Mayor Bloomberg says New York City’s lack of affordable housing is a sign of a vibrant economy, because it proves people want to live there. Despite his reputation in the business world, he obviously doesn’t understand the laws of supply and demand.
“Somebody said that there’s not enough housing,” Bloomberg said on a radio show. “That’s a good sign.” Housing is only scarce, he said, because “as fast as we build, more people want to live here.”
In fact, as the Antiplanner has previously shown, high housing prices do not prove that lots of people really find an area desirable. Instead, they are more a sign of government barriers to housing.
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Yes, Bloomberg’s city may be building some housing. But it obviously isn’t building enough to meet demand. Median New York-area housing prices were 2.6 times median family incomes in 1969; 3.3 times in 1979. By 2005, they were 8.4 times. Thanks to the recession more than new housing, they were down to 5.3 by 2012–still way too high. But in the city itself median prices were still 8.7 times median family incomes.
Here’s the surprise: Median family incomes in New York City were just 15 percent greater than in the city of Houston in 2012. But home prices were 284 percent greater. That’s not a sign that people are demanding to live there; it’s a sign of acute shortages.
Houston frets when its median home prices approach $150,000 and price-to-income ratios come close to 2.2. With New York City median prices approaching $480,000 and median values nearly nine times median incomes, Mayor Bloomberg should do more than pat himself on the back; he should recognize that the city faces a major housing crisis.
Isn’t NYC kind of the poster child for why rent control results in a housing shortage?
P.S. Does anybody know why is it that in most cities an “apartment” is something that is rented and a “condo” is something that is owned, while in NYC an “apartment” is something that might be rented or owned?
” America’s elites have built an economic wall around places like New York City ”
Um. I think nature built a RIVER around Manhattan, and the rest of the boroughs, with the exception of the Bronx, are on two ISLANDS.
“In fact, as the Antiplanner has previously shown, high housing prices do not prove that lots of people really find an area desirable. Instead, they are more a sign of government barriers to housing.”
Or both. These elements are not mutually exclusive.
Once again (what is it, the 133rd time?), we point out that demand is a stronger driver of home prices than supply. We could restrict the supply in Omaha, but who cares? Few want to live there. Far more people want to live in New York, which drives up demand.
Basic economics, right guy who lets people call him an economist?
DS
Supply and demand is the most important rule of economics. Next to gravity, it is the most important rule of science.
When the government skews the supply (in either direction), it will have a major effect upon demand. No surprise.
We could restrict the supply in Omaha, but who cares? Few want to live there.
That doesn’t seem to be the case in recent decades.
Bloomberg is not entirely wrong. Rising real prices while more housing is being built (albeit less than the socially optimal amount of building) is a sure sign of increasing demand. Bloomberg has done a lot to make it significantly easier to build in NYC, and were it not for those efforts perhaps NYC would be even more expensive.
Your post on housing supply and demand shows a fundamental misunderstanding of the concept of supply and demand, and of economics in general. The supply curves of “walkable” housing and “drivable” housing are not independent. People may choose to live in either. While it may be true that walkable housing is more expensive to build, if it were not also true that walkable housing is more attractive, that wouldn’t matter and the price of the two would still be the same. Otherwise there would be a very simple arbitrage, and given that there is no government policy restricting movement, more people would move out of expensive walkable developments and into cheap drivable ones until prices equalized. That prices are not equal is evidence that the two are not equally attractive.
You imply that rising population in Omaha is a sign of rising demand for living in Omaha, so that restricting supply in Omaha would not have the same effect on price as in NYC. However, this is faulty reasoning. Just as Dan said that demand is a stronger driver of home price than supply, supply is a stronger driver of home quantity than demand. The rising population of Omaha is evidence that many new housing units have been built there, and not necessarily evidence of rising demand to live there. In fact, demand could even fall and population will rise if supply rises while prices fall.