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Lost decade: NYC’s horrible housing slump

Generation of New Yorkers paying heavy price for production drop

(Getty)
(Getty)

Japan’s infamous lost decade — a 1990s economic crash and downturn that continued into the 2000s — became a case study for economists. Various theories emerged about whom to blame, but it’s clear that bad policy decisions helped cause the crisis and prolonged the malaise that followed.

New York City housing development also had a lost decade, or half decade, after the Great Recession. The number of completed units, which typically ranges from 20,000 to 28,000 per year, averaged about 14,000 from 2011 through 2015, as this graphic from the Department of City Planning shows:

The city never caught up. As in Japan, an entire generation suffered.

Housing supply is not the whole story: Prices are a function of supply and demand. New York’s problem was that as production slumped, demand for housing continued to grow.

The Department of City Planning reported in 2019 that job growth had greatly outpaced housing production over the past decade: Only 0.28 housing units were permitted for each net new job.

That was a 90 percent decline from the period before the Great Recession, when 3 housing units were permitted per job created. The net result was that from 2001 to 2018 the city added 362,900 more jobs than housing units.

You might think the Great Recession was to blame for this extreme change. But northern New Jersey saw no such reversal. It produced 2.3 homes per new job before the financial crisis and 2.1 after it. Most of that housing growth was in the counties directly across the Hudson River from New York City.

That tells us something. It’s not that New Jersey developers were busy bees while their New York counterparts sat on their asses. Many builders operate in both markets. Same for lenders and contractors. Interest rates were not higher in New York than New Jersey.

Rather, the statistics indicate that the city’s horrendous housing production was largely a policy choice. The government simply didn’t create the conditions developers needed to meet the rising demand for housing. It got so bad that activists rallied to stop Amazon from building an office campus in Queens because its employees would have pushed up rents there.

New York City wasn’t alone in this failure, however. In the metropolitan area, it had a partner in crime: Long Island.

Nassau and Suffolk counties were arguably even worse than Gotham. Their combined job gains outstripped housing growth both before and after the Great Recession — a unique distinction in the region. Long Island’s ratio was 1.3 jobs per new home before the crisis, 3.6 after.

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Since that 2019 report, more people have embraced, or at least acknowledged, the seemingly obvious fact that if housing production does not keep up with demand, home prices will increase. And some have let go of the false belief that new housing is primarily responsible for creating that demand.

But not everyone.

Recently, I encountered commenters on social media who held fast to that myth, citing a mid-2000s rezoning of Park Slope’s border with Gowanus. They basically said: “Demand to live on Fourth Avenue increased when it was rezoned and lots of housing went up. The rezoning created the demand, and rents there are a lot higher now.”

That is absolutely the wrong way to think about it.

What matters is demand for housing in a market, not on a particular block or corridor. Most people who live in New York City are not there because the housing is so great. They could get more housing for the buck in the suburbs. They live in the city for its jobs, its culture, or both.

If they didn’t live in the new apartment buildings on Fourth Avenue, they would compete for other housing in the city, pushing up its price.

It is true that development is partially responsible for demand. If the city’s housing choices were worse — even lower vacancy rates, fewer nice buildings and even higher prices — more people would locate in the suburbs or other states. Job seekers might accept an offer in Chicago or North Carolina instead of New York.

But reams of studies show that new housing absorbs demand more than creates it. That’s because people generally choose a city, then look for housing there.

Yes, before Fourth Avenue was rezoned, you could pay low rents for lousy, three-story walkups above tire shops. Supply was low, but so were prices because few people wanted to live in crappy apartments along a noisy, gritty thoroughfare without a single decent restaurant. Instead, they bid up rents in other neighborhoods.

Unfortunately, as the citywide numbers above show, the housing generated by rezonings in the 2000s of Fourth Avenue, Williamsburg, Greenpoint and Long Island City wasn’t enough. Job growth still pushed high-earning home seekers into communities of color that were not rezoned, but had quality row houses and good mass transit.

The blue sections of the map below show where gentrification occurred. New Yorkers competing for housing have been feeling blue ever since.

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