Analysis of New York City’s high housing costs and pressure on middle class residents suggests historic preservation regulations are a significant contributor. The report by Steve Malanga in City Journal (summer, 2014) says that historic preservation began as a way of “protecting truly exceptional structures” but the city’s landmarking process has “morphed over time into a way for local activists and progressive politicians to stymie development of any new construction in neighborhoods often all but devoid of historic value.”
Nowadays, notes Harvard urban economist Edward Glaeser, nearly 16 percent of buildable land in Manhattan suffers in historic-preservation districts, and about half of it is almost completely off-limits to development.
The cost of housing in these districts has risen substantially faster than in other areas of the city, because of the difficulty of building.
A recent New York Times report, looking at research on urban income differences, noted that income inequality “is closely tied with the availability of affordable housing.” Places where housing becomes very expensive, the NY Times noted, tend to hemorrhage middle-class residents and instead become communities made up primarily of the rich, who can afford stratospheric housing prices, and the poor, who can get government housing subsidies.
The leftist mayor Bill de Blasio has taken up a theme of “two New Yorks” increasingly made up of the very rich and lower income people in subsidized housing. He blames “gentrification” but fails to recoignize the government policies that promote the conversion of middle class housing in to luxury abodes for the very wealthy.
A study of housing costs in 2010 showed the financing, building, and operation of a new apartment building in New York City, including taxes, requires a minimum rent for its units of $2,100 per month. To live comfortably with such rent, a family would need an income of at least $86,000.
A NYU study shows apartment construction costs per square foot based on a 15 story design in Manhattasn are $173, Staten Island $167, Bronx $166, San Francisco $161, Boston $152, Chicago $146, Los Angeles $140, Houston $115 and a national average $125.
City government is largely to blame, writes Malanga: “ it’s New York’s tentacular state and local government that helps make it so wildly expensive to build. The NYU study found a host of government policies that drive construction prices higher. For starters, city agencies responsible for overseeing and regulating building were often openly hostile to new construction, the study discovered.
The City’s Buildings Department is still one of the major drivers of the high cost of housing in New York City.
Rather than an agency dedicated to reducing expense and facilitating development, the Building Department has been a major inflater of costs, the report said. Builders now typically employ well-paid “expediters” to move their projects through the city’s foot-dragging approval process, adding an average cost of about $200,000 per building.
Taxes and fees tied specifically to development—many of them rare in other cities—are another factor in Gotham’s sky-high building costs. For example, New York levies a transfer tax on land when a developer buys a plot, and then a mortgage-recording tax when a builder borrows to finance his project.
And the builder faces significant sales taxes on construction materials, too. The article cites a hypothetical New York apartment building, going up on a plot of land bought for, say, $5 million, real-estate, mortgage, and sales taxes add $1.6 million to the development price tag.
New York’s local and state elected officials also write laws and codes that curry favor with various special interests with a financial stake in development, raising prices higher still.
Litigation-friendly New York State makes it easy to sue builders and developers, for instance, which benefits construction-worker unions and trial lawyers, two powerful Albany lobbies, but makes insurance on the construction of an apartment building as much as 8 percent to 10 percent of total costs—twice the national average.
A so-called Scaffold Law for example mandates that a developer or contractor is completely liable if an employee gets injured on a job site, even if worker negligence played a role. Even workers found to be drunk on the job have won big compensation judgments.