maximum debt-service ratio that lenders will allow. Research by the University Neighborhood Housing Program based on data from the government-sponsored enterprise Freddie Mac (which purchases a large share of mortgages on New York apartment buildings) finds that residential buildings in the city, on average, pay out about 80 percent of their net operating income as interest payments. This suggests that building owners are normally operating close to maximum leverage. For most buildings in the Freddie Mac sample, interest payments are a larger cost than all operating expenses put together.

Figure by Jacob Udell. Note that it is mostly smaller buildings with loans through Freddie Mac’s Small Balance Loans (SBL) program, so this is different from the universe of all rent-regulated buildings.

Whenever rents rise more slowly than expected when a building was purchased or refinanced, there is a good chance that the owner will be unable to meet their mortgage payments, even if rental income is still comfortably above operating costs—as is the case in the majority of buildings.

Rent growth below buyers’ (and lenders’) expectations is a particular problem with buildings that were bought or refinanced prior to the 2019 reform of the New York State rent laws. These investors hoped to win substantial increases in rents for regulated units or remove them from regulations entirely, using a number of loopholes that allowed landlords to kick out their current tenants and rent out the units at a higher rent. Since the 2019 reform, this is nearly impossible. As a result, many buildings purchased in the 2010s cannot generate income commensurate with what was paid for them.

To be clear, the rent reforms were a major positive step for housing affordability. The expected increases in rental income could only have been realized, in most cases, by evicting current tenants and attracting higher-income ones. But losing the possibility of replacing current tenants with higher-paying ones has left the owners of these buildings in a financial hole.

A future with lower rents?

This overhang of overvalued, overmortgaged buildings is presumably a major reason why there has been so little activity in the market for multifamily buildings in recent years, with the volume of sales less than a third of what it was a decade ago. How then should we think about landlord complaints—many of them genuine — that a rent freeze will leave them unable to service their debts?

First of all, it should be clear that if buildings’ rental income is inadequate given their debt payments, the reason is lower than expected rents—not rent regulation per se. If an Abundance-style program of supply-side reforms delivered enough new construction to substantially bring down rents, building owners like those quoted in The City would face the exact same difficulty. Any slowing of rent growth will create financial distress for building owners who borrowed on the expectation of rising rental income.

There might be steps the city can take to reduce costs for building owners—insurance being the most promising avenue—but the potential savings are limited. Major improvements in housing affordability will entail reducing rental income for existing buildings. At the end of the day, tenants’ housing costs are owners’ incomes; lower gross income for landlords is just the flip side of more affordable rental housing. The housing agenda must then explicitly include a strategy for property owners whose debts cannot be paid in an environment of lower rents.

One might ask, why does the public need to be involved? Perhaps this is an issue to be left to owners and lenders. Either the bank writes down the loan, or else it forecloses, and the building is sold to someone else at a more realistic price. The trouble is what happens during the transition: the foreclosure process can drag on for years, and financially distressed owners are likely to prioritize mortgage payments over maintenance and upkeep, allowing buildings to fall into disrepair at great cost to their tenants and to whomever ends up owning the building. Landlords will stop paying for gas before they give up control of their buildings.

The lower the rent increases allowed by the RGB, the more urgent code enforcement becomes as a complement to housing affordability measures. Otherwise, what landlords give up in rent increases, they will try to claw back in reduced maintenance. At the same time, a successful affordability policy means that many buildings will be worth less than what their owners paid for them. Someone is going to have to bear those losses. It’s important to proactively shape how that happens, rather than wait for the market to work itself out.

One approach would be for the city to work with landlords and creditors to negotiate mortgage write-downs in return for hard commitments to a higher standard of maintenance and improvements. The response to the failure of Signature Bank could be a model. Signature was a major lender for multifamily buildings in New York; a considerable part of its portfolio of loans to owners of rent-regulated apartments ended up in the hands of the Community Preservation Corporation (CPC). CPC agreed to loan modifications in return for clear commitments by landlords to address building and habitability code violations. The city could push other holders of mortgages on underwater buildings to make similar deals.

CPC had the big advantage of already owning the loans. As a third party, the city government might struggle to bring lenders and building owners to the table. Another option, promoted by the mayor’s new Director of the Office to Protect Tenants, Cea Weaver, would be for the city to move aggressively to take ownership of buildings that can’t make their mortgage payments.

There are also a nontrivial number of buildings where operating costs exceed rental income. These are especially common in the Bronx, where past underinvestment may have contributed to today’s costs, and many are already owned by nonprofit Community Development Corporations (CDC). CDCs have a fundamentally different business model than the investors who own most of the city’s rental buildings. They use far less leverage, and, while almost all are rent-regulated, they tend to charge rents below the legal maximum.

The economic challenge here is quite different from that of most buildings in the city. The problem is less financing, and more the very low incomes of families living in these buildings, combined in many cases with underinvestment and neglect by prior owners. The solution here will involve operating subsidies. While the details of this are beyond the scope of this piece, subsidies to building operators are generally to be preferred to subsidies to tenants, which may be captured by landlords in the form of higher rents. (The city’s Multi-Family Water Assistance Program is a good example of a targeted subsidy to affordable housing operators.)

The situation of these genuinely distressed buildings should not be confused with that of the larger group of rental buildings where net income is positive, but insufficient to cover mortgage payments. In these cases, we must avoid two outcomes. The first is weakened rent regulations, which would make tenants pay for landlords’ speculative overborrowing. The second is allowing buildings to remain for an extended period in the hands of owners who will eventually lose them. If the current owner is going to give up the building, that needs to happen as quickly as possible. The threat of forced sale can be helpful to incentivize a quick settlement, even when it is not carried out.

Expanded public ownership is not just a long-term vision; it is an essential part of the solution to an immediate problem. The fundamental issue is that landlords are being squeezed by high debt costs from one side, while they aren’t able to charge higher rents, and they can’t cut costs without sacrificing habitability, which effective code enforcement will prevent. Under these conditions, some building owners will indeed face unsustainable losses. The role of public ownership, in this sense, is to provide an escape valve, a way for owners to exit their position without running the danger of an extended foreclosure process. The pressure on landlord incomes will be a source of great anger and scare stories in the press, but this is also precisely what gives the city leverage to force creditors to write down debt and move toward alternative models of ownership. It is worth pursuing genuine savings that the public can deliver, like pooling insurance.

It would be a big mistake to simply offer relief to stressed landlords by exempting buildings from the rent laws. That would only pass the costs off to tenants without resolving the structural problem that undergirds the rental housing market—the mismatch between debt loads and affordable rent growth. Even worse, allowing higher rents in response to financial distress would give other landlords hope that if they hold out longer, they will be able to avoid a resolution. Any hint of flexibility on the rent freeze could leave us in the worst of both worlds—a situation where building owners cannot pay their bills, but won’t give up ownership because they are hoping for higher rents in the future. An ironclad commitment to the rent freeze and to stringent code enforcement is essential to bring landlords and creditors to the bargaining table.

Landlords vs. Developers

The city’s leverage in negotiations with private landlords will implicate the broader politics of housing. Building more housing was a central plank of Zohran Mamdani’s platform. For the foreseeable future, that will require private developers and contractors, who control the specialized expertise, labor and resources required. NYCHA, for all its challenges, successfully operates buildings for over half a million New Yorkers. But it doesn’t put up new housing, nor is there yet any non-profit developer equivalent to the CDCs that manage so much of the city’s affordable housing. So if the city is going to gain more affordable housing, it has to offer sufficient returns to the businesses that will put it up.

The case of private landlords is different. The market rent for apartments in New York does not reflect the cost of construction; rather, it is determined by the balance between the demand for housing and an effectively fixed supply. Market rents in much of the city are significantly higher than the cost of maintaining and operating buildings. Unlike the payments to developers and contractors, most payments to landlords are rents in an economic sense.

In a recent post, the conservative journalist Josh Barro describes the emerging Mamdani-DSA housing policy mix as capitalism for developers, communism for landlords. He intends this provocative phrase to express skepticism about the coherence of the program. But it seems to me that, from an economic perspective, this is exactly the combination we want.

From the standpoint of private business, to lay out $10 million to build a new apartment building that you will operate or sell for a profit or to buy a similar existing building for $10 million may be roughly equivalent options. But from a social perspective, these options are completely different—one is creating something valuable for society, the other is trying to divert existing value in your direction.

Can we really split developers and landlords in this way? After all, even if very few buildings are owned by the same entity that developed them, the developer’s profit comes from selling the building. If old buildings generate lower net incomes and sell at lower prices, won’t this discourage new development?

Politically, the alliance between developers and landlords may be difficult to break. But economically, it is absolutely possible to reduce the rents on old buildings without meaningfully reducing the incentive to build new ones. The reason is discount rates.

Housing is distinct from other commodities in its lifespan: the median age of a New York apartment is about eighty years. A building’s major costs—construction and land acquisition—were often incurred decades ago. This means the link between price and production costs is much weaker.

Economists conventionally count interest costs as part of the cost of production. This is reasonable for a business that issues debt to finance inventories or relatively short-lived capital goods. But it is emphatically not the case for housing in an older city like New York, where the vast majority of debt owed by landlords was incurred to finance ownership of a long-existing building rather than the construction of a new one.

Looking at it from the other direction, a typical investor in a new housing development might expect a return of 20 percent; lenders accept an interest rate that might be on the order of 8 to 10 percent. These returns are equivalent to discount rates; to say that a developer requires a return of 20 percent, is equivalent to saying that they put a value of about 80 cents on a dollar of income a year from now. At a discount rate of 8 percent, a dollar fifty years from now has a present value of about 2 cents; at a discount rate of 20 percent, it’s worth one-hundredth of a cent. This means that the rent a building will command decades from now plays essentially no role in the decision of whether it’s worth building today.

No rational investor would pay money to build an apartment that will come into existence decades from now. But the nature of real estate is that ownership today implies ownership into the indefinite future. If you put up a building in order to rent it out next year, the building ten, twenty, one hundred years from now comes along for the ride. Given the age of the city’s housing stock, this means that the rent paid in a typical New York apartment has no relationship to the building’s construction costs; those were paid long ago. To the extent that landlord income exceeds the operating and maintenance costs of the building—and, again, it does on average by a margin of 50 percent—then that rent is also a rent in an economic sense: a payment in excess of the cost of producing something. The fact that these economic rents are not necessarily captured by the current building owner does not change this.

In this sense, buildings are a bit like intellectual property, which also lasts longer than the economic horizon of the businesses that produce it. The economic argument for rent regulation is a bit like the argument for limiting patents and copyrights to a finite period.

For housing in a city like New York, there is no reason to think that the market price provides a useful signal about the balance between value to consumers and cost of production. What, then, is a reasonable rent for older residential buildings? Arguably, it should be limited to operating costs plus a moderate margin. Rent payments above this are simply a transfer from tenants to building owners (and their creditors).

Housing as a public utility

Real estate investors generally expect much of their returns to come from capital gains—an increase in the property’s market value rather than the rental income it generates. Since buildings are normally valued at a multiple of their rental income, this means that owners expect not just high rents relative to operating costs, but steadily rising rents over time. If rent growth shifts onto a more affordable trajectory, owners will see lower returns, even if their buildings continue to generate a positive income for them. Under these conditions, the kinds of private investors who currently own much of New York’s housing stock might prefer to not.

This is not an argument against moving in that direction. But it is a reason for thinking carefully about how the losses will be shared out, and how to ensure that lower returns for investors and creditors do not hinder the ongoing payments that are needed to operate housing—utilities, maintenance, and so on. Public ownership is an essential tool here. So too is tenant organizing, including demands that landlords open their books as a condition of any kind of relief.

On January 1, after Mayor Mamdani was sworn in at the old City Hall subway station, the Washington Post crowed that his midnight inauguration was actually a tribute to private industry, since the city’s first subway system, the IRT, was built by a for-profit company.

It is true that New York’s first subway system, the IRT, was privately owned. But one could read this history in a different way. City government did not take over the subways out of any ideological commitment to public ownership. Most city leaders in the early twentieth century (the IRT-hating John Hylan excepted) were happy to leave the subway in private hands. The problem was that a comprehensive system with affordable fares became incompatible with acceptable returns to private investors. The need to rescue the private system from financial crisis was why the city took over, and the state later established the MTA.

Perhaps decades from now, we will be able to tell a similar story about housing. Today, New York City’s rental market is defined by two colliding forces: tenants’ need for affordable rents, and landlords’ need to repay their creditors. Only public ownership offers an escape from the mounting pressure. If New York moves towards a model of social housing, it will be because public ownership is consistent with stable rents in a way that ownership by private investors fundamentally is not.

Thanks to Michael Kinnucan and Jacob Udell for helpful comments on this piece, and to Conor Smyth for research assistance.

What Kind of Housing Is Being Built in New York?

Along with Zohran Mamdani’s historic victory in last month’s elections, New York City also approved three housing-related ballot proposal. Together, these will make it somewhat easier to adjust land-use rules to allow for new housing development, by reducing the City Council’s ability to block zoning changes.

I am glad the proposals passed, for reasons similar to those laid out by Michael Kinnucan. While zoning changes are not a sufficient solution to the city’s housing problems, they are helpful — and more important, they are a necessary condition for a bigger program of public investment in housing.

Support for the proposals was shared by many, but far from all, housing and tenant advocates in the city. Debates over the proposals reflected differences on political principle — how big a voice should local as opposed to citywide officials have over land use? — as well as on economic theory — how well does the housing market fit a simple story of supply and demand? But there are also some background factual questions where the answers tend to get assumed rather than directly debated, about what kind of housing gets built in the city right now.

So in this post, I wanted to assemble some factual information about recent housing construction in New York. For convenience — and because that’s how much of the data is organized — I am defining recent as meaning the period since 2010. Some of this is assembled from various reports and publications, but the bulk of it is my own analysis of the New York Housing and Vacancy Survey (HVS).

The dimension of new housing construction that is probably most visible is how geographically concentrated it is. About one-third of all the new housing built since 2010 is in just four of the city’s 59 community districts, along the East River in Brooklyn and Queens.

You can see this clearly in this map from the Department of City Planning, as the strip of dark blue running from Brooklyn Heights to Astoria. (The dark blue area in Manhattan reflects some major projects on the far west side, including Hudson Yards.) Brooklyn Community District 1, including Williamsburg and Greenpoint, added 30,000 new housing units between 2010 and 2024. Half a dozen miles away at the south tip of Brooklyn, District 10, with a similar population, added only 500.

The concentration of new housing in a few areas reflects a number of factors, including zoning changes under the Bloomberg administration and the disappearance of manufacturing from former centers like Long Island City. This helps explain the association in many people’s minds of new housing development with gentrification and rising rents.

Less immediately visible is how much this newly-built housing costs, and who lives in it. I haven’t seen a report focusing on these questions — though I expect one exists — so I thought I would see what I could say using the Housing and Vacancy Survey.

For those who aren’t familiar with it, the HVS is a survey conducted every three years ago by the Census on behalf of the New York City Department of Housing Preservation and Development (HPD). Its primary purpose is to help administer the city’s rent regulations, but it’s a useful resource for all kinds of housing research. It’s a decently large sample — about 10,000 observations — but what it makes it especially nice is that it combines administrative data on things like building size, location and rent-regulation status, with survey data on things like occupant characteristics and the unit’s state of repair.

The HVS is a good tool if we want to answer questions like, what is the median household income of people living in housing built since 2010? ($73,500, it turns out — but we’ll come back to that a bit further down.) The most recent HVS was conducted in 2023; to get a reasonable sample for smaller subgroups I combined it with the 2021 survey, with appropriate adjustments to the monetary variables.¹

Between 2010 and 2024, NY added just over 300,000 new units of housing, or a bit over 20,000 units a year. This is a respectable level of new building for the city by recent standards — comparable to the 2000s and 1970s, and faster than in the 1980s or 1990s — but less than in earlier periods of the 20th century. During the 1950s and 1960s, the city added over 30,000 units per year, and in the 1920s, over 70,000. A surprisingly large proportion of these houses are still here. For example, 729,000 housing units were built in the 1920s; according to the HVS, 718,000 of them were still present as of 2023. That housing lasts such a very long time is, to me, one of the central facts that makes it different from most commodities. (The other is that it’s located in a particular place.)

Of the housing units built between 2010 and 2023, about 10 percent are owner-occupied, a bit over 25 percent are unregulated market-rate rentals, and 60 percent are rent-regulated rentals. (There are also a small number of vacant units that are not for rent, and a very small number of new public housing units.)

It might be surprising that there are more rent-stabilized units than market-rate ones, given that rent regulations in New York by default apply only to large buildings built before 1974. There are two reasons for this.

The first reason is that a substantial fraction — 25 to 30 percent — of new housing built in New York in recent years has been subsidized affordable units. “Affordable” in this context is a term of art: It refers to housing that receives public subsidies, most importantly the federal Low-Income Housing Tax Credit, and in return is limited to renters (or occasionally purchasers) making below a certain income threshold — 80 percent of the area median income or some lower fraction.² In New York, these subsidized units are also normally rent-stabilized. As the nearby figure from the Furman Center shows, the proportion of affordable-in-the-technical-sense units has fallen off somewhat in recent years, but is still substantial.

It’s important to note that while the figure shows “LIHTC” (Low Income Housing Tax Credit) units and “market rate units,” this is not a straightforward division. While most income-restricted units receive LIHTC subsidies, not all of them do; and units that do not receive operating subsidies or have income restrictions, and are thus counted in the market rate category here, may still be subject to rent regulation. In the rest of this post, I instead focus on rent-regulated versus unregulated units, where there is a sharper line. ³

The second reason for the high proportion of rent-regulated units is that most new housing built outside of Manhattan during this period was eligible for the 421-a property tax exemption.⁴ This gives long-term exemptions from property taxes — as long as 40 years in some cases — in return for certain conditions, including participation in rent stabilization. As a result of these programs, even though tent stabilization is not compulsory for any housing built since 1974, in practice newer housing in New York are more likely to be rent stabilized than older ones.

I personally agree with critics who argue that these tax exemptions are a wasteful and inefficient way to promote new housing construction. The problem for developers is financing the start of the project — a tax exemption decades from now is essentially worthless to them, while for the city, with its longer horizons, it is still costly. In effect, 421a is paying for housing in a currency that is worth much less to the recipient than to the payor.\efn_note]Put another way, the public sector ought to have, and in practice generally does have, a much lower discount rate than the private sector. This used to be a big part of debates on the economics of climate change. But it’s also relevant to housing. The common thread is the long time periods involved.[/efn_note] But be that as it may, it has resulted in a very large fraction of new housing being rent-stabilized.

The fact that perhaps a quarter of the new housing produced in New York is income-restricted affordable units — surely the highest proportion in any major US city — does not get much attention in discussions of housing, as far as I can tell. Nor does the fact that the large majority of new housing is rent-stabilized — I wasn’t aware of it myself until quite recently. But both of these seem like important facts.

Let’s move on to how much these recently-built apartments rent for, the question that got me started writing this post. The median rent for rent-regulated apartment built since 2010 is $1,800, while the median rent for an unregulated (i.e. market-rate) apartment built since 2010 is $3,200.⁵

To be sure, the comparison of rents in stabilized versus unregulated apartments is a bit tricky, because these are not the same types of apartments. As the figures nearby show, unregulated units are more likely to be in Manhattan, and are somewhat larger on average — studios and one-bedrooms make up 70 percent of recent rent-stabilized units, compared with 60 percent of recent unregulated ones. One thing that surprised me looking at these numbers was how few larger rental units are being built, market-rate or otherwise.

Since 421-a subsidies are not generally available in most of Manhattan, the rent-stabilized units there are mostly subsidized affordable units. So in Manhattan, recently-built market-rate apartments rent for almost twice as much as equal-size stabilized ones. Meanwhile, in Brooklyn regulated units rent for only about one-third more than unregulated ones, and in Queens and the Bronx rents for the two classes of apartments are essentially the same. (Staten Island has hardly any new housing of any kind.)

The distribution of rents by regulation status is shown in the figure below, which is perhaps the main thing you should take from this post.

Here we see that there are more 35,000 rent-regulated apartments built since 2010 that rent for less than $1,000, and barely 5,000 unregulated apartments renting for that little. But while most regulated apartments rent for less than $2,000, more than a quarter rent for over $3,000 and about 10 percent rent for over $4,000. Meanwhile, about 70 percent of unregulated units rent for between $2,000 and $4,000, while a quarter rent for less than $2,000 and 10 percent for more than $5,000.

Again, these differences are in part due to the fact that unregulated apartments are somewhat larger, and considerably more likely to be located in Manhattan, compared with rent-regulated apartments.

For recently-built rental units as a whole, the median rent is $2,000, with one-third renting for less than $1,100 and one-third for more $3,000; 10 percent rent for more than $4,500. This is somewhat higher than rents in older buildings — for the city as a whole the median rent is $1,670. (If we compare one-bedrooms only, the comparison looks similar.)

There are obviously many more ways one could slice this, but these numbers give a useful benchmark: If we are talking about a newly built market-rate apartment in New York, we should think about an apartment renting for around $3,200. If we want to get a bit more granular, we could think of one-bedroom apartment in Brooklyn renting for $2,200 a month, a 2-bedroom in Brooklyn renting for $3,800, or a one-bedroom in Manhattan renting for $4,700 — these would be typical examples of recently built market-rate apartments. (Though the sample size gets uncomfortably small as we slice the data on more dimensions.)

A nice thing about the HVS is that it lets us do the same analysis for incomes.

The short answer here is that median household income for residents of recently-built owner-occupied units, median income is $161,000. For rent-regulated apartments, median household income is $54,000; for unregulated apartments, it’s $117,000. For recently-built rental units as a whole, the median household income is $73,000.

As it happens, $73,000 is almost identical to median household income for the city as a whole. The $117,000 median income for residents of recently-built market rate rentals, meanwhile, is close to the 67th percentile for the city as a whole — in other words, two thirds of households have incomes below this, and one third have incomes above it.

The issues with geography and unit size are not as relevant here. ⁶ But for the half or so of rent-regulated units that are also subsidized and income-restricted, resident incomes will of course be lower. The median income in unregulated apartments is more than twice as high in Manhattan as Brooklyn — $205,000 versus $90,000 — while the median rent in rent-regulated apartments is only about 25 percent higher.

The figures nearby shows the distribution of recently-built regulated rentals, unregulated rentals, and owner-occupied units by household income and by per-capita income, which is arguably more relevant. (Note that the income categories are slightly different for the two figures.)

As you can see, the majority of recently-built rent-stabilized units — 78,000 out of 134,000 — are occupied by households with income below $75,000, approximately the city median. About 15,000 of them, however, are occupied by households with incomes above $250,000. The distribution of incomes in unregulated units is flatter — a bit over 10,000 have tenants with incomes under $40,000, and about the same number have tenants with incomes with incomes above $250,000. Incomes are much higher in owner-occupied units. Nearly half — 10,000 out of 22,000 — are occupied by households with incomes above $250,000.

The picture looks a bit different when we turn to per capita incomes. For comparison, the median per-capita household income in New York City is $36,000. The majority (about 55 percent) of rent-regulated new apartments are occupied by households with incomes below this. But only about one-third of unregulated apartments are. Interestingly, when we look at per-capita income, owner-occupied units are no longer so disproportionately likely to be occupied by households with very high incomes. In New York City, evidently, homeowners are much more likely to have larger families.⁷

How should one evaluate these numbers? My goal in this post is just to bring some facts into view. I’m not so much trying to make a substantive policy argument, as trying to make the debate more concrete and specific, at least in my own head. In some ways, the best case for this post would be that people would very different views about housing policy could find something in it they could use.

That said, what prompted me to start looking at these numbers were claims, in the runup to the election, that simply making it easier to build will not help with affordability, since private development won’t produce affordable housing, or will only produce luxury housing.

To be clear, these are two different claims. Or to put it another way, affordability in the everyday political sense is different from affordable as a term of art in housing policy.

Housing the is not affordable, in the technical sense, may still be helping with affordability in the broader sense, by offering better housing options for people who are not wealthy. A family of two New York public school teachers might have a combined income of $150,000 or so, putting them outside the income limits for subsidized affordable housing. But they may nonetheless have real problems finding reasonably-priced housing, especially if they have kids; and new construction might improve their situation even if it is not affordable in the technical sense.

What does this data say about these questions?

Perhaps unsurprisingly, the HVS data supports the claim that, in the absence of subsidies, private developers will not build much deeply affordable housing. One way of looking at this: About 20 percent of New York households have incomes below $20,000; but in unsubsidized units built since 2010, only about 6 percent of tenants have incomes below this level.

Another way of looking at it: The median New York household has an income of $73,000; for them not to be rent burdened, by conventional standards (30 percent of income going to rent), they should pay no more than $2,000 per month. But nearly 80 percent of the unregulated apartments (as well as 30 percent of rent-regulated apartments) built since 2010 rent for more than this. And many of the ones renting for less are studios or one-bedrooms, which will not be suitable for many households with incomes near the median.

So, the claim that allowing more private development will not by itself produce much housing affordable to lower-income New Yorkers, seems consistent with the data.

Now, any economists or abundistas reading this will want to jump up, and point out that even if newly-built housing is not affordable for many New Yorkers, it can still help them. The people who move into the newly built units are going to live somewhere, after all; and if these new ones weren’t available, they would be bidding up the price of the existing housing stock. Turning an old sugar refinery in Williamsburg into luxury apartments may not directly provide affordable housing in Williamsburg, but it takes the pressure off the rental market in other neighborhoods that the trust-fund hipsters might otherwise move to.

Ok, you guys can sit down, you’ve made your point. And it’s a valid one — there is definitely some truth to this. How much truth, and what factors might work in the other direction, is beyond the scope of this post. Here, I’m just trying to get my arms around the difficult-enough question of what rents and incomes look like in the newly-built housing itself.

Returning to the central question of how affordable newly-built housing is, it’s worth recalling that 20-25 percent of new housing is affordable in the sense of being income-restricted and receiving ongoing subsidies, and a majority of new housing opts into rent regulation. So focusing on the unregulated segment may be a bit misleading, especially in the context of the ballot proposals. A more sensible comparison might be between recently-built housing in the aggregate, and older housing. The next couple of figures do that.

Here we see the distribution of rents in newer and older buildings. Note that the vertical scale is share of units in that age group, as opposed to the absolute number of units as in earlier figures.

What we see is that while there are a substantial number of new units with moderate rents, there are many more high-rent units in the newer buildings. About 15 percent of units built since 2010 rent for more than $4,000, compared with just 3 percent of older units.

Of course, new units are different from older units in other ways — location, size and so on. But if we limit the analysis to, say, just one-bedroom apartments, the pattern is basically the same.

If anything, the excess of recent units at the high end is even clearer in this case.

Then again, one could look at the same numbers the other way. 15 percent of new units rent for over $4,000 and 30 percent rent for over $3,000, compared with just 3 and 8 percent, respectively, of older units. But that means that 70 percent of new units rent for under $3,000; and about 40 percent rent for less than $2,000 — which is, again, the threshold for rent burden for the median-income New York household.

So if we look at the housing that is being built in New York now, it is absolutely true that it is disproportionately luxury housing intended for the rich. Although not necessarily for the very rich — Andrew Cuomo’s $8,000-a-month Upper East Side apartment would be in the top 2 percent of rents among recently-built units. But disproportionately is not the same as exclusively. It is not true that recently-built housing is exclusively luxury units for the highest-income New Yorkers.

We can take this question on more directly by looking at household income among tenants in recently-built rental units as opposed to older ones. This is shown below.

Surprisingly, the distribution of incomes across newer and older apartments is much closer than the distribution of rents. High-rent apartments are much more overrepresented among newer apartments than high-income tenants are.

On reflection, this is not surprising. Thanks to rent regulations (and also to smaller landlords who don’t aggressively raise rent for current tenants) many current tenants are paying well below market rent. Remember, rent regulations in New York limit only rent increases. So one might even say, that if the rent regulation system is effective, it will inevitably result in newly-built apartments renting for significantly more than existing ones. And inevitably, many of those older rent-regulated buildings will be occupied by higher-income households.

Note, also, that newly-built apartment have a slightly higher proportion of very low income tenants than older ones do. This reflects the substantial fraction of subsidized affordable units, and is another reason to reject the “only luxury units are being built” claim.

What do we take from all this?

There are two things that surprised me the most, looking at these numbers. First was the large fraction of rent-regulated units — more than two-thirds of the units built since 2010. I had always thought of rent regulations in New York as applying almost exclusively to older buildings, but in fact, of the all the age categories in the HVS, post-2010 buildings have the highest proportion of regulated rentals.

Second was the preponderance of smaller apartments among recently built housing. 55 percent of the units built since 2010 are studios or one-bedrooms, compared with 38 percent of older units. Units with three bedrooms or more, meanwhile, account for only 10 percent of recently-built units, compared with a full third of older ones.

This second fact leads to the first of my policy takeaways: When we are talking about housing affordability, we need to think about what kind of housing, as well as its cost.

Most goods are fungible: If your family consumes more milk, or gas, or electricity, then you pay more for it, but the price of the next gallon or kilowatt is the same as the last. Buying a gallon of milk is essentially the same as buying two half-gallons. Housing is different: You can’t just rent some extra square feet when your family gets bigger, you need a whole new home. Building more SRO-type units, as some people advocate, would help address affordable housing at the low end; but it wouldn’t do anything to solve the problems of rent-burdened families.

This non-fungibility of housing was eloquently described by Sam Stein in a New York Review of Books piece a few years ago:

Housing will never be as elastic as households. This is not only because construction is complicated in a city as crowded as New York, but also because there is a fundamental difference between people and things. Households change shape over time and can recompose rapidly during an emergency like a pandemic. But despite the work of inventive architects, our housing tends to stay more or less the same. … There is nothing quite as concrete as concrete.

To be clear, the solution is not as simple as simply requiring developers to build more larger units. As this report from the Fiscal Policy Institute points out, this approach could be counterproductive, discouraging new housing construction of all kinds.⁸ But it is certainly something to consider in the design of subsidies or social housing programs.

My second policy conclusion was touched on a bit earlier: We need to be careful about what we mean by affordable. A lack of housing is an acute problem for the very poor. But many people with higher incomes also struggle with housing costs. The figure below shows the share of households paying over 30 percent of their income in rent — the conventional definition of rent-burdened.

As the figure shows, almost all low-income renters are rent-burdened, while almost no high-income households are. But a surprisingly high fraction of middle-income households are rent-burdened by the conventional standard. If we look at households in the middle third of the income distribution, from approximately $40,000 to $120,000, 45 percent of the renters pay more than 30 percent of their income in rent. (And in New York, the large majority of people in this income range rent.)

When we are talking about affordable housing, we should not just be talking about housing for very low-income people, with the implicit assumption that everyone else is adequately served by the existing housing market. We should be talking about a problem with the private provision of housing in general.

Two more points speak more directly to the ballot proposals. On the one hand, “build more housing” is a valid and important policy goal. Even if there were no gains to affordability, simply having more people living in New York (and other dense cities) is a win for humanity, for all sorts of reasons I do not need to go into here. But as the HVS data shows, new housing is helping with costs as well. A large fraction of the housing being built in recent years has been relatively affordable, and is occupied by households in the lower and middle parts of the income distribution.

A corollary of this: Rent-regulated housing rents for significantly less than market-rate housing, and houses people with significantly lower incomes. We can certainly ask whether our subsidy dollars could be spent more efficiently. I personally think that the long-term tax credits are not the right approach; if we want to trade future tax revenue for present housing production, we would do much better to issue bonds backed by that future revenue, and provide the subsidies up front. But for present purposes, the key point is that these subsidies do produce affordable housing.

On the other hand — my final policy point — the fact that recently-built unregulated apartments rent for so much more than existing apartments, and have such disproportionately higher-income tenants, should make us more skeptical of claims that land-use reform, by itself, will substantially reduce housing costs. It could be that rents in newer apartments are high because not many of them are being built, so that is what the market will bear. But it also could be that rents in newer apartments are so high because that’s what private developers require in order to build them.

There may be some truth to both of these views, of course; but I suspect there is more to the second. In which case, while land-use reforms like the three ballot proposals are desirable and important, they will need to be complemented with public interventions in the financing and development of new housing to have a real impact on affordability.

One final point, on the politics, and a final picture, not from the HVS data.

I started this post back before the election, before setting it aside for a while. A that point, I was concerned that misperceptions about what kind of housing is currently being built might be fueling opposition to the ballot proposals. People who care about affordable housing might oppose making it easier to develop housing if they thought that the only housing being built in the city was luxury apartments for the rich.

Now that the election is over, we can see who actually did oppose the measures, and who supported them. Below is the map for Proposal 2, with yes votes in green; the other two would look similar.

What do we see? Well, obviously, this looks like the map of the mayoral election. Not exactly — the proposals carried all of Manhattan, while the Upper East Side voted for Cuomo. But by and large, the areas that voted yes on the proposals are the areas that voted for Zohran Mamdani.

I think this tells us something important about the politics of housing. There’s an argument one often hears, that the politics of housing cut across conventional left-right lines — that arguments against new housing is often made on environmental or anti-gentrification grounds, and come from people who are, in other respects, on the left side of the political spectrum.

Now I would not say there is no truth to this idea. It’s probably most true in the Bay Area, but it’s not limited to there. During the fights over the Atlantic Yards development here in Brooklyn, I personally observed houses with both the iconic “In this house…” and “We love brownstone Brooklyn” signs; needless to say, most New Yorkers do not live in brownstones.

But it’s easy to exaggerate the importance of this combination of views. In the real world, the vast majority of opponents of higher-density housing are not liberals who fly rainbow flags and donate to the Sierra Club; they are conservative homeowners who, not to put too fine a point on it, don’t want Black people moving into their neighborhoods.

Of course there are sincere progressives and socialists who believe that building more housing will only raise rents; and it’s worth trying to persuade them that, in fact, more development, even private development, is an essential part of a broad public program for housing affordability.

But those people are not the main obstacle. The people who are against building more housing are, by and large, the same people who will oppose any program to raise living standards by redistributing income and power and expanding the role of the public sector. It’s the same old lines of left versus right.

UPDATE: I forgot to mention: I adjusted the total number of units built since 2010 in the HVS so it matched the total from the Department of City Planning for units built between 2010 and 2023. But I didn’t see an easy way to do this for subgroups; and while the HVS weights ensure that counts across various categories of buildings match the official totals, the weights are for the whole sample, not for building-age subgroups. So there is going to be some sampling error here — these are not exact counts. I feel reasonably confident that the picture is qualitatively correct, though.

Talking about Zohran

As you certainly know, Zohran Mamdani was elected mayor of New York last Tuesday. Indeed, if your life is like mine, you may feel you’ve been hearing about little else. The other day, as I was biking my younger kid to school, a young guy pulled up next to us with one of those portable speakers that some people like to use to blast music while biking. Except he wasn’t blasting music, but some kind of news commentary show discussing how Mamdani won. Truly, you can’t get away from it.

For my part, in the past couple weeks I’ve been on three different panels and done four interviews on the Mamdani policy agenda. Two of the panels were not recorded, but I thought I’d share the other one and three of the interviews. (The fourth doesn’t seem to have aired yet.) Perhaps you still are looking for Mamdani content, perhaps especially if it’s focused on the challenges of running the city than the election itself. And presumably if you are reading this you have some interest in my point of view. You could listen to them, I suppose, while you’re cooking, or exercising, or in your car, or from a portable speaker on your bike, or gathered your family around the computer with mugs of warm cider — however you prefer to consume your audiovisual content.

The first one, from October 14, is a roundtable organized by Dissent, with me, the indefatigable tenant organizer and housing advocate Cea Weaver, and City Councilmember Chi Ossé, another rising star of the New York left. This was a great conversation, with, though you can’t see it in the video, an enthusiastic and mostly quite young audience — very different from the crowd you used to expect at a Dissent event.

Also from mid-October, is a podcast interview with the Swedish researcher Max Jerneck (there’s a brief introduction in Swedish, which you can skip unless you happen to speak it.). It’s a long conversation, which covers a lot of ground: the first 50 minutes are on Zohran, then there’s 10 or 15 minutes on Trumpism, and the last 20 minutes or so are about Against Money. This was a nice combination from my point of view, since it was an opportunity to try to link the arguments in the book, which are mostly at a fairly abstract level, with more immediate political questions. There’s also a YouTube version, if you want to see me gesticulating; if I’d known he was posting the video, I would have cleaned up my home office first. The YouTube version also lets you see this funny picture Max pulled from the Nobel Prize Committee’s writeup of this year’s winners, which makes “household savings” literally the driving motor of growth — a nice example of the conceptual framework that the book is trying to help free us from.

Post-election, here is an interview with Sasha Linden Cohen on the show Background Briefing. Among other things, we talk about the politics and economics of free (and fast!) buses. Perhaps the key point to make there is that this is a more common policy than you might think. For example, here (via Doug Henwood) is an ad in the Financial Times from the government of Luxembourg, touting their free transit system.

It’s worth emphasizing here, also, that one of Zohran’s accomplishments in the legislature was creating a pilot program with one free bus line in each borough. So far, this has been quite successful, with ridership on the free lines up by about a third compared with other lines, and no sign that they are cannibalizing service from other parts of the system. If one votes for a pilot program — as large majorities in both houses of the legislature did here — it is presumably because adopting the idea generally seems at least plausible.

A second post-election interview was with Brian Edwards-Tiekert on UpFront on KPFA, where I am a somewhat regular guest. (I come on about 33 minutes in.) On this one, we talk more about the campaign itself — both the organization of it, and the campaign as a cultural phenomenon. We also talk quite a bit about his housing program (which is also the focus of the Dissent roundtable), and about what kind of cooperation can be expected from state government.

One point I made here, which I think has been underappreciated through this whole campaign, is how much national Democratic like Schumer and Jeffries are not typical of New York’s Democratic officials. Even in the primary, Zohran Mamdani got more endorsements from the City Council than Cuomo did. By the general election, almost every important city and state elected Democrat was with him. (His final pre-election rally, where the state’s top three officials served as the warm-up act for Bernie Sanders and AOC, drove this home.) This does not mean that there won’t be serious resistance to his agenda — especially insofar as it involves raising taxes on the rich — but I think it’s a mistake to imagine an ideologically coherent “establishment” opposing him. I think a lot of Democrats right now, including many self-identified centrists, are not at all sure what they should be doing in this moment, and would be happy to get behind a Zohran-type program if it looks like a winner. Chuck Schumer may see his number one job as “to keep the left pro-Israel,” but Kathy Hochul assuredly does not.

Finally, here’s an unexpected interview from Election Day. While I was out with the kids on one last get-out-the-vote canvass, we were stopped by someone doing video interviews for her YouTube channel (because of course we were, this is 2025). I wasn’t prepared to do much with this platform, but the kids really rose to the occasion.

Can Zohran Do It?

Zohran Mamdani holds a rally on May 4, 2025 in Brooklyn. (Andrew Lichtenstein/Corbis via Getty Images)

When I first heard that Zohran Mamdani was running for mayor last fall, I admit I was skeptical. The New York City chapter of the Democratic Socialists of America has an impressive track record of winning legislative races, but the mayor’s race was a challenge an order of magnitude larger. And Andrew Cuomo’s advantages—in name recognition, in funding, in elite support—seemed almost impossible to overcome.

But once I started canvassing for the campaign in April, I came to believe he could win. It wasn’t just the responses from people at the doors. It was the number of other people showing up to canvass, most of whom had never volunteered for a political campaign before. In the last week or two before the election, it felt like a movement—there were canvassers everywhere (more than 40,000 people volunteered in total) and you couldn’t leave the house without seeing distinctive blue and yellow Zohran bandanas on the subway, or young people with Zohran T-shirts on the street. In some neighborhoods, every other small business seemed to have a Zohran poster in the window.

There have been plenty of analyses of how the campaign won (including an impressively detailed post-mortem by the candidate himself on YouTube). There is a lot to study and learn from there. But we also need to think about what comes next. Barring some extraordinary calamity, Mamdani will win the general election in November and become mayor at the start of next year. What can we reasonably expect him to deliver?

Here, I pose some questions about what one can realistically hope for from a Mamdani administration. I am not writing this to advise the next Mayor, who is well aware of the possibilities and limits of city government. My goal is just to offer some preliminary thoughts on what we might expect from the new administration, why there’s reason to think he can deliver much of what he promised.

What can be done about housing costs?

Housing is the most important piece of the affordability agenda—the single largest item in most families’ budgets, and the main reason that the cost of living is so much higher in New York City than elsewhere in the country. Whether or not a Mamdani administration can bring down housing costs may well be the issue on which its success is ultimately judged.

Housing politics on the left in recent years has been polarized between a side emphasizing supply constraints and land use regulation, and a side emphasizing rent regulation and public investment. Mamdani, to his credit, recognizes that a both/and approach is called for. More precisely, four distinct strategies will be needed to address the housing crisis.

First is zoning reform. Much of New York City is still subject to zoning rules that sharply limit density and impose parking minimums and other requirements that make it difficult to build new housing. During the Michael Bloomberg administration, these restrictions were tightened by downzoning across the outer boroughs, while upzoning was concentrated in a few areas, mainly lower-income neighborhoods and the city’s remaining industrial zones like Long Island City. The result was to channel development into a few areas, which was unsurprisingly resisted by residents, especially given the weakness of rent regulations at the time. Under Bill de Blasio, the same basic model of concentrated development continued, though the targets now also included some higher-income residential areas. This model tended to provoke opposition to new development from tenants and homeowners, while generating big windfall gains for landowners in the targeted areas.

Surprisingly, it was Eric Adams (or rather his planning commissioner Dan Garodnick) who broke with this model. Rather than picking a few areas for massive redevelopment, his signature “City of Yes” plan was intended to raise allowed densities moderately across the whole city, while rolling back restrictions—especially minimum parking requirements—that discouraged new housing development. The original plan was watered down significantly by opposition from outer-borough City Council members. But it represents a solid starting point for further land use reform.

Land use changes can significantly increase the amount of new housing built, allowing more middle-class people to live in the city. This is a good thing—we should be clear that allowing more people to live here, especially near transit lines, is a positive goal of housing policy, independent of affordability. But land use reform by itself is unlikely to bring down housing costs substantially or increase the supply of affordable units.

One important reason for this is the high returns required by equity investors, who typically supply 30 to 50 percent of the financing for a new housing development. Given the relative illiquidity and riskiness of housing investment, these returns need to be significantly higher than those available from financial assets. And, critically, returns do not come only from rents; they also come from the expected capital gains when the project is sold or refinanced. This means that private developers generally build only on the expectation of rising rents. In order to keep equity finance flowing in an environment of slower rent growth (let alone flat or falling rents), land use reform would have to drastically reduce development costs. This might be plausible in a few areas where land acquisition is the biggest cost. But in general, it’s more reasonable to expect land use reform to lead to more housing at current rents than to significantly lower rents.

So the second piece of the housing package has to address the financing side. With its vast balance sheet and long planning horizons, the city government can accept a much lower return on housing investment than equity investors will. If the city replaces equity investment in new housing at a rate similar to existing debt finance, it can substantially lower the required return and thus make private investment in housing attractive even in an environment of slower rent growth. This does not require subsidies—the city will be paid back—and would be a logical purpose for which the city could issue new debt. As an equity investor the city would be exposed to falls in the value of its portfolio. But this is a much smaller concern for the public sector, since it does not expect to liquidate its investment to repay shareholders or finance new projects, so capital gains or losses matter less than they would to a private investor.

The city’s vast stock of private affordable housing—Mitchell-Lama buildings, limited equity co-ops, and so on—testify to the ability of public or nonprofit financing to deliver substantially lower housing costs. But while financing, unlike land use reform, can indeed lower rents, there will still be a floor set by the actual costs of building and maintaining housing. For deeply affordable units, direct public funding will be needed. This part of the housing program is better funded by tax revenues than debt, so state agreement on new taxes will be important here. Public funding can take the form of subsidies to private developers or direct public ownership. I am not sure there is a strong principled argument between these two approaches. What one wants to avoid are subsidies in the form of vouchers to individual renters, which are subject to landlord capture and abuse. But no one seems to be proposing that.

The last piece of the puzzle is rent regulation. “Freeze the rent” must have been one of the campaign’s most-chanted slogans. And with good reason: this is one policy the mayor can deliver directly without the need for approval of any other body. The mayor appoints all of the Rent Guidelines Board’s members; as the board’s membership turns over he can appoint members who will vote for a rent freeze, as de Blasio’s board did more than once during his administration. And thanks to the improvements to rent regulations passed in 2019—an early victory for the socialist caucus in New York’s state legislature—this will be sufficient to control rents on the city’s one million rent-regulated apartments (close to half of the total stock).

Despite what is sometimes claimed, there is no conflict between favoring both more private housing development and stronger rent regulation. Actually existing rent regulation in New York (and in the few other American cities that have it) is limited to older buildings—in New York, those built before 1974, plus ones where the developer voluntarily opted in as a condition of city subsidies. And they only limit rent increases, not the absolute level of rents. There is no reason to believe that these types of regulations have any effect on new housing construction. One could go a step further: economically, land use reforms and stronger rent regulations should go together. The same limits on new development that make land use reform worth pursuing mean that owners of existing buildings are receiving rents in the economic sense—payments in excess of the cost of production. Limiting those economic rents will have no effect on the supply of housing; it simply allows tenants to share in the gains from improvements in their neighborhoods, rather than being displaced so that landlords can capture them.

Rent regulation and land use reform are also political complements. One of the big obstacles to allowing new housing development—especially in a city of renters like New York—is people’s fear that new development may lead to rising rents and displacement. These fears are often well-founded: even if increasing housing supply leads to lower rents across the city or metro area, it is often associated with rising rents locally, since higher-density areas are generally more desirable than lower-density areas. (That is why cities exist in the first place.) This is especially true when new development is channeled into a few limited areas, as has historically been the case in New York. Strong rent regulation, by reassuring existing tenants that development will not mean displacement, makes a program of boosting housing supply more politically feasible.

There’s one other point to make on the political side. It’s common on the left to talk about developers and landlords interchangeably, and it’s true that in the political arena they often act as a team. But economically, these are two quite different interests, and to a large extent they are two distinct groups of people. It is at least possible that a housing program that included substantial land use reforms and public financing could peel off support from a significant fraction of developers, even if landlords are strongly opposed.

What kind of fiscal space does the city have?

At the federal level, leftists have long argued—correctly, in my view—that tax revenue and bond markets should not be seen as constraints on the public budget. With its own central bank issuing the world’s reserve currency, spending by the federal government should be seen, in the first instance, as a purely political question.

This is not the case at the city level. New York City cannot raise taxes other than property taxes without state approval. It cannot normally issue debt to meet operating expenses. And the level of debt issued for capital projects that bond markets will accept is a genuine concern. At the city level, “how are you going to pay for that?” is a question that has to be answered.

On an economic level, to be sure, the city certainly has the capacity to raise taxes. The current city income tax is essentially flat; raising taxes by one point on incomes over $1 million would bring in around $2 billion, enough to fund a significant part of the Mamdani administration’s agenda. Winning agreement from the state may not be easy. But the income is there to be taxed.

One thing we do not have to worry about is tax increases driving rich people out of the city. Whatever they may say in the political arena, when it comes to their actions, rich people show a clear preference for high taxes and good public services. The two U.S. states with the greatest numbers of billionaires are California and New York; as it happens, these are also the two states with the highest top rates for their state income taxes. The major U.S. city with the highest median income is San Francisco, despite the fact that millionaires there pay a higher tax rate than they would anywhere else in the country. A recent study by the New York Fiscal Policy Institute found no increase in out-migration by high income households following tax increases in 2017 and 2021; high-income households were significantly less likely to leave New York than others were, and when they did leave it was usually to other high-tax jurisdictions.

It’s worth noting also that the very high cost of commercial and retail space in New York reflects the greater income that businesses can generate here. A higher minimum wage, say, is not going to cause businesses to move to New Jersey; given the much higher rents here, if they could move, they already would have. Gristedes owner John Catsimatidis may rage all he likes, but if you want to sell groceries to New Yorkers your stores have to be in New York. Catsimatidis could of course sell the business; but that would just mean it would keep operating under the ownership of someone else. Rich people may sincerely believe that it is only their physical presence that keeps the business they own running, but there’s no reason the rest of us need to share in their narcissism.

With respect to debt, on the other hand, economic constraints are a more serious concern. Unfortunately, it is very hard to say a priori how much more the city could borrow without running into trouble. Certainly, the statements that any more debt would mean catastrophe, and that the city can simply borrow whatever it needs, are equally wrong. Clarifying how much more the city can reasonably borrow—and what it can reasonably borrow for—will be an urgent task for the administration and its allies.

What can the city do on its own authority, and what requires cooperation from the state?

Despite an inspiring history of municipal socialism, city government is not the best platform for an ambitious program to expand the public sector. In the American federal system, city governments are entirely creatures of the state; their powers are limited to what the state grants them.

Major spending expansions will require the cooperation of state government, as will raising corporate and income taxes. There are other areas where the city has the authority to act on its own. Land use is one important area. Another is labor regulation. While the city (probably) does not have the power to independently set its own minimum wage, it can regulate employment terms in individual industries. Recent city laws regulating pay for ride share workers and delivery drivers are among the strongest in the country when it comes to regulating the gig economy (and may be the reason that DoorDash donated so generously to Cuomo’s PAC). This is a foundation we can expect the Mamdani administration to build on.

On transportation, the campaign’s signature proposal was to make buses free, with the MTA being compensated for the lost revenue. In 2023, the city’s Independent Budget Office estimated that this would cost about $650 million per year. Some transit advocates are skeptical of this proposal, arguing that improving service is more important than reducing fares, and that scarce transit dollars would be better spent elsewhere. On the other hand, free buses are not just about reducing costs to riders—without the need to collect fares, buses would move faster. (To be sure, if more people start using buses for short trips, that could cut the other way.)

Whether or not free buses are the ideal transit policy, they have another important virtue: like a freeze in regulated rents, they would be an unambiguous promise made good on, a directly visible gain the administration could deliver relatively quickly. Legibility, simplicity, and universality are underrated virtues in policymaking. Other transportation policies might be better on paper. But it’s unlikely they would do as much to maintain support for the administration or build momentum for further reforms.

Ironically, the criticism directed at this proposal by the Cuomo campaign and others may have made it more effective in this respect. $650 million is a lot, but it’s not an enormous amount in the scale of the city’s budget. And if the result is a free public service that people had been told was impossible, that will ease the path toward other, perhaps more ambitious, improvements. The discovery that we can have nice things is a powerful force to get people to demand more.

Changes to the way the city’s streets are used should also be within the city’s power. More busways, less free parking, closing blocks with schools to cars during school hours—these are reforms that will provoke anger initially but, like congestion pricing, are likely to become much more popular once they are in place.

The parts of the agenda with big price tags—universal child care and public money for housing—will require cooperation with the state, either to provide funding or to give the city authority to raise taxes itself. But it’s worth noting here that the substantive goals of Mamdani’s proposals are, at least notionally, shared by the Democratic mainstream. The recently passed city budget includes money for a pilot program for universal child care, and Governor Kathy Hochul has her own taskforce studying the issue. Everyone agrees that housing is a major problem, and that addressing affordability will require a mix of land use reforms and public money.

What distinguishes the socialist position, in this context, is not its aims. It’s the willingness to take seriously the problem of how to get there—meaning how to mobilize mass support, but also how to pay for it, by raising taxes if necessary. The “moderate” position, as embodied by Governor Hochul, also supports expanded public services. But it resists the new taxes that would make them possible. In this context, the challenge in winning state support may be less about making the case for the program on principle, and more about demonstrating a credible plan to carry it out.

What about the police?

It’s no secret that the police in New York, as in many big cities, operate largely outside the control of elected officials, and are prepared to aggressively challenge a government that tries to limit their prerogatives. You can avoid saying the words “defund the police” on the campaign trail, as Mamdani did, but that doesn’t answer the question of how much funding to dedicate to policing. There will, inevitably, be high-profile cases of police violence that will provoke protests; the mayor will have to take a position. If there are renewed protests over Gaza on New York campuses, will he try to limit police involvement? (And will the police listen if he does?) Mamdani has promised to eliminate the NYPD’s Strategic Response Group, which is notorious for its heavy-handed response to protests and is responsible for a disproportionate share of brutality complaints, lawsuits, and overtime. Whether he can deliver on this will be an important test of his relationship with the department.

That said, the proposal to create a new Office of Community Safety is promising, and it is an example of the kind of bureaucratic reorganization that mayors are generally able to carry out without too much difficulty. It fits the model of successful police reform that scholars like Alex Vitale have emphasized—the goal is less to modify police behavior than to reduce the number of occasions on which people come into contact with the police in the first place. Similar offices of public safety have been created in dozens of cities in recent years such as Albuquerque Community Safety and the Office of Violence Prevention and Trauma Recovery in Newark. In the best-case scenario, this offers a route to reduce the role of the police without a public confrontation.

What does the campaign tell us about the shift in political climate?

The campaign’s single-minded focus on “a city we can afford” was clearly a smart choice strategically. But it’s also important for what it suggests about the shifting political valence of inflation. By framing affordability in terms of expanded public services (universal child care) and limits on the pricing power of private businesses (rent freeze; publicly owned groceries), the campaign showed how the cost of living can be an issue for the left.

This framing of affordability built on several years of debates at the national level. The new anti-trust scholarship of people like Lina Khan and Tim Wu (who himself opposed Cuomo in an earlier campaign as Zephyr Teachout’s running mate for Lieutenant Governor in the 2014 primary), along with work by advocacy groups like the Groundwork Collaborative (full disclosure: I am a fellow there) has advanced an understanding of price increases as the result of the deliberate exercise of market power, rather than the impersonal forces of supply and demand. At the macro level, heterodox scholars like Isabella Weber have made the case that responses to inflation should focus more on relieving specific bottlenecks rather than cutting spending across the board. From both these perspectives, an effective response to price increases requires the government to do more, not less.

The choice to focus on affordability is, obviously, to the credit of Mamdani and his campaign staff. And, obviously, it resonated with voters who had never heard of Louis Brandeis. Was it easier to make these arguments because the intellectual foundation was laid over the past few years? Maybe—it’s hard to say. But at least, it shows that heterodox perspectives on inflation can resonate with the public.

The idea that controlling inflation calls for more public spending and regulation is a departure from the politics of inflation over the past generation, but considered from a longer perspective it’s not so strange. In the mid-twentieth-century debates, it was often union representatives who were most concerned with rising prices, and stronger unions could even be seen as a way of limiting inflation. Or think of the protests against high rents and grocery prices by communist housewives early in the century. “A city you can afford” is probably a slogan they would have approved of.

Is the Zohran campaign a vindication of the idea that winning campaigns need to focus on a narrow set of economic issues, and leave aside broader social justice concerns? I am not sure that it is. It is certainly true that the campaign’s messages emphasized affordability in a clear and consistent way. But that doesn’t imply that they did not take positions on other questions. On Gaza in particular, Mamdani was impressively forthright—in fact, one of the lasting impacts of the campaign may be to break the taboo around criticisms of Israel and its endless wars. No one paying any attention could be in doubt about Mamdani’s support for the rights of gay and trans people. And while he didn’t campaign on “defund the police,” he refused to join other candidates in calling for more cops, proposing instead to diminish their role in New Yorkers’ lives. His call to abolish the Strategic Response Group was particularly significant, given their leading role in the violent suppression of campus protests against the genocide in Gaza.

Picking a single, broadly resonant message and communicating clearly and consistently is surely a big reason why the campaign was so successful. But the economic-populist view is wrong to argue that this requires not talking about other issues. Avoiding a clear position on Gaza or taking the safe route of calling for more police would not have made the core economic message any stronger. The advantages of focus come from what is focused on, not what is left out.

For the past five months, much of the center-left has been shell shocked, off balance, and uncertain how to move forward. This campaign may help break that spell—I suspect it will find many imitators elsewhere in the country. It’s true that a few high-profile figures have embarrassed themselves with public attacks on the mayoral nominee. But many more elected officials and candidates—and probably even more of their staffers—will see a model of how to mobilize an electoral majority for a progressive program.

Mamdani’s agenda will face serious obstacles. But a massive wave of new voters doesn’t just carry you into office. It shifts the landscape, and creates political capital that can be turned toward other ends. It is not just the official powers of the mayor’s office that will allow Mamdani to fulfill his promise to improve the daily lives of New Yorkers. It is also the way his upset victory changes the political calculations for other officeholders across the city. And while no city or campaign alone can reverse Trump’s assault on immigrants or halt the genocide in Gaza, Mamdani’s victory has opened up critical space for politicians and communities courageous enough to take on these tasks.

This piece was originally published in Dissent on July 4, 2025. It draws on conversations with Nathan Gusdorf, Michael Kinnucan, Paul Sonn and Alex Vitale.

At Barron’s: Rate Hikes Are the Wrong Cure for Rising Housing Costs

(I write a monthly opinion piece for Barron’s. This is my contribution for November 2022.)

How much of our inflation problem is really a housing-cost problem?

During the first half of 2021, vehicle prices accounted for almost the whole rise in inflation. For much of this year, it was mostly energy prices.

But today, the prices of automobiles and other manufactured goods have stabilized, while energy prices are falling. It is rents that are rising rapidly. Over the past three months, housing costs accounted for a full two-thirds of the inflation in excess of the Federal Reserve’s 2% target.

Since most Americans don’t rent their homes, the main way that rents enter the inflation statistics is through owners’ equivalent rent—the government’s estimate of how much owner-occupied homes would rent for. The big cost that homeowners actually pay is debt service on their mortgage, which the Fed is currently pushing up. There is something perverse about responding to an increase in a hypothetical price of housing by making actual housing more expensive.

Still, the housing cost problem is real. Market rents are up by over 10% in the past year, according to Zillow. While homeownership rates have recovered somewhat, they are still well below where they were in the mid-2000s. And with vacancy rates for both rental and owner-occupied homes at their lowest levels in 40 years, the housing shortage is likely to get worse.

Housing is unlike most other goods in the economy because it is tied to a specific long-lived asset. The supply of haircuts or child care depends on how much of society’s resources we can devote to producing them today. The supply of housing depends on how much of it we built in the past.

This means that conventional monetary policy is ill-suited to tackle rising housing prices. Because the housing stock adjusts slowly, housing costs may rise even when there is substantial slack in the economy. And because production of housing is dependent on credit, that’s where higher interest rates have their biggest effects. Housing starts are already down 20% since the start of this year. This will have only a modest effect on current demand, but a big effect on the supply of housing in future years. Economics 101 should tell you that if efforts to reduce demand are also reducing supply, prices won’t come down much. They might even rise.

What should we be doing instead?

First, we need to address the constraints on new housing construction. In a number of metropolitan areas, home values may be double the cost of construction. When something is worth more than it costs to produce, normally we make more of it. So, if the value of a property comes mostly from the land under it, that’s a sign that construction is falling far short of demand. The problem we need to solve isn’t that people will pay so much to live in New York or Los Angeles or Boston or Boulder, Colo. It’s that it is so difficult to add housing there.

Land-use rules are set by thousands of jurisdictions. Changing them will not happen overnight. But there are steps that can be taken now. For example, the federal government could tie transportation funding to allowing higher-density development near transit.

Second, we need more public investment. Government support—whether through direct ownership or subsidies—is critical for affordable housing, which markets won’t deliver even with relaxed land-use rules. But government’s role needn’t be limited to the low-income segment. The public sector, with its long time horizons, low borrowing costs, and ability to internalize externalities, has major advantages in building and financing middle-class housing as well.

If we look around the world, it isn’t hard to find examples of governments successfully taking a central role in housing development. In Singapore, which is hardly hostile to private business, the majority of new housing is built by the public Housing Development Board. The apartment buildings built by Vienna’s government between the world wars still provide a large share of the city’s housing. Before the privatizations under Prime Minister Margaret Thatcher, some 30% of English families lived in publicly owned housing.

In the U.S., public housing has fallen out of favor. But governments at all levels continue to support the construction of affordable housing through subsidies and incentives. Some public developers, like the Housing Production Fund of Montgomery County, Md., are finding that with cheap financing and no need to deliver returns to investors, they can compete with private developers for mixed-income housing as well. The important thing is to channel new public money to development, rather than vouchers for tenants. The latter may just bid up the price of existing housing.

Third, we should revisit rent regulation. The argument against rent control is supposed to be that it discourages new construction. But empirical studies have repeatedly failed to find any such effect. This shouldn’t be surprising. The high-rent areas where controls get adopted are precisely those where new housing construction is already tightly constrained. If not much is getting built in any case, rent regulation merely prevents the owners of existing housing from claiming windfall gains from surging demand.

No, rent control won’t boost the supply of housing. But it can limit the rise in prices until new supply comes on-line. And it’s a much bettertargeted response to rising housing costs than the policy-induced recession we are currently headed for.

Considerations on Rent Control

(On November 13, I was invited to testify before the Jersey City city council on rent control. Below is an edited version of my testimony.)

My name is J. W. Mason. I have a Ph.D. in Economics from the University of Massachusetts at Amherst, I am an assistant professor of economics at John Jay College of the City University of New York, and I am a Fellow at the Rosevelt Institute.

My goal today is to present some general observations on rent regulation from the perspective of an economist.

Among economists, rent regulation seems be in similar situation as the minimum wage was 20 years ago. At that time, most economists took it for granted that raising the minimum wage would reduce employment. Textbooks said that it was simple supply and demand — if you raise the price of something, people will buy less of it. But as more state and local governments raised minimum wages, it turned out to be very hard to find any negative effect on employment. This was confirmed by more and more careful empirical studies. Today, it is clear that minimum wages do not reduce employment. And as economists have worked to understand why not, this has improved our theories of the labor market.

Rent regulation may be going through a similar evolution today. You may still see textbooks saying that as a price control, rent regulation will reduce the supply of housing. But as the share of Americans renting their homes has increased, more and more jurisdictions are considering or implementing rent regulation. This has brought new attention from economists, and as with the minimum wage, we are finding that the simple supply-and-demand story doesn’t capture what happens in the real world.

As of 2019, there are approximately 200 cities in the US with some type of rent regulation. Most of them are in three states — New York, New Jersey, and California. Other areas where rent control was once widespread, such as Massachusetts, have seen it eliminated by state law.

A number of recent studies have looked at the effects of rent regulations on housing supply, focusing on changes in rent regulations in New Jersey and California and the elimination of rent control in Massachusetts. Contrary to the predictions of the simple supply-and-demand model, none of these studies have found evidence that introducing or strengthening rent regulations reduces new housing construction, or that eliminating rent regulation increases construction. Most of these studies do, however, find that rent control is effective at holding down rents.

A 2007 study by David Sims and a 2014 study by Autor, Palmer, and Pathak both look at the effects of the end of rent control in Massachusetts, after the passage of Question 9 by Massachusetts ballot referendum in 1994. Sims found that the end of rent control had little effect on the construction of new housing. He did however find evidence that rent control decreased the number of available rental units, by encouraging condo conversions. In other words, rent control seemed to affect the quantity of rental housing, but not the total quantity of the housing stock. Unsurprisingly, Sims also found significant increases in rent charged after decontrol, suggesting that rent control was effective in limiting rent increases. Finally, he found that rent controlled units had much longer tenure times, supporting the idea that rent control promotes neighborhood stability. Autor and coauthors reached similar conclusions. They also found that eliminating rent control also raised rents in homes in the same area that were never subject to the controls, reinforcing the idea that rent control contributes to neighborhood stability.

A 2007 study by Gilderbloom and Ye of more recent rent control laws here in New Jersey finds evidence that rent controls actually increase the supply of rental housing, by incentivizing landlords to subdivide larger rental units.

A 2015 study by Ambrosius, Glderbloom and coauthors also looks at changes in New Jersey rent regulations. As with the previous study, they find that rent control in New Jersey has not produced any detectable reduction in new housing supply. However, they also find that many of these laws, because of their relatively generous provisions, in particular vacancy decontrol, only limit rent increases on a relatively small number of housing units.

The most recent major study of rent control, by Diamond McQuade, and Qian in 2018, uses detailed data on San Francisco housing market to look at the effect of the mid-1990s change in rent control rules there. They suggest that while the law did effectively limit rent increases, and had no effect on new housing construction, it did have a negative effect n the supply of rental housing by encouraging condo conversions.

The main conclusions from this literature are, first, that rent regulation is effective in limiting rent increases, although how effective it is depends on the specifics of the law. Vacancy decontrol in particular may significantly weaken rent control. Second, there is no evidence that rent regulations reduce the overall supply of housing. They, may, however, reduce the supply of rental housing if it is easy for landlords to convert apartments to condominiums or other non-rental uses. This suggests that limitations on these kinds of conversions may be worth exploring. Third, in addition to their effect on the overall level of rents, rent regulations also play an important role in promoting neighborhood stability and protecting long-term tenants.

Let me now turn to the question of why the textbook story is wrong. There are several features of housing markets and of rent control that help explain why the simple supply-and-demand model is inapplicable.

First, these arguments misunderstand the goal of rent regulation. In part, it is to preserve the supply of affordable housing. But it also recognizes the legitimate interest of long-term tenants in remaining in their homes. A rented house or apartment is still a family’s home, which they have a reasonable expectation of remaining in on terms similar to those they have enjoyed in the past. Just as we have a legal principle that people cannot be arbitrarily deprived of their property, and just as many local governments put limits on how rapidly property taxes can increase, a goal of rent control is to give people similar protection from being forced out of their homes by rent increases.

Second, and related to this, there is a social interest in income diversity and stable neighborhoods. In the absence of rent control or other measures to control housing costs, an area that sees rising productivity or improved amenities may see a sharp rise in rents and become affordable only for higher-income households. Besides the questions of equity this raises, there are economic costs here, as it becomes difficult for people holding lower paid jobs to live within commuting distance; an area that becomes more homogenous may also lose the social and cultural dynamism that caused the improvement in the first place. Similarly, the evidence seems clear that in the absence of rent regulation, turnover among tenants will be higher, leading to less stable communities and discouraging investment by renters in their neighborhoods. The absence of rent regulation may also create political obstacles to efforts to increase housing supply, attract new employers, or otherwise improve urban areas, since current residents correctly perceive that the result of any improvement may be higher rents and displacement. Rent regulation removes these conflicts between the social interest in thriving, high-wage cities and the interests of current residents. This makes it an important component of any broader urban development program.

Third, rent regulations in general affect only increases in rents. When a new property comes on the market, landlords can charge whatever the market will bear. And when they make major improvements, again, most existing rent regulations, including the current Jersey City law, allow them to recapture those costs via higher rents. So what rent control is limiting are the rent increases that are not the result of anything the landlord has done — the rent increases that result from the increased desirability of a particular area, or of a broader regional shortage of housing relative to demand. There is no reason that limiting these windfall gains should affect the supply of housing.

Fourth, in many high-cost areas, housing supply is relatively fixed. The reason that existing homes in many large cities cost multiple times more than the costs of construction, is that the ability to add new housing in these areas is very limited, by some mix of regulatory barriers like zoning, and physical or economic barriers. In economists’ terms, the supply of housing in these areas is inelastic – it doesn’t respond very much to changes in price. This fact is widely recognized, but its implications for rent regulation are not. In a setting where the supply of new housing is already limited by other factors – whether land-use policy or the capacity of existing infrastructure or sheer physical limits on construction – rent regulation will have little or no additional effect on housing supply. Instead, it will simply reduce the monopoly profits enjoyed by owners of existing housing.

Fifth, housing is very long-lived. According to the Bureau of Economic Analysis, the average age of a tenant-occupied residential structure in the US is 42 years. In much of the northeast and in older cities, the average age will be greater. The fact that housing lasts this long has important implications. No one constructing new housing is thinking about returns that far out. Most business investment is expected to repay its costs in less than 10 years. Housing construction may have a longer payback period — as we know, much construction is financed with 30-year mortgages. But the rents 40 or more years in the future are simply not a factor in the construction of new housing. This means that there is a great deal of space to regulate the rents on existing housing without affecting the decision to build or not build

The bottom line is that rents in the everyday sense are often also economic rents. When economists use the term rent, they mean a payment that someone receives from some economic activity because of an exclusive right over it, as opposed to contributing some productive resource. When a landlord gets an income because they are lucky enough to own land in an area where demand is growing and new supply is limited, or an income from an older building that has already fully paid back its construction costs, these are rents in the economic sense. They come from a kind of monopoly, not from contributing real resources to production of housing. And one thing that almost all economists agree on is that removing economic rents does not have costs in terms of reduced output or efficiency.

Finally, I would like to offer a few design principles for rent regulation, based on my read of the literature.

First, rent control needs to be combined with other measures to create more affordable housing. The main goals of rent regulation are to protect renters’ legitimate interest in remaining in their homes; to advance the social interest in stable, mixed-income neighborhoods; and to curb the market power of landlords. Other measures, including subsidies and incentives, reforms to land-use rules, and public investment in social housing, are needed to increase the supply of affordable housing. These two approaches should be seen as complements.

Second, there are good reasons that most existing rent control focuses on rent increases rather than the absolute level of rents. Rent control structured this way allows new housing to claim the market rent, giving the developer a chance to recover the costs of construction. Rent increases many years after the building is finished are more likely to reflect changes in the value of the location, rather than the costs of production. From the point of view of allowing existing tenants to remain in their homes, it is also makes sense to focus on increases, rather than the absolute level of rents.

Third, since rent regulation is aimed at the monopoly rents claimed by landlords, it should allow for reasonable rent increases to reflect increased costs of maintaining a building. At the same time, there is a danger that landlords will engage in unneeded improvements if this allows them to raise rents more than they would otherwise be allowed to. A natural way to balance this is to adjust the allowable rent increase each year based on some measure of average costs or a broader price index, as in the current Jersey City law.

Fourth, for rent control to be effective, tenants also need to be protected from the threat of eviction or other pressure from landlords. To give renters genuine security in their homes, they need an automatic right to renew their lease, unless the landlord can demonstrate nonpayment of rent or other good cause.

Fifth rent control is more likely to have perverse effects when the controls are incomplete. When rent regulations do reduce the supply of affordable rental housing, this is typically because they have loopholes allowing landlords to escape the regulations. In particular, vacancy decontrol or allowing larger rent increases on vacancy significantly reduces the impact of rent control and may encourage landlords to push out existing tenants. There is also some evidence that landlords seek to avoid rent regulation by converting rental units into units for sale. To avoid these kinds of unintended consequences, rent regulations should be as comprehensive as possible, and options to remove units from the regulated market need to be closed off wherever possible.

Thank you.

The Return of the Renter

Every month, the Census releases new numbers on new housing construction. As an indicator of current economic conditions, June’s numbers didn’t give any dramatic news one way or another. But they did highlight a trend that I think should get more attention: the decline of single-family housing in the US.

To market watchers, housing is an important sign of business cycle turning points. A well-known article argues that Housing Is the Business Cycle. From this point of view, June’s numbers were not very informative. They told the same story the last several months’ did: After steadily rising from the end of the recession, housing construction has stabilized — housing starts and permits issued have been basically unchanged since early 2017. Last month’s housing starts were almost exactly the same as last summer’s. The fact that housing construction is no longer rising might perhaps be seen as a sign of economic weakness; but it’s hard to take it as a sign of a crisis or imminent downturn.But pulling back from the month by month variation, the most recent numbers reflect two related trends that may be more important than the ups and downs of the business cycle.

The first trend is the secular decline in housing construction. Housing starts, while higher than a few years ago, are still very low by historical standards — not just compared with the boom period of the 2000s, but with most earlier periods as well. On a per capita basis, new housing construction is at a level seen only at the bottom of the worst recessions before 2007. Compared with an annual average of 6.5 new units per thousand people in the 1980s and 1990s, the current rate is less than 4 per thousand, and shows no sign of returning to the old rate.

It’s hard to say how much this decline in new housing construction is a specifically post-bubble-and-crisis phenomenon, and how much it reflects longer-term trends. People sometimes suggest that low rates of housing construction are the flipside of the housing boom of the 2000s. There was a strong case for this in the years immediately after the recession, when the fraction of vacant houses was well above historical levels. But since then, the inventory of vacant houses has come down toward more normal levels.

Meanwhile, if we look at new housing construction per capita over a longer period, there is a fairly steady long-term decline – it’s not clear that the most recent period is exceptional. If you draw an exponential trend from 1959 through 1999 (the start of the housing bubble), as shown in the figure below, the current level of housing starts falls right on that trend. And relative to the shortfall in new construction during 2008-2015 is not too much greater than the excess of new construction during 1999-2007. To put it another way, the percentage decline in housing starts per capita over the past 20 years, is not much bigger than the average decline over any 20 year period since the 1950s.

Of course, this is just one way of looking at the numbers. There are many ways to draw a trend! And one might argue that, historically, the top of a boom should see new housing starts well above trend, suggesting that the recent decline is something new after all. You might also reasonably wonder whether the long term trend has any substantive meaning at all. The political economy of housing the 1950s and 1960s was different from today on all sorts of levels. It wouldn’t be hard to look at the same data in terms of a structural break, rather than — or in addition to — a downward trend.

For macroeconomic purposes, though, it doesn’t necessarily matter. Whether it reflects the ongoing effects of the subprime crisis or whether it reflects longer-term factors — slowing population growth, an aging population, the end of suburbanization – or whether it’s some mix of both, the decline in new housing construction remains an important economic fact.

Among other things, it is important for macroeconomic policy. Mortgage lending is central to the financial system: Housing accounts for over 70 percent of household debt, and housing finance plays a central role in financial instability. Conversely, residential construction is the economic sector most sensitive to financial conditions, and to monetary policy in particular. So the shrinking weight of housing in the economy may be a factor in the Federal Reserve’s inability to restore growth and full employment after the crisis. Looking forward, if conventional monetary policy works primarily through residential construction, and residential construction is a permanently smaller part of the economy, that is another argument for broadening the Fed’s toolkit.

Housing construction may be down for the count, at least compared with historical levels. But — and this is the second trend – it is not down across the board. The recent decline is limited to single family housing. Multifamily construction has been quite strong, at least by the standards of the post-1990 period. Compared with the two decades before 2007, single-unit housing starts in the past year are down by a third. Multifamily starts are up by a third. Per capita multifamily housing starts are actually higher than they were at the height of the housing boom. These divergent trends imply a major shift in the composition of new housing. Through much of the 1990s, less than 10 percent of new housing was in multifamily projects. Today, the share is more like 30 percent. This is a dramatic change in the mix of housing being added, a shift change visible across much of the country in the form of suddenly-ubiquitous six-story woodframe apartment buildings. The most recent housing data released suggests that, if anything, this trend is still gathering steam: A full third of new housing in June was in multifamily buildings, an even higher proportion than we’ve seen in recent years. In the areas that the Census designates as metropolitan cores, the shift is even more dramatic, with the majority of new housing units now found in multifamily buildings.

The shift in new construction away from single-family houses is consistent with the decline in homeownership. At 64 percent of households, the share of homeowners is 5 points lower than it was in the mid-2000s. In fact it’s back almost exactly where it was 30 years ago, before the big expansion in homeownership of the 1990s and 2000s.

To be sure, multifamily housing and rental housing are not the same thing. But there is a very substantial overlap. Over 80 percent of detached single-family homes are owned by their occupants. Less than 20 percent of units in larger buildings are, and the share drops as the number of units in the building rises. While homeownership rates have fallen across the board over the past decade, these relative patterns have not changed. (See the figure below.) So it’s fair to say that the decline of homeownership and the shift toward multifamily developments are, if not the same trend, at least closely linked.The aggregate figures understate the decline in homeownership, because over this period the population has also been aging, and older families are much more likely to own their homes. (For a good discussion of these trends, see here.) For younger families, homeownership rates are lower than they have been in many decades. Compared with 40 years ago, homeownership rates are substantially lower for every age group except those 65 or older. Even compared with a decade ago, there has been a substantial fall in homeownership rates in younger age groups. As a result, the typical homeowner today is much older than in the past. Only a quarter of US homeowners today are younger than 45, compared with nearly half in the 1980s.

The same pattern is visible over the post-housing crash period, as shown in the figure below. Among those aged 30-44 – the ages when most Americans are starting families – the rate of homeownership is nearly 10 points lower than it was just a decade ago. The shift in housing construction toward multifamily buildings reflects the fact that Americans in their prime working years are much more likely to be renters than they used to be. This shift is important for politics as well as the economy. Tenant organizations were once an important vehicle for mass politics in American cities. In the progressive imagination of a century ago, workers were squeezed from one side by landlords and high rents just as they were squeezed from the other by bosses and low wages.

After World War II, the focus of housing politics shifted away from tenants’ rights, and toward broadening access to home ownership. This shift reflected a genuine expansion of homeownership to middle class and working class families, thanks to a range of public supports — supports, it should be noted, from from which African-Americans were largely excluded. But it also reflected a larger vision of democratic politics in terms of a world of small property owners. Homeowners were expected — not without reason — to be more conservative, more ready to imagine themselves on the side of property owners in general. As William Levitt, developer of the iconic Long Island suburb, is supposed to have said: “No man who owns his own house and lot can be a communist.”

The idea of a property-owning democracy has deep roots in the American political imagination, and can be part of a progressive vision as well as a conservative one. Baby bonds – an endowment or grant given to everyone at the start of their life — are supposed to be a way to broaden property ownership in a way that opens up rather than shuts down possibilities for radical change. Here for example is Darrick Hamilton in his 2018 TED Talk. “Wealth,” he says,

is the paramount indicator of economic security and well-being. It provides financial agency, economic security… We use words like choice, freedom to describe the benefits of the market, but it is literally wealth that gives us choice, freedom and optionality. Wealthier families are better positioned to finance an elite, independent school and college education, access capital to start a business, finance expensive medical procedures, reside in neighborhoods with higher amenities… Basically, when it comes to economic security, wealth is both the beginning and the end.

Descriptively, there’s certainly some truth to this. And with homes by far the most important form of middle-class wealth, policies to promote homeownership have been supported on exactly these grounds. Homeowners enjoy more security, stability, a cushion against financial setbacks, and the ability to pass their social position on to their children. The policy problem, from this point of view, is simply to ensure that everyone gets to enjoy these benefits.

One way to keep people secure in their homes is to allow more people to own them. This has been the focus of US housing policy for most of the past century. But another way is to give tenants more of the protections that only homeowners currently enjoy. Outside a few major cities, renting has been assumed to be a transitory stage in the lifecycle, so there was little reason to worry about security of tenure for renters. A few years ago I was a guest on a radio show on rent control, and I suggested that apart from affordability, an important goal of rent regulation was to protect people’s right to remain in their homes. The host was genuinely startled: “I’ve never heard someone say that a person has the right to remain in their home whether they own it or not.”

There are still plenty of people who see the decline in homeownership as a problem to be solved. But the shift in the housing stock toward multifamily units suggests that the trend toward increased renting is unlikely to be reversed any time soon. (And even many single-family homes are now owned by investors.) The experience of the past 15 years suggests that, in any case, home ownership offers less security than we used to think.

If more and more Americans remain renters through their adult lives, the relationship with the landlords may again approach the relationship with the employer in political salience. Strengthening protections for tenants may again be the basis of political mobilization. And people may become more open to the idea that living in a place, whether or not you own it, gives you a moral claim on it — as beautifully dramatized, for example, in the 2019 movie The Last Black Man in San Francisco.

We may already be seeing this shift in the political sphere. In recent years, there has been a resurgence of support for rent regulation. A ballot measure for statewide rent control failed in California, but various bills to extend or strengthen local rent regulation have gotten significant support. Oregon recently passed the nation’s first statewide rent control measure. And in New York, Governor Cuomo signed into law a sweeping bill strengthening rent regulation where it already exists — mainly New York City – and opening the way for municipalities around the state to pass their own rent regulations.

The revival of rent regulation reflects, in the first instance, political conditions – in New York, years of dogged organizing work by grassroots coalitions, as well as the primary defeats of most of the so-called Independent Democratic Conference, nominal Democrats who caucused with Republicans and gave them control of the State Senate. But it is not diminishing the hard work by rent-regulation supporters to suggest that the housing-market shift toward rentals made the terrain more favorable for them. When nearly half the population are renters, as in New York State, there is likely to be more support for rent regulation. The same dynamic no doubt played a role in the opposition to Amazon’s new headquarters in Queens: For most residents, higher property values meant higher rents, not windfall gains.

To be sure, the United States is not (yet) New York. The majority of American families still live in homes they own. But as the new housing numbers remind us, it’s a smaller majority than it used to be, and likely to get even smaller in the future. Which suggests that, along with measures to democratize property-ownership, there is a future for measures like rent control, to ensure that non-property owners also have a secure claim on their part of our common wealth.

(Figures 1, 3 and 4 are my analysis of series from FRED: HOUST, HOUST1F, COMPUTSA, and POPTHM. Figure 2 is from the Census Housing and Vacancy Survey. Figures 5 and 6 are my analysis of ACS data.)