The Political Cleverness of Envy-Driven Housing Policies

Win a lottery to live in a luxury building! The advertisements for these housing lotteries abound in New York City, which has the highest cost of housing in the country.

What are the odds of winning one of these housing lotteries? 1-in-592.

So, for every 592 people, 591 of them face the prospect of paying the highest rents or condo prices in the country for generally old and poorly maintained or tiny new apartments, or they must pay through time: hours-long commutes to live in cheaper housing in far-off locations in Long Island, New Jersey, or upstate New York.

The irony is that those 591 people are paying for the lucky lottery winner’s apartment. They pay market-rate rents where identical apartments are offered in the same building to the lottery winners for a fraction of their rents. 

The extra cost of providing for these subsidized lottery apartments means that fewer market-rate apartments can be built, and their rents will be higher.

Before the advent of lottery apartments, the city found other ways to severely restrict the construction of new market-rate housing, including zoning laws, which directly prohibit the construction of new housing beyond mandated limits on building height and density. It is simple supply and demand: If the supply of new housing is restricted, the market price of housing will be higher.

The city further restricts the supply of new housing through its punitive program of rent regulation. At its most egregious, New York City’s rent control led to the wholesale abandonment of vast regions of the city by landlords whose regulated rents did not keep up with inflation during the 1970s and 1980s. Today, rent control reduces the incentive to invest in and maintain housing. The city recently tightened the screws on landlords, further reducing their incentive to upgrade and maintain their units.

New York City’s rent regulated tenants are entitled to live in their apartments at below-market rates for life. They can pass down their apartments to their heirs in perpetuity. And no matter how old and dilapidated their buildings are, a developer who wants to build a new, larger building can never tear down an old building if even a single tenant does not want to leave.

This is a recipe for housing stagnation. Strangling the supply of new market rate housing through these various programs means that existing market rents (whenever they are not regulated), must reach stratospheric levels.

The solution for all this is for New York to legalize and liberate market housing. It should repeal all of the laws that strangle the construction and maintenance of housing. Instead, NYC offers a housing lottery, paid for by making existing housing even more expensive.

Like the regular lottery, the housing lottery is very popular. Politically, it is genius. The lottery apartments are in new, luxury buildings, with incredible amenities, like floating pools in the sky, “amenity rooms” with pool tables, and rooftop terraces. The genius is that it appeals to envy and relies on economic ignorance.

Housing envy is a well-understood phenomenon in NYC. There are always stories of the penthouse in the sky, the Fifth Avenue mansion, the cool apartment in a trendy new neighborhood like Williamsburg, Brooklyn. Now, with the housing lottery, every “regular Joe” and “regular Jane” has the seeming opportunity to live like the upper crust. Win the housing lottery and you, too, can live in one of the few, new “luxury” buildings that manages to get built despite all the obstacles.

The city created this artificially expensive housing market, and then it created this envy-driven dream of escape through a housing lottery. Just as most people who play the regular lottery will never win, but do get to dream about the millions they might have while living in quiet, desperate poverty, New York City residents can dream of their luxury life in the sky while climbing the stairs to their fifth floor walk-up in that ubiquitous 150 year-old tenement building.

The post The Political Cleverness of Envy-Driven Housing Policies was first published by the American Institute for Economic Research (AIER), and is republished here with permission. Please support their efforts.

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