Life in New York City is expensive. While one can get around the high price of food by cooking for oneself, it is practically impossible to get around the ridiculous rents. Many see spiraling property values as a failure of adequate government regulation, when in fact, exactly the opposite is true. The lack of affordable housing at all levels in New York City is due to the excessive intrusions of government into the housing market. Prompted by the noblest of motives, the city has eroded the ability of the private sector to provide reasonably priced housing.

In Manhattan, residential and commercial construction costs approximately $300 per square foot, a figure that rises to nearly $400 for more luxurious spaces. Fancy furnishings may be expensive, but they are amortized over the large sizes of more ornate buildings. Residential apartments sell for at least $900 per square foot on the luxury side, and around $500 per square foot for working and middle class housing. Even excluding federal subsidies, simple extrapolation shows that even low-income housing is profitable to build. Clearly, the economic incentives are there, yet very little gets built. Why?

The reason is regulation. Zoning laws and historic preservation codes make it extremely difficult to build. When a developer does manage to push a building through the permitting process, it is nearly always for the highend of the market. Lacking the ability to build freely, developers try to maximize the profit they make on the few buildings they can build. The result is little to no incentive to build affordable housing, even for the middle class.

It was not always this way. Until 1916, New York had no zoning laws. In that year, concern over the new Equitable Life building in the Financial District led to the creation of a simple system, dividing the city into residential, commercial, and industrial zones. This new system in no way hampered development, but rather allowed neighborhoods to flourish away from industry. In the 1920s and 30s, New York’s most iconic skyscrapers, the Chrysler and Empire State buildings, were built. In return for increased height, builders had to set back their buildings, leading to the “wedding cake” shape seen throughout midtown and downtown. This form had the beneficial side-effect of promoting “neighborly” skyscrapers—buildings that fit in with those next to them, in spite of their enormous height. At ground level, the base of the Chrysler building is unassuming; it does not tower over the street, and it seems to be an organic part of the Grand Central neighborhood.

In 1961, however, the city adopted a much harsher zoning code that prescribed a multitude of districts. Everything down to the size of signs on apartment buildings became regulated. As Edward Glaeser, the nation’s foremost urban economist, notes in this month’s issue of The Atlantic, “Art-supply stores were forbidden in residential districts and some commercial districts. Parking-space requirements also differed by district. In an R5 district, a hospital was required to have one off-street parking spot for every five beds, but in an R6 district, a hospital had to have one space for every eight beds.”

Zoning laws were followed by historic preservation laws in 1965. The majestic marble building that housed Penn Station was destroyed in the early 1960s to make way for the towers of Penn Plaza. Public uproar led to the creation of a few, small historic districts. Since then, these districts have expanded to cover not only beautiful old buildings, but their plainer, occasionally uglier neighbors as well. Building in such districts is nearly impossible. These laws have kept the historic districts less diverse and far wealthier than the city as a whole.

It would be an understatement to note that these regulations have had deleterious effects on the supply of housing. Glaeser remarks, “In the post-war boom years between 1955 and 1964, Manhattan issued permits for an average of more than 11,000 new housing units each year. Between 1980 and ’99, when the city’s prices were soaring, Manhattan approved an average of 3,100 new units per year. Fewer new homes meant higher prices; between 1970 and 2000, the median price of a Manhattan housing unit increased by 284 percent in constant dollars.”

Increased regulation has also changed the character of the builders and the buildings that are built. In the late nineteenth and early to mid-twentieth centuries, real estate was an investment open to the upper middle class as well as the rich. It was not uncommon for people who had made or inherited a small amount of money to pool investments and build an apartment or a commercial building. The market was full of small-scale developers. Yet, as society has grown even wealthier, real estate has become an unattainable investment. Only the extremely rich can afford to borrow money and wait while the years-long permitting process occurs. Such a market clearly leads to suboptimal outcomes. There is a clear visual manifestation of this – the proliferation of hideous new “trendy” buildings, designed by modish architects. If only a few buildings can be built, their owners want them to stand out. Concerns for architectural homogeneity, neighborliness, aesthetics, and the view from the ground are outweighed by the desire to create something new and innovative that is impossible to ignore. Styles that appeal to the elite and stick out like a sore thumb flourish, as The New York Times building demonstrates. In the past, the opposite was the case. With thousands of developers, the issue was not making a statement, but rather building a good and beautiful building that would attract tenants.

The solution to these issues is not more regulation, the burden of which has only increased since the mid 1960s with new environmental and sightline codes. Each new obstacle has been motivated by the best of intentions, but the result has been the inability of the middle class, let alone the working class, to finding affordable housing in Manhattan—and by extension, the rest of the city. Restricting the supply of real estate artificially increases prices in an age of high demand. With the city’s economy growing once again, and its cultural luster untarnished, the demand for housing will only increase. It is time our leaders took effective action, cutting the barriers to building, streamlining the permitting process, and freeing the real-estate market from the power of a few, extremely wealthy vested interests.