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Tuesday, August 16, 2022

Rents for One-Bedroom Apartments in Manhattan Hit a Record High of $5,100 in July. Here’s Why

Don't blame 'capitalism' or 'greedy developers.'

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Think your rent is too damn high? Well, taking a look at the latest figures out of Manhattan might make you feel better by comparison. 

In July, the average rent for a one-bedroom in Manhattan rose to $5,113, CBS News reports. That’s an astounding $1,000 more than a year ago and a new record high. These levels of rent are astronomical and impossible for all but the most affluent New Yorkers to afford. 

But before you blame capitalism or greedy developers, let’s take a deeper look at how rents in New York City got so out of control.

The Basics of Rental Markets and Supply & Demand

How are rental prices determined in the first place? Well, in a free market, supply and demand interact to reach a price. If there’s far more demand for housing than there is supply in a given area, rents will be high, at first. But those high rents will encourage more developers to come in and build housing, increasing supply and ultimately bringing the price down. 

Yet in places like New York City, local governments have made that adjustment impossible through restrictions on supply. The result of artificially-constrained housing supply in a high-demand area is as predictable as it is perilous: high prices and a housing crisis. 

How Has NYC Restricted Supply?

There’s a long and complicated history of government meddling in New York City’s rental market. But here are a few of the biggest ways local officials have hindered the market’s ability to provide affordable housing.

1. Single-Family Zoning & Height Limits

Through zoning, the local government has declared that large swaths of the city’s property may only host single-family residences. This doesn’t make much sense in a city with millions of people.

According to the advocacy group Open New York, “Roughly 15% of New York City’s land area is still zoned as single-family-only land, banning apartments or multiple-unit dwellings of any size, including those with only two units.” These restrictions are highly inefficient and prevent the development of large-scale housing, like apartments, that could greatly increase the supply compared to a single home. 

So, too, arbitrary restrictions on height limits remain in place on many NYC properties. These force landlords to provide fewer apartments per lot than they’d otherwise be able to, fueling the affordability crisis and pricing New Yorkers out of homes, often in the name of scenic beauty or protecting special interests.

2. Highly Restrictive Permitting Process

New York City’s government has made it very hard to get approval to build new housing. 

“New York City housing permitting has cratered to lows not seen since the Great Recession, and it’s not for lack of demand,” housing policy expert Nolan Gray told me. “NYC [has] had some of the strictest zoning rules in the country, making it hard to legally build much of anything.”

Look, for example, at the below graph showing how much housing (relative to population) various cities have permitted in recent years. You’ll see New York City at the very bottom. 

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This Was Perfectly Predictable

With the supply of new housing so blatantly throttled, it’s no surprise that rents have skyrocketed. It’s exactly what the laws of economics predicted, given the myriad government restrictions on NYC’s housing market. 

But, unfortunately, many unknowing onlookers may look at the egregious $5,000+ rent rates popping up in Manhattan and blame the market, when, in fact, it is the government’s constraints on the free market that are to blame. They might even respond to the manifest injustice of this affordability crisis by supporting more of the nice-sounding, big-government policies that got us into this mess. 

Yet, hopefully, people can look deeper and see the real root causes at play here. Because New Yorkers will continue to suffer until policymakers wake up—and finally free the rental market once and for all.

WATCH: Brad debates liberal economist Noah Smith on Dems’ ‘inflation’ plan