* Geographic constraints to adding housing, plus a difficult regulatory and business environment to do new construction in.
* 0.8% of houses are owned as speculative investments, not housing.
* Prices capture access to the world's best public transportation system and all the shops and restaurants connected to it.
* Salaries are higher and so there's less pressure from tenant price ceilings.
I'm not sure I understand why the investment property thing is such a potent force, even though it was given multiple grafs and an chart in the article.
> Right now, nearly half of the rental housing stock in New York City over all (as well as in Manhattan specifically) is rent-regulated, meaning the apartments are either rent-controlled or rent-stabilized. Another 17 percent of the rental housing stock across the city is public or subsidized (20 percent in Manhattan specifically).
In other words, almost 2/3 of private-market housing is rent-regulated!
One of the things that's not often mentioned in this connection is that housing regulation has ripple effects through time. It takes time to build up a wide array of housing stock for different price points. Most housing stock in major cities was built in the 1960's-1980's. So New York doesn't just suffer from its rent regulations now, it suffers from the rent regulations that constrained housing construction over the last several decades.
Compare Chicago, which has very affordable housing, and which has never really had rent-control (with the exception of federally-mandated rent control during World War II) and where there is a state-wide ban on rent-control ordinances at the municipal level (since 1996). See also Philadelphia, which also has no rent controls and very affordable housing. Of course, these cities are not built as densely New York, and you'd expect to pay a premium in a place like New York simply by virtue of the lack of space. But had New York allowed the construction of high-density housing to meet demand in the 1970's and 1980's, you'd see far more affordable prices today (and see far less "waste" in the form of vast swaths of low-rise buildings on much of an island that has no business having low-rise buildings).
Actually the problem as I experience it is that there is no new housing going up that isn't luxury housing. Developers in NYC only go after the high end so they can get their money back, those that own rent stabilized housing make their money by putting the least into it and taking the most out. I'm in Williamsburg and the only housing going up is luxury housing. And it's been that way as long as I can remember with the exception of special Mitchell-Lama projects which are pretty rare. So allowing more high rise construction will only bring you more luxury housing because that's what developers want.
Also the harsh reality is that the most desirable location is Manhattan, and being an island there is a hard limit on what's available -- so things can only go up.
Developers only put up luxury housing because its such a pain to put up housing that only very high margin housing is worthwhile. If the process effectively limits the developments that can go up in a year, only the highest margin projects will go up. That's also the back-log issue. A brand new building can charge higher rents than an older one. If you kept people from building new high-rises in the 1970's, then there isn't a supply of 30-40 year old buildings that offer lower rents. Moreover, if you prevent old buildings from being torn down, that raises the price of plots zoned for high rise construction. So only high margin projects will go up.
Yes, Manhatten is a popular island and will be naturally expensive. But its a lot more expensive than it would be if developers were allowed to flood the market with supply. Think about all the low-rise housing all over the city. Those buildings themselves are worth nothing--they're old tenement housing for the most part. If I owned one of those 20 unit buildings in say the east village, the vast majority of the value of my property is in the land. Given the prevailing high rents, why wouldn't I tear down that building and put up a 300 unit high-rise instead? That's what happens in a market. Markets hate profits. If prices are really high, producers will ramp up supply until prices just equal marginal cost.
Actually I know many people who work in NYC real estate — it's all about making as much money as you can with the least investment. In fact the irony that proves this is that the quality of construction on "luxury housing" can often be terrible! The thing is that people get into NYC real estate to make real money, this isn't spread out suburbia where you want to go after the middle class with retirement communities for baby boomers who don't want a house as a good example.
Because of the limited space in Manhattan there's no such thing as a true free market: In that way it's like a very finite resource like Picasso paintings (only more of them). If you were in Williamsburg during the "recession" you would have seen buildings going up without pause. And the only reason for that was because it's slightly cheaper than Manhattan.
In fact even after 9/11 I was shocked to see that real estate actually went up because everyone assumed that they would game the suckers who would flee the city. NYC real estate may be one of the few places where there is no such thing as gravity. In fact when people would talk about a housing bubble these past few years it was like they were describing an alien life form outside our solar system.
In fact I would say that if I had the free capital I would invest in NYC real estate as a more sure thing than anything else.
NYC is such a desirable place for people to live that demand will be very strong and supply will be tight for a very long time. Economics 101 suggests that prices will be elevated as a result.
Markets rush to equilibrate. When demand is high, prices go up, which causes suppliers to rush to produce more supply to take advantage of the prices, which has the effect of moderating prices. If the New York housing market were unregulated, you'd see vast swaths of the city bull-dozed and replaced with skyscrapers, increasing supply and bringing down prices. The fact that you don't see particularly much construction in New York, despite skyrocketing prices, is a sign that something is very wrong with the market.
Compare a place like Toronto, which is also a high-demand market and seeing an incredible building boom right now as old buildings are torn down and skyscrapers are put up.
* Geographic constraints to adding housing, plus a difficult regulatory and business environment to do new construction in.
* 0.8% of houses are owned as speculative investments, not housing.
* Prices capture access to the world's best public transportation system and all the shops and restaurants connected to it.
* Salaries are higher and so there's less pressure from tenant price ceilings.
I'm not sure I understand why the investment property thing is such a potent force, even though it was given multiple grafs and an chart in the article.