New York City’s YIMBY (“yes in my backyard”) housing contingent was abuzz last week as UrbanDigs, a proprietary real-estate information service, noted that Manhattan rents for April 2022 exceeded pre-pandemic levels by 20 percent, while the inventory of apartments for rent stood at a record low. While other metrics yield somewhat different results about how far rents and inventories have rebounded from their pre-pandemic lows, the data agree about the general trend: inventories of apartments for rent are plummeting, and rents are at or near record highs.

Spiking rents and low inventories are the predictable consequences of the 2019 tightening of rent controls by the New York State legislature. The media has focused on the timid—yet still highly controversial—efforts by the city’s Rent Guidelines Board to permit rent increases that compensate landlords, at least partially, for rising inflation. But few are paying attention to the looming crisis of the recovering economy running headlong into New York City’s tight regulations on both the price and quantity of housing stock. Economic theory tells us this must lead to housing shortages and sharply escalating rents—and that is exactly what is happening.

Government’s fundamental interest in housing policy is to ensure that the economy’s demand for labor is matched by the availability of decent housing in the locations where jobs are being created. In New York State, it’s no mystery where the jobs are: largely within New York City and, to a lesser extent, in the downstate suburbs. In 2019, however, the legislature decided that the goal of state housing policy would be not to ensure adequate supply but to keep households that already have housing from being forced to move because of rents rising faster than the rate of cost inflation, as defined by the Rent Guidelines Board. The need to find housing for the growing downstate labor force would count for nothing.

It wasn’t until Governor Kathy Hochul replaced Andrew Cuomo, who signed the rent bill, that the legislature even considered a package of supply-side housing reforms that might help enable the downstate region to continue growing past its pre-pandemic employment levels. But the legislature quickly dropped these reforms, and it’s not clear that it will pass any pro-housing supply legislation this year. Mayor Eric Adams, furthermore, has yet to announce any zoning reforms that the city might undertake to release its stranglehold on the housing supply.

Defenders of rent regulation might argue that the current supply stagnation shouldn’t be a problem. The city’s unemployment rate was 6.1 percent in March—much higher than the national average of 3.6 percent. The economy should continue to grow as the unemployed are rehired, regardless of the protections from rent increases.

It’s not that simple, though. The economy of early 2022 is structurally different than that of early 2020, before the pandemic. As of March 2022, total employment in the city was about 4.4 million—roughly equivalent to the level of March 2017 but about 200,000 below the level of March 2020, according to New York State Department of Labor data. Looking at the major sectors of the economy, we see an uneven recovery. For example, Professional and Business Services employment—the core of what economists used to call “office-based employment”—is slightly below the 2020 level. So is employment in Educational and Health Services. Employment in Trade, Transportation, and Utilities, and Accommodation and Food Services are well below 2020 levels.

Unsurprisingly, employees for the in-demand parts of the economy tend to be better-educated than those for the not-in-demand parts; this trend has been running for decades. Overall, the labor market is signaling to well-educated people looking for jobs that moving to New York is a good idea, even as it suggests to the less educated that their job prospects are diminishing, and perhaps they should look for work elsewhere, in cities where the job mix is more favorable.

If policymakers would allow this process of labor-market adjustment to proceed unimpeded, New York City’s powerhouse high-productivity economy would become even stronger. Indeed, the city and state need that growth in high-paying service jobs to maintain public services in the face of projected budget deficits and economic risks. But they can’t stop themselves from throwing sand in the works of their own vital economic engines.

Other jurisdictions keep new housing plentiful to ameliorate the risks of rising rents. Rents might rise in some neighborhoods as new workers move in, but these cities generally always have enough housing available at affordable rents to enable people to stay in the community if they wish.

New York hasn’t tried this approach in decades. As a result, contrary messages muffle labor-market signals. To the less-skilled unemployed, the overriding signal is: Don’t move out of the city and give up your bargain apartment, or you’ll never be able to move back. To those with more earning potential, it’s: Move to New York, and you’ll get in a bidding war with a dozen other people for an apartment that’s not even very attractive, so why bother?

So here we are—with spiking unregulated rents, little inventory, an economic recovery that lags the nation’s, and a housing crisis that continues unabated. One would think that such dismal failure would convince city and state leaders to rethink their assumptions. But state and local politicians, even those who claim to be moderates, live in fear of primary challengers from the left. Until that changes, there’s likely far more support for making things worse.

Photo by Andrew Lichtenstein/Corbis via Getty Images


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