Solving N.Y.’s housing crunch: The tristate region needs a million homes

3 weeks ago 16

The housing shortage in the greater tristate region is no secret, but too little has been done to quantify the potential consequences of the large gap between supply and demand. The Regional Plan Association, with knowledge partner McKinsey & Co., analyzed the impact of a status quo level of housing production between now and 2035: jobs forgone, lost economic opportunities, ever-higher costs for residents, more homelessness, reduced global competitiveness, and a wider gulf between the wealthy and everyone else. 

The tristate metropolitan region, which includes 31 counties in New York, New Jersey and Connecticut, is the one of the world’s economic powerhouses, its 23 million people contribute more than $2.5 trillion each year to America’s gross domestic product — nearly 3% of the entire global GDP.

It’s one of the reasons more people want to live here than can be housed here. By failing to provide access to housing that’s affordable to families that are already here as well as the people seeking to move here, the region — along with the nation — could suffer economically.

If the region builds housing for the next 10 years at its status quo rate — projected to be below the rates of the last decade since interest rates are unlikely to return to their record pre-COVID lows — it could create about 30,000 new units a year. That may miss the mark needed to meet total demand — what it would take for the region to have something akin to the national rates of vacancy and overcrowding — by nearly a million apartments and houses by 2035.

Building those additional million homes would surely be costly. But not building them could be far more expensive to the tristate area. Our economic analysis shows the regional economy could be nearly a trillion dollars smaller by 2035 than it would otherwise be without those units, with three-quarters of a million fewer jobs.

And building those additional homes would keep housing costs from rising by as much as 25% above what they are today in real terms — the most painful outcome of a status quo approach — with as many as an additional 260,000 families in the region most of them low and middle income, paying more than they can afford for housing. 

Since housing costs can have 15 times the impact of taxes when people compare costs of living in different places, rent and mortgage payments can be a key factor for families pressed by high prices into making hard choices about where to live. Driving housing costs up because of inadequate supply compared to demand means more residents may seek to find other places to live, and others might not come at all.

Of course, more families and jobs in the region would require more spending on public services such as schools, roads, and health care. But the additional people that more housing would support could generate more than $40 billion in new city and state income and property tax revenues to pay for those services across the region over the coming decade.

Building an additional million housing units in a decade may seem impossible, but if the region builds homes at the pace it did after World War II, it could meet all the expected demand. And if that sounds implausible, consider that if the region built at the pace it did from 1990-2000, it would close almost half the region’s housing gap, raise investment by as much as $300 billion, and potentially create $400 billion in economic growth.

In addition, it could also support a third of a million more permanent jobs, and cut the number of families struggling to pay their rent by more than 350,000 compared to the status quo. Creating more housing is not just an expense but an investment — for families, of course, but also for communities.

Reducing the region’s housing shortage could do more than expand growth, equity, and opportunity. As a global capital, New York competes with other great metropolises for talent and investment. A housing market with inadequate supply affects the region’s position in the world: higher costs mean fewer people would come and stay here, fewer businesses would invest here, and the quality of life would degrade for the increasing number of cost-burdened households.

Addressing the tristate region’s housing shortage can directly affect its position in the world, its competitiveness, productivity, appeal to global talent, and most of all, its storied history as a magnet for creativity, ambition, and hope.

Luby is an associate partner in McKinsey’s New York office, where Shorris is a partner.

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