Why So Much Luxury Housing in a City Where Most Can’t Afford It?

Why does it happen? How does it happen? How is it justified? What impact does it have?

Why?

The short answer is, that’s where the money is. Luxury, or market rate housing, provides a greater return on investment for developers, banks, investment, law and architectural firms and others with a vested interest in real estate development. It does the same for city officials by maximizing property values and tax revenues. The growth of luxury housing – almost to the exclusion of any other kind of housing – suggests that those with a stake in this kind of development hold sway in Jersey City. They are partners in a “growth machine” that relies on redeveloping the city for the financial and political capital it provides.

Best and highest use = most profitable way to redevelop property

Redeveloping the city’s land and buildings for their “best and highest use is the mantra of this growth machine. This is an artful term used in the real estate industry and by urban planners to indicate the most profitable way to redevelop property. It’s often luxury housing but it could also be a park, a pathway, pedestrian mall or new light rail station. The expectation is that such uses will increase property values for investors as well as the tax base for city officials.

How?

In the 1980’s the city turned to real estate development to replace manufacturing which was the mainstay of its economy.

It began in the 1980’s when the city turned to real estate development to replace manufacturing which had been the mainstay of its economy. The city formed partnerships with developers and financial services corporations providing generous tax breaks and other incentives to redevelop the waterfront. Since then, luxury housing, along with the financial services industry, have remained the twin pillars of the city’s strategy for economic growth.

After the waterfront was redeveloped, city officials and their partners looked to other areas of the city to invest in. Toward that end, these areas were rezoned for more residential, commercial and retail uses. They were also rezoned to allow for taller, mixed-use buildings adding more floors and housing units. This increased the profit potential of these areas attracting luxury housing developers. However, despite the added value provided through rezoning, the city required nothing in return from developers. Developers were not required to include any affordable housing in their projects unless they asked for a variance or exception to the zoning regulations. In most cases, they did not with the result that the vast majority of new housing built then, as now in the city, continues to be luxury housing. 

Justification

How do city officials explain or justify promoting and subsidizing so much luxury housing beyond the reach of most residents? One way is to sell it as an economic development program creating new jobs and businesses as well as more tax revenue to pay for city services. This trickle-down theory of economics argues that the benefits of luxury housing trickle down to everyone.

Luxury housing development is also defended as a way to create more affordable housing. In exchange for tax breaks, zoning variances and other incentives, luxury housing developers are expected to include a small percentage of affordable housing in their projects or contribute funds to create affordable housing elsewhere. This market approach is presented as the only way government can provide an essential good like affordable housing. This claim helps justify the government’s role in creating luxury housing while deflecting criticism of it.

Impact

Luxury housing, as an economic development strategy has reshaped the city in many ways, but how and to what effect? It creates jobs, attracts businesses and adds to the city’s tax base. But how many and what kinds of jobs and businesses? Most of the jobs associated with this kind of development are low-end service jobs with few benefits and limited prospects for upward mobility. And, despite the added tax revenue, the city has struggled for years to balance its budget and provide basic services. That remains the case today as the revenue lost to tax breaks, along with other costs of development, take their toll.

Incentivizing the growth of luxury housing has fed real estate speculation artificially driving up the cost of housing making Jersey City one of the most expensive places in the country to rent an apartment. Housing has become more commodified attracting investment firms buying hundreds of the city’s apartment buildings to add to their portfolios. These buildings are often poorly maintained and operated as tenants are pressured to leave as investors look to cut costs and increase profits.

Jersey City is one of the most expensive places in the country to rent an apartment

Spending more household income on rent leaves less for other necessities such as, utilities, transportation and healthcare. According to the latest census (2022), over 40% of residents are “cost burdened” – paying more than 30% of income on housing. This creates stress for families who must make hard choices between their rent and other basic needs. This can impact children as well whose health, behavior and school performance may be affected by living under such circumstances.

The high cost of housing leaves less income to spend locally on goods and services. This hurts the local economy through lost businesses, jobs, services and taxes. And much of this economy consists of mom and pop stores struggling with increasing rents. Much of their income stays in the city and has a ripple effect. Conversely, much of the income from luxury housing goes to investors outside the city.

The increasing cost of housing is also borne by residents in public spending to cope with the affordable housing crisis and homelessness associated with it. At all levels of government millions of tax dollars are spent to cope with these issues.

The promotion of luxury housing as an economic development strategy is government sponsored gentrification. It amounts to a transfer of wealth from the city’s working and middle classes to the real estate industry resulting in their impoverishment as more of their income goes to housing at the expense of other needs. It has led to a less diverse city as residents become more divided along race, ethnic and class lines. It has caused conflict and division as people struggle to remain in their homes or find new ones. But, at the same time, it has brought many together to fight for their place in the city and to hold city officials accountable.

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• Gentrification Math & the False Promise of Affordable Housing
• Why is the City Selling Public Property to Luxury Housing Developers?
• Why So Much Luxury Housing in a City Where Most Can’t Afford It?
• Why Do So Many New Apartment Houses Look Alike?
• Signs of Gentrification: House Numbers, Their Color and Design

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