A few thoughts on “affordability.”

Your life is “affordable” based primarily on two numbers — your income and your cost of housing. Mayors don’t influence your income, and they shouldn’t try to influence what you pay for housing.

If government, at any level, wants to make your life more affordable, it should do the following:

• • • • Keep taxes low.
      • Keep inflation low.
      • Keep interest rates low (which you can’t do if inflation is high).
      • Keep immigration low.
        • • High immigration adds demand to the housing market, and therefore housing prices go higher.
          • High immigration adds supply to the job market, and therefore wages go lower.
      • Cut regulations on businesses. 
        • • Regulations add costs. Those costs are passed on to consumers.
          • Regulations make starting a business more difficult. Therefore there is less competition. Therefore prices are higher.
      • Don’t limit businesses. Let them grow. 
        • • Particularly energy companies: The more energy, the better.
          • Particularly homebuilders: The more building activity, the better.

It should be noted at this point that during all four years of the Biden administration, the federal government did the exact opposite regarding every item on the above list. It is not a coincidence that affordability is a hot political topic after four years of the federal government doing everything it could do to make life less affordable.

On the subject of housing costs, meet Sally. Sally just borrowed half a million dollars to purchase a small, studio condo in a particular neighborhood on the Isle of Manhattan. Besides paying her mortgage and utilities, Sally also has a large HOA fee each month. Sally knows all too well how unaffordable NYC is. 

Sally voted for Mamdani. If Mamdani actually made NYC more affordable by lowering property values, Sally would be very sad. Her new purchase is the only retirement investment she has. She wants her studio to become more expensive, not less.

Sally knows she could have bought more for less in Queens or Brooklyn. She knows she could have bought the same for less in some other Manhattan neighborhood. But, for reasons that make Sally happy, Sally wanted this particular neighborhood. Actually, she wanted this particular block. Sally’s parents sent her real estate listings from Sally’s hometown showing her she could have bought a small mansion for what she paid. Sally loves her parents and her hometown, but she loves this particular block in Manhattan more.

The price for housing is set by the law of supply and demand. Every land sale is an auction. The seller announces an intention to sell and ultimately does so to the highest bidder. The final price is the result of a private conversation between buyer and seller which the government is not invited to join. Every New Yorker knows they could get a nicer place to live, for less money, if they moved out of the city. But, they ❤️ NY.

Manhattan has less than 34 square miles. On average, they cram in 75,000 people every square mile. Sally’s condo becomes cheaper only if the number of people moving out of Manhattan exceeds the number of people wanting to move into Manhattan.

Mayors can’t regulate the price of land. The gray area here is rent control. Legally, courts have grudgingly permitted many rent control schemes, but not all. Courts create balancing test mumbo jumbo and hem and haw their way to decisions. Here is a prediction: Mamdani will impose a rent control scheme so extreme that ultimately, two or three years down the road, the courts will throw it out.

As a policy question, rent control is counterproductive because builders won’t build if they know rent control will cut into their profits. Without builders building, housing supply does not go up. Worse, landlords with reduced cash flow don’t maintain their properties as well as landlords with high profits. Over time, buildings degrade.

Because NYC has a lot more renters than owners, a mayor running on rent control can get elected. Mayors imposing rent control believe they are more powerful than the Law of Supply and Demand. They aren’t.

Taxing the rich to provide free bus rides for everyone, or taxing the rich to give free child care to everyone, has nothing to do with affordability. It is just taxing the rich to give free stuff to voters. As a political strategy for a mayor, it can succeed until the rich leave town. Since Mamdani’s plans don’t include any financial numbers that are accurate, it is hard to guess when the disastrous exodus would occur.

Meet Brandon. He’s much richer than Sally. He can afford two lovely homes. He also ❤️s NY. Brandon has a financial advisor. The advisor shows Brandon how much money he will save if he spends 27 weeks a year in Miami and 25 weeks in NYC. Prediction — Brandon will soon ❤️ Miami.

G-Pub