Groundhog Day in New York City: Housing Projects Falling Short

Every month, the real estate industry puts out a report showing a dramatic decrease in housing construction. But if the story never changes, is it even news?

Breaking: We’re not creating enough homes. In other news, the sun rose in the east today and water is still wet.

It’s no mystery why stories about housing shortfalls don’t generate much attention. There are only so many policy wonks, and everyone else doesn’t want to read the same story again and again.

Yet the industry keeps telling it, like Bill Murray in “Groundhog Day” (although Murray’s character eventually broke out of his nightmare and got the girl).

Last week the Real Estate Board of New York reported that September’s foundation permit approvals kept the city on pace to start fewer than 10,000 new units this year.

In a city that just matched its all-time high of 4.7 million jobs, 10,000 housing starts in a year is a tiny number. Historically, we typically build three times as many homes, and really need to produce five times as many to reverse the housing shortage.

Does new supply really matter? Yes. A lot.

When people compete for a home, the highest bidder gets it. The more bidders there are for that home, the higher the winning bid will be. I cannot make it any simpler than that.

To be sure, wages, subsidies, regulations and construction costs also matter. Adding housing alone doesn’t guarantee the affordability crisis will end. But not adding housing guarantees that it won’t.

Unfortunately, some people who pretend to be housing experts do not acknowledge this. Some believe adding housing causes rents to go up.

In a recent exchange on social media, a reader commented that if a developer builds $500,000 homes in a city where the median home price is $300,000, the median will increase. Thus, she concluded, housing will be more expensive.

This reasoning fails to consider the effect on existing homes.

A home shopper with a $500,000 budget will buy one of those new homes. But if the new homes don’t exist, that shopper will bid for an older, $300,000 home. Who wins those bidding wars? People with more money. They might bid $330,000 for the home priced at $300,000.

Conclusion: In the no-build scenario, housing prices also go up. But they go up because the cheaper homes become more expensive. That shuts out lower-budget shoppers, and the affordability crisis gets worse.

But wait, there’s more. When people with $500,000 budgets pay $330,000 for a home, they use their excess budget for additions and improvements. When it’s time to sell, they price the home at $500,000.

In the no-build scenario, the $300,000 home sells for $330,000 and becomes a $500,000 home, while a second shopper gets nothing. In the build scenario, someone buys the new home for $500,000 and someone else buys the old one for $300,000.

Anyone applying a modicum of thought to this issue will conclude that building homes priced above the median is better for affordability than not building them.

Some people are just not thinking this through. Others are intentionally denying reality to achieve some other agenda. Whatever the case, until these folks change their minds or go away — neither of which is likely — the pro-housing movement will struggle.

In New York, the pretend experts are epitomized by a group called Met Council on Housing. Last week it promoted a chapter meeting to “discuss how we should fight back” against “dangerous rezoning,” which is a reason why “rents are rising.” Its rhetoric has been parroted by elected officials, most recently City Council member Julie Won of Queens.

How extreme is this group? It also blames the Rent Guidelines Board for rising rents. This is the board that routinely limits rent increases at rent-stabilized units to less than the rate of inflation. In real terms, that is a rent decrease.

Blaming the Rent Guidelines Board for rising rents is like blaming the sun for rain.

Either Met Council has a major blind spot, or, more likely, an agenda that supersedes affordability.

Actually, its slogan reveals that agenda: “Housing for people, not profit.” The goal is to prevent profits, rather than achieve affordability. Those goals are mutually exclusive — at least in the real world, where public housing cannot accommodate 8.6 million New Yorkers.

Yet Met Council and like-minded groups make the same claims over and over. It’s Groundhog Day. Without the happy ending.