Big Real Estate’s Continuing Stranglehold Over New York City

(COMMON EDGE) John Massengale, February 14, 2022

ecently, the Nobel laureate economist Paul Krugman wrote in the New York Times about the causes of unaffordable housing in New York City. He blamed the crisis on a few things, including a powerful financial “monoculture” in the city, NIMBYs, and the city itself blocking new construction. That last element, however—that the city blocks new construction—is an increasingly popular myth that needs examination. 

When we look at construction in New York, we see that the city is not an economic monoculture. Property taxes are the largest revenue source for the city, and both New York City and New York State work to increase property taxes by subsidizing new development with zoning changes, planning policies, new interpretations of zoning and building regulations, economic development plans for rebuilding, the use of eminent domain, tax abatements and credits, public-private capital projects, and sweetheart real estate deals for major political donors—and this is only a partial list. 

It all adds up to billions of dollars in direct and indirect subsidies for billionaire developers like Stephen Ross, Steve Roth, and Gary Barnett. So much for the idea that New York “blocks” construction. Please note: the first three rules of real estate are traditionally “location, location, location.” The following discussion about affordable and unaffordable housing is specific to New York City in our time. 

Big Real Estate

No group is more powerful in New York City and New York State than the richest developers, represented by the Real Estate Board of New York. Its members were among the biggest donors to Governor Andrew Cuomo; they gave Governor Kathy Hochul even more money, and in a shorter period of time. In the city, former Mayor Bill de Blasio suffered a series of scandals related to donations from developers.

Lobbyists for Big Real Estate write legislation in Albany. Big Real Estate is always well represented on the City Planning Commission and in state and city economic development offices. Much like lobbyists in Washington, D.C., individuals from Big Real Estate cycle in and out of public and private jobs, alternating work in state and city agencies with high-paying positions in real estate development. The result is a political culture in Albany and around New York’s City Hall that believes that what’s good for Big Real Estate is good for New York.

Sam Stein documents the history of the rise of Big Real Estate in his bookCapital City, Gentrification and the Real Estate State. He points out that New York used to have financial capital, real estate capital, and industrial capital. But Big Real Estate conspired to drive industry out of town, because real estate developers and investors have different goals than industrial companies. Industry wants cheap land for factories and affordable housing for workers. Developers and real estate investors want ever-increasing land prices and housing profits. 

Two trends contributed to real estate’s triumph over manufacturing in the 1970s: (1) companies moved to southern states in search of cheaper land and less expensive labor; (2) following white flight from the city, New York City went bankrupt. Big Real Estate convinced the metropolis to hitch its fortunes to increased property taxes in the years that followed.

Source: Common Edge