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I'm also a New Yorker, and the examples you cite illustrate the problem. Why is it only profitable for developers to build dense housing in high-end neighborhoo

I'm also a New Yorker, and the examples you cite illustrate the problem. Why is it only profitable for developers to build dense housing in high-end neighborhoods right now? In large part because of our complex, draconian zoning rules - it's a huge economic hurdle to climb for developers, and contributes to making it not worth their while to build in cheaper neighborhoods. The affordable housing rules you mention are an example of an attempt to legislate our way out of the problem, and obviously they haven't worked. I'd say the reason they haven't worked is because they don't address the real issue: to have cheaper housing we need to reduce the barriers to building more housing. At least that's my personal view. I'm not an economist or a city planner or any kind of expert, just a rando on the Internet. :)

shostack 10y ago
Is it really a zoning issue or is it simpler than that? I'd assume that in this market where debt is cheap, people with high income can leverage more and thus pay net higher prices. This results in a certain type of housing increasing in price/sqft whereas low income housing would not see as much of an increase due to limited ability of low income people to borrow as much. Net result is that a developer can profit quite a bit more from luxury housing than affordable housing. If you are a developer (which presumably means a for-profit business) and have a choice between the two, you naturally decide to go after the higher profit option. Can't say I'd blame them either. This is where incentives need to be provided to balance the profit equation. If they could make the same amount of profit, or gain other business benefits, I imagine the problem would start solving itself.
- peterbonney 10y ago
  > If you are a developer (which presumably means a for-profit business) and have a choice between the two, you naturally decide to go after the higher profit option. That may be true if the limiting factor is the number of developers - they will only develop the highest-value properties. But in a city like New York the limiting factor is not developer capacity, at least not that I have ever heard. Developers are effectively constrained by the number of profitable building sites, not their capacity to put up new buildings. And, in turn, the number of profitable building sites is dependent on not just the cost of labor and materials, but the cost of navigating city planning, obtaining permits, etc. Don't forget that land is cheaper to acquire in less desirable neighborhoods, and it is also generally cheaper to build there due to lower existing density (which eases logistics by making it easier to get equipment in and out, allows more on-site storage, etc.). The development that maximizes returns is not always the development that maximizes revenue - cost and time also matter. And there are more developers who can handle building a 10-story building in the Bronx than can tackle an 80-story mega-project in Manhattan. Plus, a "cheap" neighborhood in NYC is often as expensive as an "expensive" neighborhood in most US cities, so if developers are willing to build in Milwaukee or Cleveland, they should be willing to build in the Bronx. But in a world where the administrative cost of starting a relatively small project is overwhelming vs. the potential returns, then those smaller projects in lower-price neighborhoods simply won't get built.
cauterized 10y ago
The current building boom is indeed partially in response to a rezoning to allow residential development in the area. (It's also in response to surrounding neighborhoods having become very desirable for other reasons.) What do you do when land prices and the obstacles to construction posed by high density (such as not being able to store large quantities of raw materials or keep a bunch of trucks on site) make development costs prohibitive for affordable housing? What do you do about the NIMBYs who are afraid the new skyscraper will block their view? And why would a developer choose to build in a cheap area for lower rents when they can get higher ROI on everything but the land costs if they build luxury housing in an expensive area? I'm not convinced that the biggest obstacles to affordable housing in the city are about zoning or safety regulations. (Some of which, btw, ARE necessary for the sake of, yanno, people not dying.)
- peterbonney 10y ago
  > And why would a developer choose to build in a cheap area for lower rents when they can get higher ROI on everything but the land costs if they build luxury housing in an expensive area? I would argue this is a false choice: very few developers have the capital to build luxury housing in expensive areas. For example, I know a guy who builds lower-end housing in Philadelphia (among other places). He would never consider building anything in Manhattan, simply because he can't afford to tie up the capital it would take to build even a townhouse-scale project. Lower-end is his game, period - only a small handful of mega-developers get to make the kind of choice you propose. By the way, he lives in New York, and logically/logistically it would make more sense for him to build in New York than Philadelphia, but the economics of lower-end development in New York are prohibitive. Once in a while a good opportunity will come along here, but to pay the bills and not be idle he has to look elsewhere. > I'm not convinced that the biggest obstacles to affordable housing in the city are about zoning or safety regulations. (Some of which, btw, ARE necessary for the sake of, yanno, people not dying.) Yes, I totally agree on safety regulations (I don't think I cited them as an issue, did I?). I don't think they are a primary driver of the cost of building in New York vs. other cities. Logistics of operating in the nation's densest city, yes; safety regulations unique to New York, probably no. Zoning, on the other hand... I think it's a bigger restriction than most people realize. My favorite illustration of the zoning issue is this article: http://www.nytimes.com/interactive/2016/05/19/upshot/forty-percent-of-manhattans-buildings-could-not-be-built-today.html http://www.nytimes.com/interactive/2016/05/19/upshot/forty-p...

shostack 10y ago

Is it really a zoning issue or is it simpler than that? I'd assume that in this market where debt is cheap, people with high income can leverage more and thus pay net higher prices. This results in a certain type of housing increasing in price/sqft whereas low income housing would not see as much of an increase due to limited ability of low income people to borrow as much. Net result is that a developer can profit quite a bit more from luxury housing than affordable housing. If you are a developer (which presumably means a for-profit business) and have a choice between the two, you naturally decide to go after the higher profit option. Can't say I'd blame them either. This is where incentives need to be provided to balance the profit equation. If they could make the same amount of profit, or gain other business benefits, I imagine the problem would start solving itself.

peterbonney 10y ago
> If you are a developer (which presumably means a for-profit business) and have a choice between the two, you naturally decide to go after the higher profit option. That may be true if the limiting factor is the number of developers - they will only develop the highest-value properties. But in a city like New York the limiting factor is not developer capacity, at least not that I have ever heard. Developers are effectively constrained by the number of profitable building sites, not their capacity to put up new buildings. And, in turn, the number of profitable building sites is dependent on not just the cost of labor and materials, but the cost of navigating city planning, obtaining permits, etc. Don't forget that land is cheaper to acquire in less desirable neighborhoods, and it is also generally cheaper to build there due to lower existing density (which eases logistics by making it easier to get equipment in and out, allows more on-site storage, etc.). The development that maximizes returns is not always the development that maximizes revenue - cost and time also matter. And there are more developers who can handle building a 10-story building in the Bronx than can tackle an 80-story mega-project in Manhattan. Plus, a "cheap" neighborhood in NYC is often as expensive as an "expensive" neighborhood in most US cities, so if developers are willing to build in Milwaukee or Cleveland, they should be willing to build in the Bronx. But in a world where the administrative cost of starting a relatively small project is overwhelming vs. the potential returns, then those smaller projects in lower-price neighborhoods simply won't get built.

cauterized 10y ago

The current building boom is indeed partially in response to a rezoning to allow residential development in the area. (It's also in response to surrounding neighborhoods having become very desirable for other reasons.) What do you do when land prices and the obstacles to construction posed by high density (such as not being able to store large quantities of raw materials or keep a bunch of trucks on site) make development costs prohibitive for affordable housing? What do you do about the NIMBYs who are afraid the new skyscraper will block their view? And why would a developer choose to build in a cheap area for lower rents when they can get higher ROI on everything but the land costs if they build luxury housing in an expensive area? I'm not convinced that the biggest obstacles to affordable housing in the city are about zoning or safety regulations. (Some of which, btw, ARE necessary for the sake of, yanno, people not dying.)

peterbonney 10y ago
> And why would a developer choose to build in a cheap area for lower rents when they can get higher ROI on everything but the land costs if they build luxury housing in an expensive area? I would argue this is a false choice: very few developers have the capital to build luxury housing in expensive areas. For example, I know a guy who builds lower-end housing in Philadelphia (among other places). He would never consider building anything in Manhattan, simply because he can't afford to tie up the capital it would take to build even a townhouse-scale project. Lower-end is his game, period - only a small handful of mega-developers get to make the kind of choice you propose. By the way, he lives in New York, and logically/logistically it would make more sense for him to build in New York than Philadelphia, but the economics of lower-end development in New York are prohibitive. Once in a while a good opportunity will come along here, but to pay the bills and not be idle he has to look elsewhere. > I'm not convinced that the biggest obstacles to affordable housing in the city are about zoning or safety regulations. (Some of which, btw, ARE necessary for the sake of, yanno, people not dying.) Yes, I totally agree on safety regulations (I don't think I cited them as an issue, did I?). I don't think they are a primary driver of the cost of building in New York vs. other cities. Logistics of operating in the nation's densest city, yes; safety regulations unique to New York, probably no. Zoning, on the other hand... I think it's a bigger restriction than most people realize. My favorite illustration of the zoning issue is this article: http://www.nytimes.com/interactive/2016/05/19/upshot/forty-percent-of-manhattans-buildings-could-not-be-built-today.html http://www.nytimes.com/interactive/2016/05/19/upshot/forty-p...