Cap‑rate math blocks urban housing

Developers’ required cap rates, driven up by higher interest rates, rising construction and insurance costs, and regulatory risk, can make the market value of a newly built rental far below its construction cost; the result is that rational investors won’t build even when demand exists. Simple numeric examples (e.g., $48M to build vs. $24M valuation at a 5% cap) show why tax abatements alone may be insufficient to spur production. — Explaining housing shortages as a failure of return calculus reframes policy: solve supply not only by zoning but by reducing cost, risk, and financing gaps (insurance, permitting, interest), or by targeted subsidies that change the investor math.