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As state legislatures and local governments throughout the tri-state region continue to debate various policy proposals to address housing costs and shortages, a recent analysis conducted by McKinsey & Company for Regional Plan Association shows that the region may face a housing gap of 920,000 units by 2035. The analysis also highlights a current shortage of 540,000 housing units in the region.

To address this housing shortage, building pace needs to increase significantly. To fully close the gap between supply and demand, the region would need to build at the same rate it did during the decades following World War II. Alternatively, building at the rate of the 1990s, another high growth period, would only close the future gap by about half.

The regional impacts of maintaining the current projection of housing production through 2035 include:

Higher housing costs

The limited supply of available housing relative to demand could cause upward pressure on housing costs in the region, with real housing price hikes of 25%, all else being equal.
The number of cost-burdened households may increase by 7.6% (260,000 households), with disproportionate effects on low-income groups.
Under the 1990s and post-World War II production rates, the number of cost-burdened households could be reduced by approximately 3.3% and 11%, respectively. In proportion to the overall population, low-income groups would benefit the most from increased supply, as they would experience the largest percent decrease in cost-burdened households.

Decrease in economic activity

The region could miss out on $900 billion in cumulative gross domestic product (GDP) growth, compared to what could be achieved if the housing gap was fully closed.
The region may forgo at least $3.7 billion in incremental yearly state and local taxes and another $3 billion in yearly federal taxes. This is funding that could be used to support key public services such as education, infrastructure, and public safety.
NYC has been ranked as the world’s most competitive city since 2018 based on several measures, such as business development and human capital, much of which would be at risk if housing shortages limit our growth potential.
There would also be limits to labor mobility and productivity, with increasing financial strain impacting economic and personal well-being.

Reduction in jobs/household income

The region may forgo a growth of 730K jobs (around half are attributed to construction activity) that could be achieved if housing production approximated the post-WWII rate or 330K jobs with production at the rate of the 1990s-2000s.
Under current projections, employers may experience difficulty attracting and retaining workers, compelling them to leave the region or reduce their number of employees.

Decline in population and quality of life

High costs and limited availability may force residents to relocate to more affordable areas with more opportunities.
Individual households could experience strains on their finances, which can have effects on health manifested by social deprivation and increased mental load.
Prolonged exposure to these living conditions and cost burden could have detrimental impacts on physical and mental health (i.e., foregone medical treatments, poor dietary habits, continuous stress, social isolation, decreased sleep, and burnout).

Addressing the housing shortage in the tri-state region would require a significant investment of $60 billion annually through 2035 to achieve post-World War II production rates. These investments, including private and public sources, could more than pay for themselves with increased GDP, job and income growth, lower housing costs, and improved quality of life.

See the full analysis here.