{"id":795708,"date":"2026-05-14T11:33:04","date_gmt":"2026-05-14T11:33:04","guid":{"rendered":"https:\/\/www.europesays.com\/us\/795708\/"},"modified":"2026-05-14T11:33:04","modified_gmt":"2026-05-14T11:33:04","slug":"the-roots-of-new-york-citys-housing-affordability-crisis","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/us\/795708\/","title":{"rendered":"The Roots of New York City\u2019s Housing Affordability Crisis"},"content":{"rendered":"

Far from being a bastion of the rich, New York City has long been home to people from across the income spectrum. That diversity is part of what makes it the world\u2019s most dynamic city. But rising real-estate prices have made it increasingly difficult for creative professionals, service-industry employees, government workers, and others to raise families<\/a> in the city. That\u2019s a threat to the city\u2019s dynamism.<\/p>\n

What\u2019s causing this housing problem? To understand it, we need to examine how investors make decisions and the financial math that drives their choices. The problem isn\u2019t \u201cgreed,\u201d as some like to claim. It\u2019s that, for New York City real-estate developers, the math ain\u2019t mathing.<\/p>\n

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It costs about $48 million to build a 50,000 square-foot building in New York City. Per square foot, land is $200\u2013250, construction is $350\u2013$450, financing is $125\u2013175, and soft costs (architects, engineers) are $125\u2013175. A hypothetical 60-unit building\u2014averaging 667 square feet per unit, with rents at $60 per square foot (studios for $2,500, one-bedrooms for $3,000, and two-bedrooms for $4,000)\u2014would generate $2.4 million in gross annual income. However, after expenses, which typically hover around 50 percent of the income, the net operating income (NOI) would total only $1.2 million.<\/p>\n

Determining what an investor would pay for this rental building requires understanding the capitalization rate. The \u201ccap rate\u201d is a measure of expected annual return, calculated by dividing a property\u2019s first-year NOI by its potential purchase price. Investors will buy in to a building only if the cap rate is attractive enough.<\/p>\n

For instance, our hypothetical property generating $1.2 million NOI would be worth $24 million at a 5 percent cap rate but only $12 million at a 10 percent cap rate or $30 million at 4 percent. The market sets the cap rate\u2014investors demand a higher rate for riskier assets and lower rate for safer assets. Cap rates also typically exceed mortgage rates, since investors prefer not to borrow money at a higher rate than the income the investment yields.<\/p>\n

At a 5 percent cap rate, an investor would pay about $24 million for our newly built 60-unit rental building. But that is only half the $48 million it costs to build it. Just to get to the break-even point\u2014a 2.5 percent cap rate\u2014you would have to double rents. But $6,000-per-month one-bedroom and $8,000-per-month two-bedroom units aren\u2019t exactly \u201caffordable.\u201d No rational investor takes risks just to break even.<\/p>\n

Four forces are making New York\u2019s cap rates untenably high. Higher interest rates have driven cap rates up and increased overall construction costs. Rampant inflation has pushed up construction costs and expenses by double digits every year. The surging insurance market<\/a> saw multifamily premiums rise more than 75 percent<\/a> between 2019 and 2024. And regulatory risk has risen, as investors fear anti-business sentiment<\/a> in New York City. Each of these increases the spending\u2014and therefore the rents\u2014needed to make an appealing return.<\/p>\n

To spur development, the city has tried to offset a portion of the expenses with tax abatement programs such as 421a<\/a> and 485-x<\/a>. Critics deride these policies as developer<\/a> giveaways<\/a>. The abatements make sense, though, because the single largest operating expense for a multifamily property is property tax<\/a>, consuming roughly 25 percent to 30 percent of a building\u2019s gross income. Rental development has become economically impossible without tax breaks or other subsidies.<\/p>\n

But continuing to subsidize the status quo will never solve the housing problem. What\u2019s needed is more supply.<\/p>\n

That includes high-value properties, not just \u201caffordable\u201d units. New supply at the top frees up existing units below, gradually filtering down to middle- and lower-income renters as buildings age.<\/p>\n

More opportunities to build always help. In 2018, Minneapolis became the first major U.S. city to eliminate exclusive single-family zoning<\/a> and to expand supply substantially. By 2023, rents there had fallen roughly 4 percent in real terms<\/a>, bucking national trends.<\/p>\n

Tokyo offers an even more compelling case. Housing there has remained far more affordable<\/a> than in New York, London, or San Francisco. One primary reason is that Japan\u2019s zoning is set nationally<\/a>, so neighborhoods and community boards can\u2019t block development. Because building is so much easier in Tokyo, competition has led to the most affordable rents of any major global city (average monthly rent for a studio is about $650<\/a>).<\/p>\n

The lesson isn\u2019t complicated: cities that build are more affordable.<\/p>\n

The good news is that the most consequential fixes cost taxpayers nothing up front. New York can upzone underbuilt neighborhoods without lengthy review processes, expand tax abatements for mixed-income rentals, and modernize the building code to allow materials used everywhere else in the United States. And New York can address numerous other factors\u2014including high material costs and onerous regulations ranging from labor laws to prevailing wage requirements<\/a>\u2014that make building here<\/a> so dauntingly expensive. Getting a handle on these forces will help boost supply and reduce prices.<\/p>\n

For anyone in a decision-making role, understanding why the cost structure in New York is so prohibitive is the necessary first step to fixing affordability. If we want lower rents, we need more housing. And if we want more housing, the math needs to add up for the people who build it.<\/p>\n

Ramon Maislen<\/a> founded Phasa Development in 2009 and has since managed adaptive reuse and ground-up construction projects throughout Manhattan and Brooklyn.<\/p>\n

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City Journal is a publication of the Manhattan Institute for Policy Research (MI), a leading free-market think tank. Are you interested in supporting the magazine? As a 501(c)(3) nonprofit, donations in support of MI and City Journal are fully tax-deductible as provided by law (EIN #13-2912529).<\/p>\n","protected":false},"excerpt":{"rendered":"Far from being a bastion of the rich, New York City has long been home to people from…\n","protected":false},"author":3,"featured_media":795709,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5122],"tags":[5229,405,403,5226,5225,5228,5227,67,586,132,5230,68,2969],"class_list":{"0":"post-795708","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-new-york","8":"tag-america","9":"tag-new-york","10":"tag-new-york-city","11":"tag-newyork","12":"tag-newyorkcity","13":"tag-ny","14":"tag-nyc","15":"tag-united-states","16":"tag-united-states-of-america","17":"tag-unitedstates","18":"tag-unitedstatesofamerica","19":"tag-us","20":"tag-usa"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@us\/116572717552346655","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/795708","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/comments?post=795708"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/795708\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media\/795709"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media?parent=795708"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/categories?post=795708"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/tags?post=795708"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}