Will the High Cost of Housing Slow New York’s Economic Growth?

Would you spend half your income on this?

The Bloomberg administration has a mixed record on affordable housing. It was one of the Mayor’s signature initiatives when he took office, but the market has subtracted units faster than he has added them and across the city, the percentage of income that New Yorkers spend on rent—an apartment is considered ‘affordable’ if it consumes less than 30 percent of its inhabitants’ annual income—has risen sharply.

But perhaps new evidence that the high cost of housing and income inequality impede economic growth might make Mayor Bloomberg, or at least his successor, take note.

A new Harvard paper has linked the high cost of housing to a slowdown of economic growth, showing that high costs of living are stopping both low and high-skill workers from moving where the best opportunities are.

“The best places for low- and high-skilled workers used to be the same places: California, Maryland, New York,” Peter Ganong, a doctoral student in economics and a co-author of the paper told The New York Times, which wrote about the findings. “Now low-skilled workers can no longer afford to move to the high-wage places.”

The success of places like New York, of course, rest on the best and brightest relocating here and continuing to drive the creative engine that makes the city a global capital. But now the population growth of rich states, which has historically been much faster than poor states, has slowed, according to the study, suggesting that people are pursuing lesser opportunities in lesser cities because they can’t afford to move to places like New York or San Francisco. And the economic health of those cities, as the middle class finds them less and less viable places to live, may be threatened, despite foreign investment and tourism dollars that flood in.

After all, when a star journalist like Andrew Sullivan starts complaining about how painfully expensive New York is, you know you might have a problem. And while the recent college grad hungry for success might be willing to pay $900 a month for a small bedroom in a shared apartment in Bushwick, that recent college grad will still need to live with extreme thrift and a full-time job that pays at least $30,000 a year—or receive a monthly check from mom and dad—in order to stay here. Moreover, will a mid-career professional with a family move here for $65,000 a year if it means paying 50 percent of the family’s income for a two-bedroom?

It’s certainly worth consideration given that high housing costs and the city’s growing gap between the rich and the poor is usually deemed an unfortunate, but unavoidable side effect of New York’s economic growth. Looking at how these things can impede future economic growth leads to a very different and incredibly important conversation about the future of housing policy in New York City.


Will the High Cost of Housing Slow New York’s Economic Growth?