Tuesday, March 07, 2006

Randy, you forgot one thing:

In today’s New York Sun, Randy Daniels, writes an op-ed discussing “why apartments are so expensive”. He attempts to argue that the root of the problem is a lack of supply of units to meet all the demand. He explains that to solve the problem it’s important that we reshape legislation to encourage construction. The legislation he looks to change is some of our State zoning laws as well as exempting smaller builders from a 1975 environmental law. Daniels believes that by increasing the supply of apartments it would bring down the cost of existing ones, as residents will have more to choose from.

Based on the laws of supply and demand, Randy Daniels is correct in saying that increased construction should make things cheaper. The key word there though is should. Part of the housing problem in the city is that there is many more people looking for apartments then there is currently available, which is why many people in the city have roommates. The hard reality is that even with more liberal legislation, there just isn’t enough space to build to meet the constant inflow of people into the city looking for apartments unless you plan on ripping up quaint towns like Fresh Meadows in Queens to build huge apartment buildings, which would never happen. To solve the problem, the city really needs to learn to work with the current buildings it has, which in reality leads to the real problem of why rental prices are high and my problem with Daniel's Op-ed.

The problem I have with Daniel’s editorial is not his idea of liberal legislation and increased construction, it’s him conveniently omitting one big detail that is the biggest cause behind high apartment costs, rent control and stabilization. Most of us either know someone or have heard the stories about people in the city paying $500 for their rent while they make salary’s in excess of $50K or even $100K a year. Current statistics show that over 1/3rd of the apartments in New York City are either rent controlled or rent stabilized. When Randy Daniels talks about a lack of supply that is driving up prices, the real culprit is that out of all the apartments in the city only 2/3rd are actually trading on the free market.

Economists have argued and built scientific models for decades showing how rent control drives prices higher for the majority and creates housing shortages, the kind Daniels is referring too, over time. Every microeconomics book has a section or case study on the topic. As Harvard Economist Greg Mankiw states in his own microeconomics book:

“When rent control depresses rents below the equilibrium level, the quantity of apartments supplied falls substantially, and the quantity of apartments demanded rises substantially. The result is a large shortage of housing”.

Being an election year, I don’t blame Randy Daniels for dodging this well known fact in his Op-ed. Coming out against rent control, despite its proven failures, is not a good way to get people to vote for you when 1/3rd of the city is benefiting from it, even if most who are don’t need it. However this doesn’t mean he shouldn’t talk about it as a cause of the effect. Randy Daniels could have easily pointed out how rent control affects prices in the city, while still claiming it a necessary evil, even if its not.

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