Dead tape: New report says slow bureaucracy worsens NYC housing shortage

Home prices grew 177% since 1986, but construction fell short

TRD New York /
Jul.July 19, 2016 07:00 AM

You can’t walk a block in New York City without spotting a construction crane. But few cities have done a worse job over the past two decades of building enough housing to meet demand, according to a new report by listing site Trulia. And a slow bureaucracy may be partly to blame.

Between 1996 and 2016, housing prices rose by 176.9 percent in the city, while its housing stock grew just 10.9 percent. Only six housing markets in the U.S. (New Orleans, Pittsburgh, Los Angeles, San Francisco, Buffalo and Scranton – see chart) had a bigger gap between price growth and new construction.

The obvious explanation for New York’s chronic lack of construction is that it is already very dense and surrounded by water, which makes it more difficult to add supply. “There aren’t a lot of green field opportunities,” said Ralph McLaughlin, Trulia’s chief economist and the author of the report. Investors In New York multifamily properties often wield this geographic argument as a reason why rents will continue to rise.

But according to Trulia, that’s only part of the explanation. The report found a high correlation between the time it takes to get building approval and a housing market’s supply elasticity (i.e. the rate at which housing supply increases in response to an increase in demand): the slower the bureaucracy, the lower the elasticity.

According to McLaughlin, it takes an average of 11 months to get building approval in New York, the fifth-slowest rate among major metropolitan areas in the U.S.

“The cost of time is very much uncertain,” McLaughlin said. And uncertainty discourages construction.

For City Hall, the implication is that minimizing bureaucratic delays could boost housing construction. Last month, the city’s Department of Buildings began rolling out a new computer system, DOB Now, in an effort to simplify the permit process.

There are two important caveats to the Trulia report. One is that it doesn’t control for vacancy rates. Pittsburgh and New Orleans had low supply growth despite a spike in demand in part because of high vacancy rates, which make large-scale construction unnecessary. The second caveat is that a lot of new supply will be added to New York’s housing market over the coming years that doesn’t yet factor into Trulia’s elasticity calculation.

The de Blasio administration launched a highly publicized plan to create or preserve 200,000 affordable housing units by 2025, but ran into trouble when industry and labor groups failed to reach a deal to continue the tax abatement program 421-a, which expired in January. Some large-scale rental developments, such as the Durst Organization’s TRData LogoTINY Hallets Point and Alma Realty’s Astoria Cove, were since put on ice.

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