In October, rent rose twice as fast as other consumer prices. Shelter inflation came at 4.9 percent year-over-year, contributing 65 percent to the month’s 2.3 percent increase in the Consumer Price Index. Housing costs aren’t expected to return to pre-pandemic levels until 2026, according to the Cleveland Federal Reserve’s latest estimate. The news may be ironically positive for homeowners in major cities like New York, where rent skyrocketed seven times faster than wages in 2023—the steepest rate in the country.
The housing crisis isn’t an accident, particularly in America’s established tech hubs like San Francisco and New York. Comparisons with other major metro areas with a growing tech ecosystem suggest that persistent rent inflation is a result of deliberate policy choices that, while often well-intentioned, have allowed homeowners to prioritize their property value over affordable housing for all.
In New York City, for example, after numerous housing construction projects disregarded environmental and social impacts, homeowners lobbied for regulations requiring real estate developers to assess the cost of such damage and present it to the Planning Commission, a city-level agency, to get approval before shovels hit the soil. However, according to the Citizens Budget Commission, a local think tank, this well-intentioned policy added 11 percent to 16 percent to project costs, as it requires developers to navigate a lengthy process involving architects, engineers and consultants.
To make matters worse, New York City’s development process empowers city council members with veto power over projects in their districts. Because city council members are beholden to homeowners who have elected them, they are reluctant to support any housing projects that would dramatically increase supply and therefore decrease the property value of their constituency.
At the root of this crisis lies a paradox: Americans living in expensive cities overwhelmingly support the idea of affordable housing—until it’s built near them. Homeowners, the most politically active subset of residents, often lobby against new construction by advocating for zoning laws, density caps and height restrictions, which makes building new housing prohibitively expensive in many cities.
In New York City, a staggering 40 percent of existing buildings couldn’t be built under existing regulations. Now, only 10 percent of land that permits residential buildings allows for high- or moderate-density buildings, forcing developers to build large luxury apartments rather than affordable ones.
It’s a different story in emerging tech hubs like Seattle, Wash. and Austin, Texas. Despite soaring rental demand due to an influx of tech workers, rent in these cities is the fastest falling among U.S. major metro areas. In October, rent in Austin and Seattle fell 9.6 percent and 2.3 percent year-over-year, respectively, according to Zillow data.
This is largely thanks to YIMBY (Yes In My Back Yard) activism: In Austin, advocates successfully pressured the city to cut through bureaucratic red tapes after the pandemic ushered in skyrocketing rent when East and West coasters looked for a more affordable city to work remote jobs. This enabled developers to build more housing faster: zoning restrictions were loosened, minimum parking requirements were scrapped, and height caps were adjusted. Similarly, Seattle increased the availability of building permits in 2022 and 2023, allowing for more residential construction in the city, which drove down rents.
Despite the fact that major technology companies are headquartered in these two cities—Seattle is home to Microsoft (MSFT), Starbucks (SBUX) and Amazon (AMZN), while Austin has seen Tesla (TSLA) move its headquarters there along with countless tech companies opening offices in the area—they remain affordable compared with the national median: Seattle’s median rent of $2,120 for all property types is just 5 percent above the national median, while Austin’s $2,000 median rent is 1 percent below. New York City, in contrast, has a median rent of $3,400, which is 68 percent higher than the national median.
Austin and Seattle’s success proves that the housing crisis is solvable—not in decades, but in just a year or two and without the government having to spend billions on subsidies or infrastructure projects.
