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The thing is it’s worse than what you’re bringing to light, because this problem is endemic to that whole area and it exists even beyond the whole housing market.
We can stick with the northeast, per your reference class. Take housing out of it for instance. How many people do you think have ever actually tried to build a new business in NYC? Not that I have, but there’s a good body of literature people can read on this and it’s clear that from the people that have, the problem of the business side of things looks very similar to the problem ordinary citizens have of it.
For most people, unless you’ve directly witnessed/experienced it, you just would not believe the regulatory/bureaucratic/tax/economic nightmare doing business in NYC is. Just basic things like getting permits can take months to years due to incompetence. And everything has gigantic fees associated with it. Building in NYC is at least 75% more expensive than in NY/CT, just due to fees, taxes and lost time. By itself NYC as a standalone city is uncompetitive and nobody would want to start businesses without some sort of inducement (here’s where we get to policy…)
NYC itself is an archaic disaster of a regulatory/tax regime and this isn’t even debatable. They’ve been the paradigmatic case for years in political discourse when it comes to the poster boy for dysfunctional politics. For example, their zoning and regulatory laws haven't been overhauled since 1963. Just think about how much the city has changed since then. Back in the 80s/90s, the city decided to try and do something about it. So they created entities like the NYBDC and the ESDF (and also others) that have the ability to waive fees, freeze taxes, stop unnecessary overregulation and fast track permitting, etc. just reflect on that. NYC is so messed up, that they’ve created government entities to fight off other government entities. And the worst part about it is you simply can’t begin anew and start all over.
So when the average person complains that Amazon or some other corporation is getting massive tax breaks; that’s an incomplete picture of reality. NYC itself as a whole is uncompetitive, and the NYBDC/CoC/ESDF/etc., in addition to the city of NYC itself waives fees, permits, taxes, and everything they can to make NYC economically competitive at any level. This is all aimed at trying to level the playing field, which is where it should start to begin with.
You can always make the argument if you want that we shouldn't have to give these giant incentives or giveaways to 'lure' companies in. But I think we should already have a tax/regulatory framework in place that makes the city competitive. The reason these policies exist in the first place is because of an enormous failure of the state to create an environment that is conducive to investment.
If you want to look at the mechanics of how this happens on the ground, it goes a little something like this… About a decade or so ago, I remember they were re-zoning a fairly large area in NYC. Investors go in and perform an analysis of things. They identify two buildings adjacent to one another that are for sale. One’s vacant and the other has a struggling business that's just skirting by, breaking even. There's 10 employees, and the two properties when combined get you say $70K year in all taxes (this includes property, payroll, your business license, etc.). So you want to buy the buildings and put in approximately $10 million into development. In just the first year alone, you would be projected to pay $1 million in all taxes and $750k in the second year, etc.; and on top of that, the permitting process could take up to two years. So right there, that’s a deal breaker, and under those terms, you’d just walk away leaving the city/state to collect $70k in taxes. So what happens instead is you work with the city to cap your liability at $700k in the first year and $500k in years 2-10; and additionally they’re expediting all the permitting and sign offs for you. (And don't forget that the $10 million is taxable to the construction companies that are building this thing, and the state gets a cut of that too…)
So now keep going and look at your analysis from the other side. You could look at this and say "This is bullshit! You’re getting a $3 million tax break!" (Which again is $300k in year one and ~$250k in 2-10) And technically you’re not wrong… Incidentally, that would be the obvious headline you’d see ran all across the news: "Rich assholes get an obscene $3 million tax break at the expense of the people!" And people would rage until they had an aneurysm over this and politicians would say idiotic populist diatribe about it. But that would be an incomplete picture which is so misleading to the public that it’s more analogous to lying than being mistaken.
Now go back to the analysis. Look at what the city is getting… From the status quo, they’re getting a whopping $70k a year from the current arrangement (which $700k over 10 years) in all-source tax revenue. But look at your project: with the tax breaks, the city is now getting $5.2 million in taxes over ten years (that's an increase of $4.5 million). If an average teacher's annual salary is $75k, then that's nine new teachers that are funded by this project. And this is exactly the negotiations that are had at the local level when you are pitching your project to the city; "even with the tax breaks, we are paying $X millions in taxes versus the $Y dollars you are getting at present." And don’t forget that the project is going to hire X amount of people compared to the Y amount today.
Of course you can still disagree if you want, but the reality is NYC is likely better off with X corporation + tax breaks, instead of X corporation goes to Boston.
I don’t work in this industry and never will. I intensely hate it with the fury of 49 crackheads, but members of my extended family own and lease land to businesses and they’ve negotiated with corporations and local bureaucrats before; so I’ve heard a lot of these stories and I’ve been with them when I was younger and watched them do this. The work is extremely hard from the business side and if it’s difficult on that side you can be damn sure that the “rational voter” really is a myth. Other sources (1, 2).
I'm not an economist, but assuming that NYC is hostile to new businesses, it seems to me that this would help ameliorate the housing issue I mentioned. Because it means that more people will start businesses in Stamford, Morristown, White Plains, Garden City, and so on. All cities which are far more easily accessible from distant suburbs.
So I would argue that the problem is not so much that NYC is a bad place to start a business, but actually the opposite -- that it's too great a place to start a business. That notwithstanding the extra taxes, the regulatory hurdles, the crime, and so on, NYC offers a huge array of advantages.
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