Asymmetrical Information

I thought New York had a budget crisis. What in the world is the New York City Council thinking of. No more rent control means more new construction. Higher rents means higher building market value. All this greatly increases property tax revenue.
End of budget crisis.

But Jake, wouldn't you rather subsidise the poor so in society so they can live above their means?

:)

Rent control doesnt help the poor. It only helps a special elite who have occupied their apartments cotinuously. The poor are the most heavily penalized by rent control because of the housing shortage it creates.

My mom lives in a rent-controlled apt in New York. She was a NYC teacher, in the South Bronx for 30 years. Bless her heart- she had to put up with more than most can imagine in a day's work. you've got to be pretty special to make it into Special Ed in her school.

Anyway, for her, rent control is appropriate. She is retired, and her income is going anywhere but down now.

But I do think that we could at least "means-test" the rent control a bit so that wealthy would not be as proected as the lower middle class.

-Adam

Rent control is means tested. If you made $175,000 last year, that's the last year you lived in your rent controlled apartment. If you paid 2000$ in rent last month, that's the last month you lived in your rent controlled apartment.

Of course some politicians are trying to move the limit up to 5000$ per month. (See today's New York Sun.)

Yeah, and to even get that means-testing the Republicans had to fight like heck in the Legislature. And would you believe it, a great deal of new housing was built and opened up right in the level above the new rent limit for rent control.

Rent control encourages landlords to not upkeep their buildings and prevents new housing from being built. Savings to tenants is easily eaten up by rent-seeking and the cost to the unlucky. Don't just believe me, of course, Paul Krugman wrote a great article about it for the Times back in 2000.

Rent control costs the city (and taxpayers) money in lots of other direct ways. Here in San Francisco, there are layers upon layers of bureaucracy dedicated to solving the thorny issues that absent rent control the market would solve. For example, a capital improvements board must approve most of the major infrastructure improvements a landlord wishes to make to a rent-controlled building, and the costs of those improvements are passed along as one-time charges to tenants. To put in a new boiler, a city bureaucrat must approve. In a free market, the landlord does what needs to be done, and adjusts the rent accordingly. When you interfere with the market mechanism, suddenly bureaucracies abound. Worse, it ossifies whole sections of the city where development becomes impossible (because it's impossible to remove current tenants). In a very space-constrained city like San Francisco (without the public transportation infrastructure that links NY with its distant suburbs on Long Island, in Westchester, and in CT, NJ, and PA), it's recipe for disaster. Add to that the socialists in government--eg, "let's pay the homeless $300/month in cash just for being here" and you've got yourself a Baghdad by the Bay.

This example of gross stupidity is yet another reason why New York City may probably be too far gone to save. It is akin to the drunk who must hit bottom before seeking help. The intellectual virus of socialism renders the mind incapable of thinking and following a logical argument. The pathetic victim has become mad and will not listen to reason.

Some people believe that John F. Kennedy’s legacy is so positive because he died in the midst of his best years. Would that have been the case had he lived another 20-30 years? The same can also be said about the World Trade Center. The twin towers represented the end of the twentieth Century. It was rapidly becoming irrelevant by 9/11. I am convinced that in no later than another 10 years the WTC would have been the butt of jokes!

Also, the splendid article by Paul Krugman regarding the insanity of rent control is a reminder that the man was once a rational human being. It is sad that today he is little more than a partisan clown.

"And would you believe it, a great deal of new housing was built and opened up right in the level above the new rent limit for rent control."

A lot of conversions. What happens is three or four rent controlled $800 apartments are knocked together to form one huge apartment that goes for five or six grand. Thus the shortages under this system is even worse than under plain vanilla rent control.

While New York is losing units to conversions, last time I looked that was in the co-op market, not the rental market.

Santa Monica experienced the same effects when rent control was removed.

Total units available for resiential rentals dropped significantly as multiple unit residences were consolidated for both lower upkeep and co-op purposes. Additionally many units were eliminated completely for commercial purposes.
Now that economy has faltered those commercial entities are failing and revenues for the city are dropping as well.

I am not a fan of rent control but the effects on the economy are much more complex than Jake would suggest. Rent control puts more money in the economy through a higher urban population who use urban services and buy urban commercial products.

The money that the city loses in property taxes is somewhat recouped in sales taxes. I am not sure what the statistics are in New York, but it seems possible that a direct effect of rent control could be an immediate reduction of the Manhattan population. Even that reduction was only a small percentage of the popluation as a whole, say 50,000 moving to the outer burroughs. That would have an immense effect on the local product and service providers.

Also by maintaing a large residential base in all areas of the city leaves the city less vulnerable to the drastic effects of recession that strike when a community must rely on a commuter or tourist population.

One of the main reasons that people are opposed to rent control is not the actual practice but the abuse of the system through illegal sublets.
Means testing is one way to avoid this but it is only partially successful.

A sensible solution would be to speed up the rent control limits so that they equal market conditions over a period of 10 years. It would also make sense to change alot of the zoning in New York to allow more combined large commercial/residential complexes.

Santa Monica experienced the same effects when rent control was removed.

Total units available for resiential rentals dropped significantly as multiple unit residences were consolidated for both lower upkeep and co-op purposes. Additionally many units were eliminated completely for commercial purposes.
Now that economy has faltered those commercial entities are failing and revenues for the city are dropping as well.

I am not a fan of rent control but the effects on the economy are much more complex than Jake would suggest. Rent control puts more money in the economy through a higher urban population who use urban services and buy urban commercial products.

The money that the city loses in property taxes is somewhat recouped in sales taxes. I am not sure what the statistics are in New York, but it seems possible that a direct effect of rent control could be an immediate reduction of the Manhattan population. Even that reduction was only a small percentage of the popluation as a whole, say 50,000 moving to the outer burroughs. That would have an immense effect on the local product and service providers.

Also by maintaing a large residential base in all areas of the city leaves the city less vulnerable to the drastic effects of recession that strike when a community must rely on a commuter or tourist population.

One of the main reasons that people are opposed to rent control is not the actual practice but the abuse of the system through illegal sublets.
Means testing is one way to avoid this but it is only partially successful.

A sensible solution would be to speed up the rent control limits so that they equal market conditions over a period of 10 years. It would also make sense to change alot of the zoning in New York to allow more combined large commercial/residential complexes.

I like UpJohn's idea. To just drop ages old rent control laws will probably have too much of a shock effect. Better to let them receed so the market can adjust.

Tallan

Once again there is a profound lack of understanding between "rent control" and "rent stabilization" While both are forms of rent control, "rent control" and "rent stabilzation" are terms of art, and therefore, before an informed discussion can begin on the topic, you must understand the definitions of each.

"Rent Control" no longer actively exists in New York, which aplies only to people who have held their apartments for 30 years (the government got rid of it in the 1970s). It's grandfathered and therefore even if the legislature repeals "rent stabilization," "rent control" will still be in place.

"Rent stabilization" is what you're all really talking about. You go in at an agreed upon price and then the rent can not increase more than a certain percentage per year, as set by the rent guidelines board. No one is obligated to make "rent stabilized" housing. However if you take a state government subsidy, at a very perferable interest rate, for the purpose of developing "affordable, middle income" housing, then you have to give back in the form of "rent stabilization." The initial number which the "rent stabilized" rate is based on, is the "fair market value" of the apartment. If the landlord wants to raise the rent above that of the percentage increase, they can make "improvements" to the property.

Therefore, if you don't take the money from the state, or if you do and then upgrade the apartment, you can charge what you'd like.

If you really want to make new construction a reality in New York, what you really have to do is Union bust. That's why it's so difficult to construct housing, not because a landlord won't get it back through rents, but because it's such a huge out-lay of cash in the beginning.

Given this information, most of the complaining about rent control on this board seems to only apply to "rent control" and not "rent stabilization." I agree it's stupid for the CC to send people to Albany to fight about this, except that if a whole bunch of educated people like yourself don't understand the difference, then perhaps our State legislature doesn't understand either and people need to educate those people voting on this issue so that they may make an informed decision on the merits.

Hey Jane, where is the argument against income restricted co-op housing? You keep complaining about rent control laws, but I see nothing about the horrors of income-restricted co-ops or mitchell-lama housing (sp?).

Kate

Steven Den Beste has some observations about rent control here:

http://denbeste.nu/cd_log_entries/2003/05/Problemsendsolutionsgoon.shtml

On the topic of means testing, I have a suggestion that will make the city some money and encourage the end of rent control (or technically "rent stabilization", as Kate points out).

Since rent control is meant to help poor and moderate-income people, the city should require everyone with a larger income to pay income tax on the rent money they're not paying to their landlords.

It wouldn't be that hard to implement. The city would have to figure the market rent for each rent-controlled apartment. The difference between the market rent and the actual rent, which we might call the "rent subsidy", would be counted as income for all households whose income exceeds some threshold (say, $50k). The city could phase in the tax (eg, you're only taxed on half the rent subsidy unless your income exceeds 75k). Since neither the IRS nor the state is counting this "income", the city could also tax it at a much higher rate (eg, 10%).

The result would be more money for the city, and less support for rent control (especially as the tax rate on the rent subsidy rose over the years).

Kate, my understanding is that all rental apartment buildings built before 1970 are included in the rent stabilization system. So it's not just buildings where the landlord originally sought some benefits from the government.

As you say, "rent control" only applies to tenants who haven't moved in 30+ years. When such people move (or, more often, die), their apartment goes into the rent stabilization system, too.

I think new construction is not covered under rent stabilization, so someone could build apartment houses in NYC and charge whatever they want. They would have to worry about changes to the law which might suddenly include their building, though, so such construction carries additional risk.

To my knowledge (and I'm not an expert on NYC housing law) Most of the "controlled" apartments which later become "stabilized" happen because the building itself is stabilized due to economic incentives given by the government to upgrade the property (i.e. upgraded wiring, etc.)

Obviously, one could argue that the reason these landlords had to get the subsidy was because they had to many rent controlled tenants and therefore could not upgrade based on the money they were getting from their then current rent roles.

In addition when an apartment becomes stabilized, its base rate is entirely based on the "fair market value" of the apartment, and most one bedrooms in decent neighborhoods in Manhattan (where the majority of stabilization is) have rent above $2,000, the automatic mark at which the apartment destabilizes.

Finally, Given that the trend seems to continue to be against stabilization, I find it very hard to beleive that someone won't build apartments because the government might tell them, sometime down the line, that they have to cap what they charge for rent. It just seems like a weak argument to me.

That's incorrect in a number of ways, Kate. First of all, rent stabilization is certainly not limited to landlords who accepted the burden voluntarily; most stabilization is in buildings (isn't your building pre-war?) that were built before 1970, and whose landlords had their property effectively seized by a quasi-marxist city council.

Also, last time I looked rent control was not limited to the original tenants who took occupancy 30 years ago -- family members can inherit the controlled apartment provided that they've lived there for 5 years. So those apartments aren't going onto the market as fast as your comment would imply. But the law could have changed without my noticing; certainly I'm no expert.

Landlords can make improvements to the property -- but the depreciation period is absurdly long, requiring a capital investment that may be beyond them, given the diminished value of the property; a landlord with an apartment renting for $1,000 with a market value of $3,500 would have to put in, by my calculations, nearly half a million dollars of renovations in order to pop the stabilization ceiling. And correct me if I'm wrong, but since the tenants have to consent to the renovations, the power over decontrol still resides with them.

Also, while rent control is a term of art in New York city, it's also a technical economic term which refers to any regime that sets a price ceiling on rental housing -- which applies just as well to our rent stabilization regime as to our rent control regime.

Finally, I'll dig up the studies, but while the lack of housing in New York is related to many structural problems, of which union construction is one component, the lack of non-luxury housing is pretty clearly related to the rent-ceilings and the tenant courts that consistently privilege tenants over landlords. Developers will not build affordable apartment buildings because as soon as they did, the city instituted rent stabilization -- that's why there's been effectively no non-luxury construction since the institution of the rent stabilization regime in 1970. The city repeatedly promised developers that it would not control new housing, and in consequence the developers led the housing boom of 1950-1965. Then the city imposed price controls just as inflation took off, and the developers vowed never to be burned again. They build housing for the very high end market, where tenants are generally too concerned with their credit rating to take advantage of New York's average 2-3 year eviction delay, and where the city council won't be tempted to impose new controls. I can hardly blame them; if I were a developer, I wouldn't care to bet that Sheldon Silver & co. wouldn't screw me as soon as it was politically expedient.

I'm sorry, I don't think there's a civil right to live in Manhattan, and if New Yorkers want to subsidize low-wage residents, they should damn well pay for it instead of forcing landlords to do so.

Um, call me a "silly optimist," but aside from the issue of whether or not rent control is good or bad (I happen to have faith in the free market myself, but I don't live in a rent control area), I have another question:

Is it appropriate for the City Council to pay these expenses?

I doubt it. I mean, there are a number of tests to apply to that action, the main ones being:

1. Does the City Council have the legal authority to incur such an expense? (Followed by, "Prove it! Show me the law!")

2. How is it in the best interest of the City (as opposed to the re-election campaign of the City Council's members) to incur this expense?

I know, they are silly, naieve questions. But too many people just assume the answers and go on to other issues.

Anyway, for her, rent control is appropriate. She is retired, and her income is going anywhere but down now.

Ahh, libertarianism - no free handouts, except for me!

well my boss, his daughter, his borther in law, his sister in law and his son all live in rent controlled apartments & pay $600 a month (average) even though they all bring in at least 100k/yr.

There's actually apparently not a big income difference between people living in rent controlled apartments, and people living in uncontrolled ones. But I haven't seen teh numbers myself.

I love the comment at the end of the article.

"I don't think $70,000 is a large amount in the scheme of things," he said.

Gosh I wish he would send me $70,000. I could do quite a bit with the money. :)

"Kate. First of all, rent stabilization is certainly not limited to landlords who accepted the burden voluntarily; most stabilization is in buildings (isn't your building pre-war?) that were built before 1970, and whose landlords had their property effectively seized by a quasi-marxist city council."

Yup, it was, and it was housing section eight tenants (i.e. tenants on Welfare whom the government paid for) until twelve years ago when the owner took out a VERY favorable loan from the government, which stipulated that to get the money to build middle-income apartments he had to agree to stabilize. He CHOSE to go into the stabilization system in 1990. He has the right to do that (and he sold the building for a tidy profit I might add).

I do not disagree that BEFORE 1972 (I believe that was the last year) all rental usits fell in under the "rent control" laws. Laws which are grandfathered and will not change. I agree that those laws are bad. Nothing can be done at a legislative level. SO if we are talking about what "Should" be done, we can only talk about Post 1972 "stabilization"

"Also, last time I looked rent control was not limited to the original tenants who took occupancy 30 years ago -- family members can inherit the controlled apartment provided that they've lived there for 5 years. So those apartments aren't going onto the market as fast as your comment would imply. But the law could have changed without my noticing; certainly I'm no expert."

Absolutely correct. But again, people going up to protest in albany won't change any of the "rent control" laws, only the "rent stabilization" laws. The others are grandfathered. Therefore The guy I know who lives in a 2,800sq. ft 4 bedroom on 72nd gets to leave it to his kid. But the kid has to have it as his legal address.

"Developers will not build affordable apartment buildings because as soon as they did, the city instituted rent stabilization -- that's why there's been effectively no non-luxury construction since the institution of the rent stabilization regime in 1970."

Bull, developers will not build affordable apartments if they can pay 50% more for the renovation and then charge 300% more for lease. That's simple economics for you. What could the possible incentive to build "affordable" housing in Manhattan be? There is none. That's fine.

"The city repeatedly promised developers that it would not control new housing, and in consequence the developers led the housing boom of 1950-1965. Then the city imposed price controls just as inflation took off, and the developers vowed never to be burned again."

You really think that if there is money to be made right now that upstarts wouldn't invest because their competitors got burned 40 years ago? I doubt that.

"I'm sorry, I don't think there's a civil right to live in Manhattan, and if New Yorkers want to subsidize low-wage residents, they should damn well pay for it instead of forcing landlords to do so."

I agree there is no civil right to live in Manhattan. Never said there was, but if you take money from the government and then guarentee you'll do something, you can't then bitch about how you don't make any money doing what you agreed to do. Sucks to have to make choices, doesn't it.

As for "rent control" you're right, we shouldn't have to subsidize poor people's housing. But don't think for a minute that de controlling everything will cause prices to drop and make everything affordable. While we have corporate attorneys, investment bankers and commodities traders here in New York the market will be itching to create housing for them.

But again, most rent stablized housing has been in the stock continuously since 1970 -- as, I believe you'll find, was your landlord's if he was housing Section 8 tenants, as at least when I worked on Section 8 projects, the tenants couldn't afford non-stabilized or controlled housing.

You're just incorrect about the way that real estate development works. It is very, very politically attuned, and very, very sensitive to the possibility of new controls, and a hefty portion of the reason new affordable housing doesn't get built is that the risk premium is apparently more than triple the risk premium for luxury housing. Luxury housing costs much more to build (land is the overwhelming driver, and there are nice affordable plots north of 96th street); the reason it's all that gets developed is that it's all the developers are willing to develop. There are other considerations besides rent control, but almost all of them have to do with the fact that landlords are afraid to get middle or low income tenants for fear of what the city council will do to them.

Also, with your income, you shouldn't be able to participate in any of the numerous tax-swap/loan deals, which are aimed at providing affordable housing to middle and low income tenants. If that's how your landlord came by your rent stabilization, your landlord is in default on his covenants.

"Also, with your income, you shouldn't be able to participate in any of the numerous tax-swap/loan deals, which are aimed at providing affordable housing to middle and low income tenants. If that's how your landlord came by your rent stabilization, your landlord is in default on his covenants."

Actually, until this year, I was poor. I was a law student married to a film editor for goodness sake. we were making a combined lower than the national average wage.

Plus, I'm moving out and letting my landlord destabilize my apartment. I'm not going to "sublet" it, as I know I could but would be morally and ethically wrong. While I will admit to paying below market value...it isn't much below and they're really sorry to see me go. I was a very good tenant who always paid my rent on time.

So there!

PS -- Keep August/September free for the housewarming party. I promise a variety of vegitarian goodies.

I shall start shopping for ugly knicknacks now.

Good. I'll put it next to the Bust of Lenin. It's the place of highest honor.

Just a note: The reat of Massachusetts forced Cambridge MA to give up rent control back in the 90s. Is there an in depth review of what happened since?

It's obvious that none of you knows much about the details of Rent Control or Rent Stabilization since you write such contradictory posts.

But forget details. Rent Control is classic Socialism & Rent Stabilization is Socialism by another name & with some hommage to capitalism. Repeat after me: Socialism never works.

The NYT, yes the NYT, had a whole issue of its Sunday Mag devoted to this issue in 1997. It showed the folly of it all. Want anecdotal evidence? The NYT had a famous writer & the granddaughter (a reformed hippie who was living with granddad when he died) of a famous shrink living (separately)dirt cheap in Rent Controlled apts off Central Park

And the fact that no one can be sure of the details shows that this has become an arcane specialty for some lawyers & for those who milk the system. When I was a young lawyer, I wound up helping my relatives from seemingly aggressive landlords who were, as it turns out, trying to survive. My relatives loved me, but I was doing society as a whole no favor.

One of you writers thought his Ma was entitled to Rent Control or Rent Stabilization 'cause she was a teacher all her life. What about other life-time teachers, then? Should they be given a rent-controlled apt? Sounds like Soviet-style entitlements to the Heroes of The War or something. Do you also think that she's entitled to subsidized food or entertainment?

My late Ma, God Bless her, died in her Rent Controlled apt. in Manhattan after living there almost 42 yrs. My Pa had died when I was 12 & my sister was 6 & naturally we had it tough. So Ma thought that rent control was one of the things "due" her. At the end of her life, she'd traveled at her own expense to every place in the World it seems, while her Landlord, a small businessman, lost her apt. house & his two others to bankruptcy. He had no job other than managing his family real estate business & God knows what happened to him.

When my late Ma-in-law, God bless her also, died, also far from destitution, in her Queens Rent Controlled apt., now important lawyer me, having been away from this Dickensian area of the Law for some time, told her landlord, an East Asian immigrant, that I was leaving some of her furniture & didn't want him to think that Ma's estate was a constructive tenant. Textbook law. Silly me. Bad lawyer me.

He instantly said no problem, just give him the key, he'd sign any mutual release I drew up. Any. Now being suspicious (no flies on me, boys & girls), I checked with a real estate lawyer I knew & his take on the landlord's sudden good nature (he hadn't been too amenable when Ma had "issues") was that said landlord was afraid that my wife would claim that she'd lived in the apt & could now inherit it w/o any rent increase. According to him, this scam was not unusual & most small landlords paid the bogus inheritee off, finding this blackmail cheaper than calling said bogus inheritee's bluff or pay lawyers fees to fight the thing.

Of course, the Media produces some poor wretch who has no husband & 6 kids & assorted grandkids & who can't afford any more than the $100 per month she's paying. Or some aged person with no pension or savings. I feel for them, but I suggest that the answer to their plight, & I don't mean to minimize this, it is not to stick it to their landlord. The existing Welfare bureaucracy should give these poor unfortunate tenants enough welfare payments to enable them to pay a fair rent. Duh!

As for all the examples of income tests you guys are setting forth, income tests are bogus; it's all political. NYC has more voters who are renters than who are homeowners. The City Council knows this & so the free bus ride! Newsflash! Just as there ain't no free lunch, there ain't no free bus ride.

"Just a note: The reat of Massachusetts forced Cambridge MA to give up rent control back in the 90s. Is there an in depth review of what happened since?"

All the "poor" people were forced out of their homes and now live in a shanty town of carboard and plastic tarps on the banks of the Charles. Infant mortality rates have skyrocketed and thousands of elderly died cold, shivering and starving. Families were broken up and women were forced into prostitution just to feed their malnourished children. Grown men were broken and now pass their time smoking crack and drinking fortified wine. Life expectancy in Cambridge dropped to 45 yrs for women, 39 for men. The rich kids often drive by and throw trash at them while calling them names. It is a humanitarian disaster that cries out for U.N. intervention.

Actually, they just moved to Chelsea. And rent control was also ended in Boston and Brookline along with Cambridge as a result of an initiative petition (the legislature would never have been so mean-spirited) also known as a voter referendum.

Historically, rent control is an effect of a housing market crippled by government regulation. Builders can't easily build, so the supply of new housing falls below free-market optimum, so rents go up, a lot. Political pressure then sometimes compounds the problems by imposing rent control.

Realistically, it would be better to first make it easier to build new (un-rent-controlled) housing, then, as the housing market responds, remove rent controls. However, most housing market interferences other than rent control are very popular with middle-class homeowners (voters).

Dear Nobody Important,

Your post about apres nous (in this case, Rent Control) in Mass was important & well done.

Every time we talk about NYC Rent Control, we get the Dickensian rant.

Everyone, including those, especially those, who believe that Socialism will work if only we give a fair trial (Um, like 60 yrs in NYC?) should read today's WSJ (p. A 17) on this issue. It avoids the details in so many of these posts as well as the emotional tugs & focuses on the deadly statistics.

The author indicates to your point that The Manhattan Institute will receive a study today by an MIT housing expert (not Rush L!) on the effects of Rent Control termination in Cambridge, but you've given away the ending: The Dog That Didn't Bark.

Regards

In Massachusetts we have, effectively, a one party state. This leads to a plentitude of voter initiated referenda as the only counters (notwithstanding "Rebuplican" governors) to the liberal Democratic agenda. On every tax and spend issue we get the same dreadful forecasts if the selfish interests of the taxpayers hold sway. The plaintive cries of the "activists" have become so stale and predictable... and wrong!

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