Zohranomics – 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.