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If there is any city on the planet that deserves to be considered the Capital of the World it is New York City. If you haven’t made it in the Big Apple, you haven’t made it at all. The two most influential newspapers on the third rock from the Sun are both there: The New York Times and the Wall Street Journal. The diamond district is there. So is the New York Philharmonic orchestra, the greatest ever (until they stopped the mostly Mozart series). There are dozens of world class universities in Manhattan alone. The list of its attractions is far too long to mention any more than this short tip of the iceberg.

But all is not entirely well in the largest city in New York State. There is a housing crisis. Some 100,000 apartments were lost since 1950. What happened?  Did someone misplace them, lose them, demolish them? Not a bit of it. Rather, this is due to the fact that wealthy people have been converting many small residences into far fewer far larger ones, so as to afford themselves more space. Brook Shields, for example, converted eight housing units into one larger one, so that she could give her daughters an experience she had growing up on the upper east side.

If this pattern persists, let alone intensifies as some fear, this world class city, much more Manhattan than the other four boroughs, shall house only the rich. Is this a real problem? No.

Who purchases Maseratis, Rolls Royces, BMWs, Cadillacs and other luxury automobiles? The rich or the poor? Go to the head of the class if you chose the former. Who owns Rolexes, diamond jewelry and takes expensive world cruises? The wealthy or the impecunious?  An “A” is awarded to those who see where I am going with this. Of course, Manhattan in particular, and to a great degree real estate elsewhere in this city, is also a luxury good. Why should the distribution of it between rich and poor be very different than what occurs with these other luxury consumables?

There are several reasons why the very wealthy should live there. The first applies to all luxury goods: if the wealthy, alone, cannot have greater access to them, what is the point of becoming well to do in the first place? And, if society in the extreme case takes away all of their baubles and toys, the entire economy falls apart and we all risk actual starvation. For at least part of the motivation to work, to provide others with goods and services, with new discoveries and innovations, in very important part, goes by the wayside.

Secondly, there is that little matter of commuting time. Manhattan is the center of the entire city. Only some 8 million actually live there, but during business hours an estimated 25 million pour into this real estate from the other four boroughs, from Connecticut, from New Joisey, from Long Island, from north of the Big Apple in the Empire State.  Other things equal, it takes longer to arrive at work in Manhattan the longer distance away from there you are located. If we have any consideration for the GDP, for human flourishing, for wrestling poverty to the ground, it is important that people whose productivity is $25 per hour spend their time twiddling their thumbs commuting rather than those who can contribute to our well-being at the rate of $500 hourly.

So, if anything, this trend toward larger apartments should be encouraged, not discouraged. The government should certainly not try to discourage it via new laws and regulations. Perhaps they should even subsidize movements in this direction, if they must interfere with the free market workings of the economy, but laissez faire capitalism would be far better in this context as it is in all others.

How, then, to solve the housing crisis? Simple. There are too many people in Manhattan who simply do not belong there, at least not on the basis of the two issues we have been considering: fairness to the rich, and maximizing wealth for all of us. Without government intervention, the poor and middle class would never in a million years have found themselves anywhere near there. Had they somehow been plunked down there in mid-Manhattan, market forces would soon enough have headed them in the direction of the outer boroughs, if not further afield.

Who are these people? Some of them are the occupants of public housing. They pay heavily subsidized rents at way below market levels. They have absolutely no financial incentive to depart from their Ferrari located apartments to make way for wealthier folk. One way to encourage this process would be to simply raise their rents to market levels. They would soon enough depart. This would solve the problem immediately. The problem with this option is that it would be wildly politically unacceptable. Riots would ensue. These folk, and many others like them, take the position that they have a right to occupy such premises. A left wing mayor and city council would reject this solution forthwith on ideological grounds.

A more politically palatable answer would be to simply give these occupants titles to their dwellings in the form of condominium association memberships. Or, charge them a nominal price for ownership, for example $10. Egalitarians could hardly object to this windfall given to the poor. Then, market forces would be free to operate once again. These people would be made financial offers for their newly acquired property that they “could not refuse,” Godfather style. They would pocket this windfall money and then be free to relocate to pretty much any area of their choice, with the exception of Manhattan. (They would also find it difficult in the extreme to move to downtown Tokyo, London, Paris or other such places.) Certainly they could successfully bid for accommodation in the areas surrounding the core of this world-class city.

The economics of this situation are by no means limited to the Big Apple. The busboys and floor sweepers do not live cheek by jowl near the ski slopes in Vail, Colorado. Rather, they are bussed in from dozens of miles away where they occupy less desirable areas. Ditto for other high-priced real estate. Manhattan, in contrast, shoots itself in the foot (and maybe a bid higher in its body politic) by locating public housing for poor people in very productive territory, where, from an economic perspective, they simply do not belong.

Nor is the solution to prevent the conversion of many small dwellings, appropriate for those with less wherewithal, into fewer, larger quarters for the rich and highly productive. Since when did it become a proper government task (is there really any such thing whatsoever?) to preside over the allocation of large and small apartments? Shall they next do so for shoes and shirts?

One more solution. Get rid of rent controls, and sow salt where once they stood. First, it constitutes theft from landlords. Second, it discourages the building of new residential rental units. Such laws do not apply to commercial or industrial real estate, and the residential market is no different in any relevant way from these others. Another group which is now protected by law from engaging in geographical efficiency would thus be those who live under the umbrella of rent control. In New York City, this is a law promulgated in 1941 to deal with the wartime emergency. Which war? World War II. If there is any instance of the permanency of a “temporary” government policy it is this one, still on the books for almost a century now. One seriously wonders if it is not time to disband this uneconomic law.

Walter Block holds the Harold E. Wirth Eminent Scholar Endowed Chair in Economics at the J. A. Butt School of Business at Loyola University New Orleans, and is a senior fellow of the Ludwig von Mises Institute.

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