The Wall Street Journal Editorial Board explains how excessive government regulation can drive developers to build luxury apartments in markets that need affordable housing.
Builders are expected to complete some 371,000 new apartments in 2020, compared to 247,000 in 2019 and 119,000 in 2010, according to the real-estate analytics firm RealPage. The problem is that many of the new apartments will be too expensive for lower- and middle-class families. RealPage data show that in many metropolitan areas between 60% and 89% of the apartments under construction are in neighborhoods known for higher-than-average rents.
Bernie Sanders blames this on “corrupt real estate developers” who are “gentrifying neighborhoods” and replacing affordable homes with “fancy condominiums and hotels that only the very rich can afford.” Elizabeth Warren says “developers can usually turn bigger profits by building fancier new units targeted at higher-income families rather than units targeted at lower-income families.”
Their solution is more government control of the rental market. But what if that is already the main problem?
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Last year, highly restrictive cities built ultra-luxury apartments at a higher rate than less restrictive ones, according to data from the real-estate market-intelligence firm Yardi Matrix. The most high-end classes of rentals accounted for 4.8% of the overall new supply in Manhattan, 3.8% in Phoenix, about 3% in D.C. and its suburbs, and 2.4% in Los Angeles.
But premium rentals are merely 0.3% of new supply in St. Louis, 0.1% in Cincinnati, Grand Rapids and Cleveland, and an even smaller share in Detroit and Rochester—all among the least restrictive building areas examined by the Harvard and Penn researchers.
The progressive solution to the lack of affordable housing—more government rules and controls—is damaging the very people they say they want to help.
Read more here.
