How the Poor Can Afford to Live in New York
Arnold Kling asks an interesting question: How can New York real estate be so expensive when the median income is so low?
Here are four reasons he suggests:
1. By some more accurate measure, the cost of living is not so much higher in NY.
2. Living in NY is an expensive taste that occurs among many people, even those of modest means.
3. NY has jobs for lower-income people that are not available in the other cities.
4. NY's rent controls and other housing regulations have created a lot of inframarginal winners whose housing costs are well below those of the marginal resident. (Think of those who are able to buy their apartments when they turn co-op at ridiculously below-market prices.)
You frequently see studies and articles pushing some version of No. 1: that when you account for the "true cost," adding in things such as transportation, it's surprisingly cheap to live in the city. I find these studies broadly implausible, because they leave out little things like "the cost of having to have everything delivered," "the cost of taking taxis when you're in a hurry" and "the cost of having to have a pet taxi to take the dog anywhere." They also fail to account for the upward pressure that high real estate prices put on the cost of everything else and the time cost of mass-transit commutes. And let's not get started on incidentals such as educating your children. Having lived in multiple cities, including New York, I feel pretty comfortable discarding answer No. 1.
Answer Nos. 2 and 3 are obviously true but still don't explain how the city can have a median household income of $50,000 and an average rental price of $3,000.
So what does explain it?
- New York City has a lot of subsidized or rent-controlled housing. Almost half the city's total rental housing stock is rent-regulated; a further 8.5 percent are public housing units, and there are also programs like Mitchell-Lama, which since 1955 has provided affordable housing to moderate- and middle-income households. Ultimately, something under 45 percent of New York's rental stock is trading in a free market; the rest is going at below-market rates to people who cling to those apartment like ancient barnacles. If you are lucky enough to have a good deal, you can live in the city for well below the average rent -- though you should not assume that all the tenants of rent-controlled or rent-stabilized apartments are low-income. I have known investment bankers enjoying below-market rates in rent-stabilized apartments.
- All that rent-controlled housing pushes up the cost of what little market-rate housing there is. Landlords don't want to build anything except luxury apartments, lest politicians start eyeing their buildings as a potential goody to distribute to tenants at below-market rates. And rent-controlled tenants tend to stay in their apartments longer, rather than moving or downsizing, so most of the vacancies occur in the market-rate sector. As a result, bidding wars over the market-rate housing push the price above where it would be if all the housing was market-rate.
- New York City provides a lot of extra social services. For example, in 2013, 3.2 million New Yorkers were on Medicaid. That's almost 40 percent of the population, and that number was expected to expand this year thanks to Obamacare. About 91,000 New York City residents receive Section 8 vouchers. Almost 2 million residents receive food stamps. It is often more feasible to be poor in New York than to have the sort of middling income that doesn't qualify for public assistance or for a $3,000-a-month apartment.
- People have roommates. Educated professionals who would be buying their first condo in some other city are often still crammed into a group living situation well into their early 30s, unless they marry or get a parental subsidy. This is obviously only practical for so long, which is why I know a growing number of New Yorkers who have relocated to Washington, or another city, when it was time to buy a house or have kids.
- There's a lot of outside money flowing into the city. It's not just foreigners paying top dollar for absurd condos with car elevators, but also the more prosaic transfer of parental wealth to kids who have taken high-status, low-pay jobs in the Big Apple. Those kids nominally have low incomes, but with Mom and Dad paying half the rent and, maybe later, Junior's boarding school fees, you see a lot of people living well above their earning power. This can fool less well-heeled transplants into thinking that they, too, must be able to afford a $150,000 lifestyle on their $40,000 salary, with tragicomic results.
In short, the answer to "how can all these people with low incomes afford to live in New York City" is rather prosaic: Someone else pays a significant portion of their bills. People who would easily be self-supporting in some less stylish place require substantial subsidies, either from the government or their relatives, or from landlords who have been forced to rent to them at below-market prices. Meanwhile, the price distortions introduced by the subsidies, combined with New York's byzantine real estate development process, push up prices and force out ever more of the middle class, unless they're lucky enough to have their hands on a rent-regulated apartment. There were a lot of those people when I was growing up, but eventually those people lose their grips on their real estate deals one way or another, so over time, they are becoming fewer in number.
If you want to know why New York's income distribution is so weird, that's why. And if you want to know why I live in Washington instead of the city where I was born, well, that's one big reason.
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