Economic Analysis and Public Policy Assignment Problem Set

Part I: Atlantic Yards* is the redevelopment of 22 acres in downtown Brooklyn by Forest City Ratner that includes approximately 6,430 units of housing, a state of the art sports and entertainment arena, 247,000 square feet of retail use, 336,000 square feet of office space and 8 acres of publicly accessible open space. Problems 1-5 ask you to think about different aspects of the development and how they may influence the local housing market. There are many aspects of the development that are not considered in these problems. We are just focusing on short-term effects on rental housing. Illustrate your answers in supply-and-demand diagrams.

1. Forest City Ratner, the developer of the project, estimates that the development will bring 15,000 Union construction jobs, 2,500 office jobs, 400 arena jobs, 770 retail jobs and 70 hotel jobs to the area (http://www.atlanticyards.com). What do you expect will happen to the demand curve for rental apartment in Brooklyn if the development provides these jobs? Why? What would this change do to the rent of apartments in Brooklyn and the quantity of apartments rented? Why?

2. What do you expect will happen to the demand curve for rental apartment in the Atlantic Yards area and neighboring Park Slope if the traffic congestion in these neighborhoods greatly increases during construction and after the development is completed? Why? What would this change do to the rent of apartments in these areas and the quantity of apartments rented? Why?

3. The Atlantic Yards project is expected to include new retail space. What do you expect will happen to the demand curve for rental apartment in Brooklyn as a result of the new retail development in the area? Why? What would this change do to the rent of apartments in Brooklyn and the quantity of apartments rented? Why?

4. The redevelopment plans for Atlantic Yards currently includes the construction of a large number of apartments. What do you expect will happen to the supply curve for rental apartment in Brooklyn if these apartments are built? Why? What would this change do to the rent of apartments in Brooklyn and the quantity of apartments rented? Why?

5. Assume that the changes in questions 1-4 occur at the same time. What do you expect will happen to the overall rent of apartments in Brooklyn and the quantity of apartments rented? Why? (Hint: In order to answer this question you need to make assumptions about the relative size of the demand and supply shifts in questions 1-4. Make sure you justify your assumptions in your answer to this question. The justifications can be brief.)

Atlantic Yards was rebranded Pacific Park in August 2014 after the Greenland Group bought a 70% stake in 15 towers.

Part II: Assume that New York City's economy has made a comeback. That and other trends have resulted in more rich people and more extremely rich people in New York City (NYC). However, assume that at the same time income inequality has increased so much that people at the very bottom become worse off. If you decide to make any assumptions in order to answer the questions, make sure that your assumptions are reasonable and noted in your answers. Discuss changes in price and quantity.

1. What has the booming economy done to the market for renting apartments in NYC? Illustrate in a supply and demand diagrams from before the boom (= initial state) to during the boom (= final state). Explain in words what effect the boom had and why.

2. Remember that with a supply and demand analysis, the product being analyzed can be defined with many levels of aggregation. Now disaggregate the market for renting apartments and consider the effects of the booming economy markets on luxury apartments and on "bare bones" apartments separately. (Assume there are also middle range apartments but ignore them in your analysis.) For now, consider just the direct effects of the NYC economy on each. Illustrate in two side-by-side supply-and-demand diagrams (one for luxury, one for bare bones) and explain in words.

3. Now consider how the two real estate markets - luxury apartments and bare bones apartments - interact. Given what you found about how prices change in problem 2, how do you think landlords will react and what will happen to the supply of rental housing in each market? Again, illustrate in two side-by-side supply-and-demand diagrams and explain in words.

4. Now consider the labor market for cleaners and other who work in service for the rich. How will that labor market have been affected by the growing ranks of the very wealthy in NYC? Describe in words and illustrate in a supply-and-demand diagram for service labor, both before (= initial state) and during the boom (= final state).

5. Now consider how the effects of the service labor market have affected the market for bare bones apartments. Illustrate in a supply-and-demand diagram and explain in words.

6. Illustrate in a composite diagram for the market for bare bones apartments, the combined effects of (2), (3) and (5), showing both before (= initial state) and during the boom (= final state). Explain your diagram in words.