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Can building luxury condos fix the affordable housing crisis?

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The answer is more complicated than you think

Luxury supertalls in Midtown Manhattan
Luxury supertalls on “Billionare’s Row” in Midtown Manhattan
NYConstructionPhoto/Curbed Flickr Pool

If you’re paying a lot of money to live in a city, you probably eye the cranes clustering around new housing megadevelopments with suspicion. Surely all those high-priced, cloud-piercing skyscrapers are the reason your rent keeps going up, right? This, in fact, is the million-dollar question facing cities today: Aren’t all these new luxury towers just making the housing crisis worse?

When I started talking about New York City skyscraper “myths” with economist Jason M. Barr, author of Building the Skyline: The Birth and Growth of Manhattan’s Skyscrapers, this question came up right away. In fact, Barr has written at length about the role of skyscrapers in New York’s housing market, specifically, the effect of the dozen or so supertall towers in Manhattan’s Midtown. But since his answer for this particular question is far more complicated than a single myth, and the lessons are so widely applicable to all cities, I asked him to explain it in more depth.

“Many people look around and see the supertall towers going up and blame them for the high cost of housing in their neighborhoods,” says Barr. “The supertall buildings are not a cause of high housing prices but rather are a result of it. That is to say, as the demand to live and invest in the city has increased so dramatically over the last decade or so, it has caused land and housing prices to rise throughout the city.”

The land values index for New York City, plotted in inflation-adjusted dollars. The index shows inflation-adjusted values of $100 invested in a standard plot of land in January 1950 over the subsequent years.
Jason M. Barr

Demand is also what drives the height—or size—of the development, which explains why so many of these projects are so big. “The heights of buildings are a response to the high land values, which signal to developers that the demand to live a neighborhood is particularly strong,” says Barr. “As a result, developers respond to this demand by building skyscrapers that will satisfy the market.”

The other thing to remember, says Barr, is that luxury towers, and specifically the supertalls in Manhattan, represent a minuscule number of overall housing units. In New York, there are 3.5 million units of housing. Of the new units completed in Manhattan from 2011 to 2015, the number of units that could be considered luxury high-rise units (in buildings 30 stories or taller) is only 14,911 —about 0.422% of all housing. “As these buildings go up—and in terms of supertalls we are only talking about a dozen or so—people see these buildings as driving their woes, but we need to look at the broader real estate market to understand why housing prices are so high,” he says. “These buildings are a convenient focal point or symbol but they are not the direct problem—as garish and conspicuous as they may be.”

The real problem, says Barr, is that overall growth in housing stock is not keeping up with the growth of population, and prices are rising as a result.

Between 2011 and 2015, New York City added a total 62,345 units of new housing. In the same period, the population went from 8,244,910 to 8,550,405, an increase of over 300,000 people. Assuming two people live in each unit, that means the city has added new housing to accommodate about 125,000 people, much less than the increase in total population—and this doesn’t even include building demolitions and conversions that would have depleted the housing stock even more.

The answer, then, seems simple: Build more housing—it doesn’t matter what kind—and housing prices will go down.

But cities cannot simply build themselves out of this mess, cautions Barr, mostly because very little of their land is available for any kind of new housing, thanks to—dum dum dum—zoning.

This map of New York City shows by zip code how much housing can be built
This map of New York City shows by zip code how much housing can be built, on average, per square foot of lot; this is called the Floor Area Ratio (FAR). A neighborhood with an average FAR value less than one, for example, means that builders can only be expected to construct one family house with ample backyards.
Jason M. Barr

Many cities are working with an antiquated set of rules guiding who can build what where. For example, New York City’s first zoning laws were enacted in 1916, then rewritten in 1961, mostly to mitigate the perceived negative effects of skyscrapers: limiting bulky shapes, promoting sunlight by encouraging “set backs” from the street, and separating land uses, like keeping factories away from residences.

But over the last century, zoning has morphed into a series of policies and programs designed to keep new housing from being built (and, more controversially, to keep specific groups of people from moving in). “Zoning rules are intended to preserve the value of people's homes by making sure supply is limited in their neighborhoods—so zoning, in essence, has become a policy tool of homeowners to preserve the value of their investments,” says Barr.

This sets up the equation for an unequal and inaccessible city. If you are already a homeowner or landlord you’re all set, because zoning protects the value of your property, says Barr. Hypothetically, future residents can move into a city and become homeowners and landowners. But because of restrictive zoning limits, it won’t work that way until there is enough supply, says Barr. Zoning also provides little incentive for current landowners to replace small buildings with taller ones, which is what is often needed to increase housing stock.

Now add to that the existing-homeowner tactics of NIMBYism, environmental lawsuits, and landmarking, which further limit building heights, prevent urban growth, and place a barrier on how much housing developers can build throughout a city.

So: Can you blame the megadevelopment down the street for your pricey living situation? No. Can you blame your neighbors who are fighting the next megadevelopment down the street? Maybe.