Over time my largest political opinion has become pro supply policies in urban areas like NYC, Boston, and major West Coast Metros. I decided to write all these down with the goal of writing a separate article for each that really fleshes out the research and grounding for this. My stance has basically become no matter how much you like someone or their policies, if they aren’t pro housing supply they are failing.

Magnitude of rental burden in NYC

Roughly 70% of New Yorkers are renters [1], out of this group just over 50% of renters households are considered rent burdened [2] meaning that > 30% of their gross income goes toward rent. The cost of rent has been outpacing inflation substantially in NYC [3]. Renters skew younger - so they are paying large portions of their income towards rent at a time when they would be best investing and compounding their wealth, saving for a home, or enjoying their life - dating, attending concerts, socializing etc.

The magnitude of the problem is gigantic: 3-4 million rent burdened renters in NYC, higher earners while maybe less sympathetic are often not able to make progress towards major milestones, live close to their work, etc. Through effective policy if someone was able to bring down the average rent by ~100 per month the magnitude of that is gigantic. Even if they were just able to slow down the rate of rent inflation to be in line with inflation that would give people a much better chance to improve their lives and economic well being.

Demand to live in NYC is very high

NYC is one of the most desirable places in the world to live. There is enormous demand both domestically and internationally to get the chance to live here and access the job opportunities, culture, and lifestyle that is hard to find anywhere else.

Housing supply is severely constrained in NYC

It can feel unintuitive to normal New Yorkers to hear that housing in NYC is severely constrained - there is cranes everywhere, some neighborhoods have developed so much that they are unrecognizable compared to a decade ago, it feels like the only constant in NYC is change.

Here are some examples of large blockers on housing in NYC:

  • NYC taxes apartment buildings much higher than other US cities and > 5x higher than owner occupied homes
  • Everyone can agree we need more apartment buildings yet we tax the behavior we want more of
  • Floor Area Ratio (FAR) is capped blocking development in areas with transit and amenities
  • For example Park Slope - one of the most transit linked and desirable areas in the city has a FAR of 2.0 effectively blocking almost any further development in this area
  • Legal structures have made it uneconomical for developers to build large residential towers in NYC that are > 100 units. So we have a wave of buildings that stop at 99 units where developers otherwise would’ve kept building up [4]
  • Many of the most desirable neighborhood locations in the city have blanket height restrictions that prohibit denser housing, such as Cobble Hill and West Village
  • Affordable housing mandates make it harder for new developments to “pencil” [5] leading to a drag on supply
  • There is a discretionary review “gauntlet” to get through to build any major development - this process is extremely biased towards stopping and slowing development
  • An estimated 57,000 rent stabilized apartments are registered vacant in NYC, and a growing share appear to be stranded because renovation caps make it uneconomical to fix them up to modern living standards [6]

It’s not an overreaction to characterize the situation as we have a rent affordability crisis in NYC and we have made it largely illegal to build the kind of structures that would help attack this.

Developers are rational economic actors, and not particularly profitable

There is often a characterization that rents are driven by greedy developers preying on citizens and this is worth taking seriously because the implications are enormous. If this problem is largely driven by dishonest actors the law should act swiftly, we should also be wary of cartoonish political enemies.

Starting with developers - they typically target 15-25% profit on a building. I.e. if they spend 10 million on building a new building, they are hoping to make a profit of 2.5 million over a period of several years. Anything less than 15% and it is generally considered to be not worth it - there is lots of risk and liability involved with developing a new building and it takes several years so if you are not making more than it costs it is not worth it. Most of that ten million goes toward paying wages to workers like construction workers and architects or towards building materials.

The risks are substantial when it comes to being a developer. When someone is developing a new building they put in “equity” - their own money is around 15-30% of the 10 million to build our hypothetical building. So if something goes wrong over the several years of construction such as a large execution setback or a lawsuit and the project becomes negative, that 1.5 - 3 million is the first money to act as a loser. So you can imagine a scenario where a small company puts a large portion of their liquid assets toward a project, the costs overrun and a 10 million building costs 14, but only sells for 12, and this company basically worked for free for several years. This is a hard business.

Landlords are rational economic actors and not particularly profitable

There is often a characterization that rents are driven by greedy landlords preying on citizens and this is worth taking seriously because the implications are enormous.

In a national dataset of 16,000 properties the profit margin was around 11% for landlords [7] (this source is from a landlord trade group take it for what you will). Where we can see the numbers publicly they are unimpressive. AvalonBay is one of the large REITs in the US developing luxury properties in places like the Northeast and California metros and we can see it earns a ~10% return on equity and a ~4.4% return on capital.

Lots of data on landlords in NYC is not particularly public so it is hard to see real returns, it would be great if laws were passed that led to more transparency.

There is specific, slumlord style landlords that do exist and take advantage of people of course this should remain regulated and it is good to see that the NYC government is becoming interested in enforcing rules around this.

It’s fair to say that we don’t broadly have a reason to think that landlords are making an unfair, excessive return. We have pretty clear data on the national level showing this, so it feels like any policy that is targeted at fixing this should come with some evidence that there is unfair profiteering.

Profit incentivizes mostly work

The profit incentive for developers gives them reason to build quickly, to find ways to drive costs down in their supply chain and processes, and encourages risk taking on developing buildings. It feels like the system is working as intended here.

The profit incentives for landlords to run operations well, risk their capital being tied up in illiquid assets is mostly working as well. We don’t really want to mess with this without reason - this system is working.

Rent control and affordable housing in NYC

You cannot talk about rent in NYC without talking about the history and magnitude of rent control. To be clear on definitions:

Rent stabilized = price increases to the rent are controlled, anyone can live there = ~1,000,000 units in NYC or 40% of rental stock

Rent controlled = Pre 1947 building with long-term or handed down resident with sweetheart deals = 16,000 units. Mostly a rounding error and not worth talking about

Affordable housing (AMI) = Qualify on income threshold + lottery to get in. Apartment is subsidized = ~230k units

Arguments for rent control often lack cost benefit analysis

Rent control obviously helps the beneficiaries and for New Yorkers it has been a political priority to help New Yorkers who are seen as structurally disadvantaged. What is worth digging into is this policy is the most effective way to help these groups.

It’s hard to pin down who New Yorkers think should be most protected by rent control so here are some examples. Rent control would help an immigrant family stay in a traditional ethnic enclave neighborhood like Astoria, but would make it harder for the next generation to move there. It would help an artist who moved to the East Village in 1991, but hurt the artist who lives in the middle of the country and wants to try and make it in NYC with their craft.

The empirical negatives are serious - rent control restricts new housing supply [8], drives economic inefficiency [9], leads to poorly maintained housing stock [10], and most importantly it increases the price of new market rate housing [11].

This is not to say that rent control is primarily driving market prices in NYC but a fair mental model is that demand is artificially subsidized and supply is artificially constrained which adds to the squeeze.

The only way out of the housing crisis is through

Rent control is able to help those within the system and it has but it’s unable to scale up and has real negative effects. The end goal is for the rate of rental increases to come down to inflation, and then for it to come down to what would be considered liveable. The only realistic path to that is increasing supply substantially. The added benefit is that it means we will be able to add many new New Yorkers to the city and increase the tax base and the kind of people who can move to New York.

References

[1] New York City Comptroller, Spotlight: New York City’s Rental Housing Market — 69% of NYC households are renters. https://comptroller.nyc.gov/reports/spotlight-new-york-citys-rental-housing-market/

[2] NYU Furman Center, State of Renters and Their Homes (2023) — 52.1% of NYC households are rent burdened. https://www.furmancenter.org/soc-report/state-of-new-york-citys-housing-and-neighborhoods-in-2023/state-of-renters-and-their-homes-2023/

[3] Robin Hood Poverty Tracker: Spotlight on Rent Stabilization — over the past decade NYC median rent rose ~13.5% in real terms while wages rose ~4%. https://robinhood.org/reports/poverty-tracker-spotlight-on-rent-stabilization/

[4] Citrin Cooperman, NYC Real Estate Tax Incentives: 421-a, 485-x and 467-m — the 100+ unit prevailing-wage requirement under 485-x and the resulting surge in 99-unit projects. https://www.citrincooperman.com/In-Focus-Resource-Center/NYC-Real-Estate-Tax-Incentives-421a-485x-and-467m-Housing-Programs

[5] Citizens Budget Commission, Amend It, Don’t End It — nearly all new rental development in NYC is not financially feasible without assistance, and affordability mandates affect feasibility. https://cbcny.org/research/amend-it-dont-end-it

[6] Gothamist, 57,000 rent-stabilized apartments sat empty in NYC, housing agency says — state (DHCR) count of 57,421 registered-vacant stabilized units as of April 2025 (note: the figure includes normal turnover and new buildings still leasing up). https://gothamist.com/news/57000-rent-stabilized-apartments-sat-empty-in-nyc-housing-agency-says — Counterpoint: NYC Comptroller, Accurately Assessing and Effectively Addressing Vacancies — fewer than ~2,000 low-rent units held vacant due to repair costs. https://comptroller.nyc.gov/newsroom/rent-stabilized-vacancies-plummeted-over-last-2-years-including-for-units-in-need-of-repairs-new-nyc-comptroller-report-finds/

[7] National Apartment Association, Where Does a Dollar of Rent Go? — ~11 cents of profit per rent dollar nationally (landlord trade group). https://naahq.org/news/where-does-dollar-rent-go

[8] Diamond, McQuade & Qian (2019), American Economic Review, “The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco” — rent control reduced rental supply by 15%. https://www.aeaweb.org/articles?id=10.1257/aer.20181289

[9] Glaeser & Luttmer (2003), American Economic Review, “The Misallocation of Housing Under Rent Control.” Available via AEA / JSTOR (NBER Working Paper 6220).

[10] Sims (2007), Journal of Urban Economics, “Out of Control: What Can We Learn from the End of Massachusetts Rent Control?”; and Autor, Palmer & Pathak (2014), Journal of Political Economy, “Housing Market Spillovers: Evidence from the End of Rent Control in Cambridge, Massachusetts.” https://www.nber.org/system/files/working_papers/w18125/w18125.pdf

[11] Diamond, McQuade & Qian (2019), American Economic Review — the San Francisco rent-control expansion drove a 5.1% citywide increase in market rents. https://www.aeaweb.org/articles?id=10.1257/aer.20181289