Asymmetrical Information

And why oh why didn't Pataki get rid of this law whne he had the chance!!!!

What use are Republicans if they behave like Democrats?

Rent stabilization has some bizarre side-effects. It looks like it will be going away in upcoming years and I will certainly be glad to benefit from the more reasonable (and fairly distributed) rents available to the open-market searcher. But I'm wondering whether (a) the streets of New York will withstand the constant inundatation by moving trucks that will result, and (b) the corner dry cleaners will still stay open and I'll still be able to get my late-night pizza delivery... Probably yes, but there'll be some big demographic movements goin' on...

People who think their rents will go down when rent-stabilization goes away are living in fantasy land. Didn't happen in Boston and it won't happen here.

First of all, all but the most insane family of three would have moved out by now. Second, most people who fall under rent stabilization don't have deals quite that good in a market as soft as this. I also don't understand how the apartment is stabilized if it has been under the same tenant stream since 1969. Wouldn't it be controlled instead?

It never ceases to amaze me that when a law or rule benefits you and hurts someone else it's just the way the world works and we all have to suck it up, but when a law or rule benefits someone else and you don't have in on the action, the whiney sounds you make are extraordinaly!

Walking through lower Manhattan I often see plaques showing what famous artist lived here or there in the first half of the 20th century. They weren't rich at the time, either. Before rent control Manhattan used to have plenty of housing at reasonable prices.
Of course, when the controls get lifted there'll be a period of craziness...

Kate,

What are you talking about? You make a string of non-obvious assertions without providing evidence or reasoning. Would you please provide at least one of the two so that those of us who aren't you have a chance of agreeing with you?

Boston is very different from New York. The urban center is smaller and transportation from the outside does not cover the surrounding area as densely. Thus, it is likely that the market pressure from people wanting to live in the core was higher there than it will be in New York. (Rent (and hence occupant) stabilization isn't what's keeping rents low in Harlem you know...)

There might still be a "Boston effect", but I think not, that instead when rent stabilization goes, the vacancy rate will go up, but the average ability/willingness to pay of the prospective tenant population will go down.

Kate, this has nothing to do with what benefits me or doesn't -- I'm also against student loans, of which I was a direct beneficiary, and for similar reasons. Furthermore, I'm not blaming this couple; I might do the same in their place. I would happily move into a rent controlled apartment next month, if I could find one. But the system stinks.

There is virtually nothing on which all economists--liberal, conservative, and marxist--are in as thorough agreement as that rent control is "the most effective way to destroy a city's housing stock short of aerial bombardment." There are no reputable studies vindicating rent control as a promoter of affordable housing -- and the number of young professionals such as yourself living in rent stabilised housing only points up the fact that the system is a lottery, not a social program. In fact, studies have shown that the poor are the least likely to get into a stablised apartment, because landlords of stabilised leases can afford to be choosy about their tenants. Rent stabilisation is very good at giving breaks to a lucky few, but it's a rotten system for helping the poor, which is its ostensible goal. In fact, as we both know, having grown up in the city, what it really does is allocate cheap housing to the well-connected children of the middle class, such as the folks in the story who got the apartment from their relatives. This, in turn, allows them to indulge their dreams of painting or social work while still living in Manhattan, while those with the misfortune to be born poorer and darker skinned have to move to Yonkers and commute two hours to serve lattes to the lucky duckies with stabilised apartments.

No one's arguing that decontrol lowered prices in Cambridge overnight--any more than rent control reduced New York City's vacancy rate to 2%, and average time from lease to move-in to under a fortnight, overnight. But you're making the commonest of economic errors, assuming that because prices didn't fall after decontrol, decontrol didn't help keep prices down. You may recall the little economic boom we were having in 1997, which is when the buildings mostly started to decontrol (landlords voluntarily accepted a 2 year extension of decontrol to ease the transition). Cambridge was the center of that boom in Boston, and Boston was a regional center of the boom, due to its tech and financial services strengths; separating out the effects of decontrol from the effects of the boom is not an easy matter. But this fellow has done a pretty good job of showing that decontrol sparked a major increase in investment in formerly controlled properties; we should expect to see the price effects show up in a few years. Meanwhile, the city of Boston's own study shows that the major exodus of rent controlled tenants was of affluent tenants who decided that they'd like to live somewhere nicer, now that their landlords no longer had to subsidise them. Of course, there are other factors, such as zoning, building codes, red tape, and "community action". But it's simply not arguable that rent control does anything but hurt the availability of housing.

Today's Washington Post has an article about a woman who has developed a career niche redesigning tiny NYC apartments to squeeze out every square foot of living space.

"In this densest of American cities, she is that quintessential professional: the space doctor."

Today's Washington Post has an article about a woman who has developed a career niche redesigning tiny NYC apartments to squeeze out every square foot of living space.

"In this densest of American cities, she is that quintessential professional: the space doctor."

How ironic that I used twice as much space as necessary to make that point.

A review of Boston's rent decontrol history cited above (http://www.manhattan-institute.org/html/cr_36.htm) mentions that, "While smaller in size, Cambridge's housing situation parallels New York's in many ways." According to information given elsewhere the report, it is actually about one fifteenth the size (100K vs. 1.5M population)! Furthermore no mention is made of the significant differences in public transportation I mentioned earlier, which clearly have an impact on housing demand and the demographics involved. The study does make an admirable effort to control for other factors (the economic boom in Boston, although it should be mentioned that most of Boston's tech industry is actually in the suburban areas (Route 128)).

However concluding as the study does with few reservations that "Cambridge’s experience bodes well for housing quality should full deregulation be implemented in New York as it was there," is taking it a bit far. While it is impossible to control for all factors in doing real-world comparisons, these differences that could lead to different outcomes in New York should have been mentioned and attempts to assess their impact made. Furthermore their methods do not allow them to assess the impact of decontrol on their control population -- the previously unregulated buildings in the same neighborhood; surely the changing face of the rental market might have prompted actions on the part of the unregulated landlords as well as the regulated ones. This study was a good effort but its conclusions for Boston, let alone New York, are far from clear.

This is probably the source behind one of Roger Ebert's pet rants: The standard movie cliche of the moderately-paid beat reporter who can maintain a luxurious, multi-room, penthouse apartment in a major city (e.g., Lois Lane in "Superman").

I lived in NYC for 10 years and had pretty good luck on the apt front. A couple of things to look for:

Non-elevator buildings: Old pre-war buildings with no elevator will typically let top floor (5th) apts go for hundreds less - point of fact, had a choice between a 4th and 5th w/ a $200/mo discount for one floor on upper east side - Pay me for throwing in the stairmaster?!? Excellent!

Radiator heat / NO central AC: Many people won't do without late 20th century comforts - I dig window AC units. Big savings here!

Give up the dishwasher and washer/dryer combo - there is a laundry on every res block - no sweat - and you eat out all the time anyway (why else live in Manhattan - so you doin' lots of dishes??. Worth a couple hundo right there.

Farther east or west from Park you go typically the better if you are looking upper E or W.

There's some others but these above together will put a big dent in the monthly rent.

There is another point about Boston that makes its apartment situation different from New York and most other cities. The area around many of the most desirable Boston neighborhoods is zoned "historic" and therefore very little new construction can take place in these neighborhoods. As an example, a tastefully done highrise on Becon Hill could provide a lot of apartments in a nice area that would fill up quickly, but this highrise could not be built because of the zoning. One may argue that all of this historic zoning is or is not a good idea, but it inarguably affects the rents in Boston and Cambridge.

There is another point about Boston that makes its apartment situation different from New York and most other cities. The area around many of the most desirable Boston neighborhoods is zoned "historic" and therefore very little new construction can take place in these neighborhoods. As an example, a tastefully done highrise on Becon Hill could provide a lot of apartments in a nice area that would fill up quickly, but this highrise could not be built because of the zoning. One may argue that all of this historic zoning is or is not a good idea, but it inarguably affects the rents in Boston and Cambridge.

And their son? Who eats home cooked food only when they're in their vacation rental? Can't wait to read HIS first novel.

And their son? Who eats home cooked food only when they're in their vacation rental? Can't wait to read HIS first novel.

"a tastefully done highrise on Becon Hill could provide a lot of apartments in a nice area that would fill up quickly, but this highrise could not be built because of the zoning. One may argue that all of this historic zoning is or is not a good idea, but it inarguably affects the rents in Boston and Cambridge."

While we're at it, those medians in the Back Bay would make convenient landfills, and the rents sure would plummet.

Sorry for the long rant to come:

I live in a rent stablized apartment. I moved in here in the very early 1990's. The neighborhood was "fringe" at best. The apartment was in one of the few decent buildings in the area, was a nice size and even though it had bad heat and no wiring for an air conditioner, the price was right.

The immediate area was rough. There was a cop killed in a drug bust not long after I moved here, a rapist running through the area (he was the brother of another tenant) and enough homeless to populate a small town. There were squats across the street. Again, the price was right.

During the Guiliani administration, the squats were cleared out (but the "tenants" sued), so were the homeless. The area, which was basically anchored by the middle class people who lived in the rent stablized apartments and a few stores that serviced them, started rallying. We got a few more dry cleaners, better supermarkets and gasp, three years ago we got a Starbucks and a Duane Reade.

The Internet bubble helped push the area - suddenly it was a hot neighborhood to live in. Non-controlled apartments started renting for crazy prices. Bubble broke, and the people living in those apartments were suddenly broke as well.

The internet millionaires are now all gone. The homeless are beginning to work their way back. Two stores can't afford the rent anymore (one was replaced by a 24 hour adult DVD store) and I have a feeling we're sliding back to where we were a few years ago - except for the squats. What will keep this neighborhood from going down the drain is what kept it alive in the late 80's, early 90's - the rent stablized tenants in my building and those businesses that service us.

And the squats? Mayor Bloomberg GAVE them to the people who use to live there to clear up the lawsuits. One lucky free apartment owner is the mother of actress Rosario Dawson. I'd like a free apartment from the city - most people would.

I pay taxes, I pay a boatload more rent than $700.00 a month - other than my 97 year old neighbor who is exempt from all the rent increase laws - most around me are paying about $1500 a month. I was on an 8 year waiting list for this place. Since there are still an awful lot of controlled/stablized apartments - and we vote - this system is staying for a while.

Ask Bloomberg why the free housing to the people who illegally occupied rent free apartments for year instead of complaining about the stablized/controlled system.

I'm sorry - people who've lived in Free cities simply can't understand either how it "works" (poor Mara! Why didn't your mother come move you out after the cop killing? Mine would've had the appropriate curator at the museum back home to tea and poisoned him to find me employment) or why.

What a mutually degrading situation!

Yes, I understand the initial "we've got a war on" impulse behind the 40s rent control.

Everything since then seems to me, the outsider, to be mere competeing self-interests.

Bernard, were you being sarcastic?

(the Back Bay neighborhood was created by filling in a marshy bay, a landfill project)

Rent Control - Thomas Sowell's book Basic Economics, one of the first chapters.

Take the caps off and NYC will become attractive again.

There's no reason a 90-y.o. woman needs that many rooms, when a young couple can use them.

"I'm also against student loans"

Whoa, Jane, that's a rare opinion there. Worthy of a post?

There's no reason a 90-y.o. woman needs that many rooms, when a young couple can use them.

Except it is her home.

"I'm also against student loans"

"Whoa, Jane, that's a rare opinion there. Worthy of a post?"

I definitely agree, though I too used them and am paying them off.

I'm sure Jane can explain it better (and hopefully will) but here is my case against them:

1. They are like any other subsidy - benefiting one group at the expense of another.

2. They don't allow for an efficient allocation of resources. It's ridiculously easy to get them and consequentially this decreases the incentive to pursue a course of study that offers a reasonable chance for employment. Because you are spending someone else's money you have less incentive to be prudent. Yes, you pay it back (at lower than market rates) but not until you are done and in many (most?) cases the interest is paid by the taxpayer.

3. It has the effect of driving up the cost of post-secondary education. Because the borrower is not spending his own money (and it is cheap to borrow), he has less sensitivity to the ridiculous rising costs of tuition.

"There's no reason a 90-y.o. woman needs that many rooms, when a young couple can use them.?

Except it is her home.

Except that is essentially an appeal to emotion. Arguments about "homes" are well and good and a place to call "home" is a desirable thing for many people, but we are discussing rental units here -- in short, you are voluntarily agreeing to live in someone else's business enterprise. One of the basic and most obvious principles of renting is that you rent that which is within your means, or create yourself a home elsewhere.

May sound a bit cold to hear it phrased that way, but anyone who moved into a multi-unit residence space with anticipation of living there permanently at a relatively controlled cost should have checked the paperwork for words like "condominium" and "purchase contract."

Thank God the price the landlady pays for goods and services is also controlled.

You know, NYC is a very large city. Why not come live out here in Queens? We have pretty reasonable rents out here... and some of us even manage to =own= our two-bedroom apartments! Full kitchens! Bathtubs! And you can see grass & trees! Almost suburban living, with the subway a 10-minute walk away....

Ah, this is the life.

I would love to live in Manhattan again, but I refuse to pay the prices. And I prefer owning my apartment.

I'd also like to see a post with more detail on Jane's thoughts about student loans. Are you against any government support for higher education, or do you just think that student loans are an inefficient way to do this? Are you against them on principle, or do you object to the way they are currently structured?

If we are going to subsidize higher ed, I have always thought that student loans and bursaries made more sense from an economic standpoint than general grants to universities. I would think that the points that David Anderson makes above would tend to argue more in favour of student loans than against them, unless the alternative is for everyone to pay the full cost of getting a degree with no government support whatsoever.

This is what always happens, I leave work, go home, come back, check AI and there are 20 new posts about something I posted about and now feel compelled to respond to.

As I think I have mentioned before, much like Mara, I also live in what was, at best, a marginal neighborhood (they actually had a story about my neighborhood in the Times real estate section talking about what a scary place it was in 1991 about two months ago). When I first looked at the apartment I felt it was too expensive. I didn't take it until a month later when they had lowered the rent by about $100. This was in 1995. The landlord didn't pick me because I was a nice middle class white girl. The landlord picked me because I said yes.

Until about a year ago I was not an upper middle class professional. I was a broke administrative professional (probably making less than you are now Meg) or I was a full-time student.

And my poor landlord, to whom I am paying below market rent...didn't raise my rent the last time he had the option. That's right, rather than try to find a tenant in a soft rental market and have to repaint, resand floors and retile bathrooms for an apartment which might be vacant for several months before they could get a tenant in who would pay approximately $300 a month more they essentially gave me $130 per month to stay right where I was.

Oh, and how about my poor landlord, who choose to have a rent-stab. building when he took the 25 year J-51 tax abatement offer from the government so he wouldn't have to pay any taxes on the building for 25 years.

And the poor minorities, like the families who live in the apartments above me, who have jobs like livery car driver and maid...those people who never get to take advantage of rent-stabilization...except they did.

You rail against control and I'm with you. People paying $700 for three and four bedroom apartments is awful. But they're grandfathered into the system and there is no way you're ever going to get them out. Removing limits on stabilization wouldn't effect them at all.

Quite honestly, you couldn't get me to live in a 700 square foot apartment with my husband and son for free rent. The fact these people are wack-jobs hardly makes for a quality case study.

Conversely you rail against stabilization and, in situations like Mara's and mine I am totally against you. The landlord made a deal, the city made a deal, now they have to abide by it. Phase it out if you want, slowly, but removing it immediately and entirely will cause more harm than good. It won't lower rents in the short term, it will substantially increase the homeless problem in the city, and while I have read articles on both sides of the fence, I doubt it will significantly impact rents in the long term.

It seems to me to be the height of hypocrisy to say you would utilize it, but are against it (like student loans, which I find unfathumable. Are you against mortgages too?). I tend to pitty the family in the article more than complain about what a good deal they have. Seems like a pretty lousy deal to me.

I'll try to post something on student loans later.

Meep, I am in no way averse to borough living; I wouldn't consider Manhattan prices either, except that back when I was in business school, and expected to be making about twice as much as I now do, I acquired a dog. The dog needs to be walked and fed during the day. By living in Manhattan, I stay close to my mother, who is willing to take in the critter during the day. The amount I save on dog walkers (and laundry) makes it financially viable.

Hey, meep, what would it be like to commute to NYU of Columbia from Queens?

What's a decent 1-bedroom first floor apartment in a neighborhood without stray bullets cost to rent?

My aunt and uncle (who have kept a series of pets over the years) have been living in the same two-bedroom on the Upper East Side for probably two decades now. They are, I'm guessing, paying less than Jane. (I've never asked.)

My question is: would lifting rent control/stabilization laws have an effect on the process of getting an apartment in NYC? I was utterly terrified of the whole thing, and happy to just move in with someone after a Village Voice ad and a short interview. It worked out well for me, but I wasn't even on the lease, so it could have very well ended in psychotic drama. But the idea of going through a broker, seeing 17 apartments, etc., makes me damn queasy. Is that a function of rent control? Of other bizarre regulations? Of demand being greater than supply? All three?

the way i read things, jane wasn't just talking about stabilization, kate

she was talking about all rent controls, subsidies, etc

end the entire program for everyone

throw da bums out, no grandfathering...

no one should get any form of rent subsidy from the government... that way, you'll see alot more pressure to overthrow the ridiculous development controls as well

It seems to me to be the height of hypocrisy to say you would utilize it, but are against it (like student loans, which I find unfathumable.

Hypocrisy: The practice of professing beliefs, feelings, or virtues that one does not hold or possess; falseness.

What's hypocritical about it?

Jessica - it's a function of choosiness.

Whenever I rented in Atlanta I saw multiple apartments. When I rented here in Geneva, NY (pop., 15,000?) I saw nine (9) in 18 hours (admittedly I moved here in a good month to see a lot).

That way I had a very clear idea of the market.

Suddenly I feel better about my $590/month mortgage payment.

Sam,

I was being sarcastic, but cannot claim the level of subtlety you suspected. I wasn't thinking about the origins of the Back Bay, just sortof defending zoning. No matter how tasteful the design, it's hard to imagine a high-rise that would look appropriate on Beacon Hill.

I do largely agree with Jane about rent control. One point that has not been mentioned, I think, is that it's a terrible way to help people who need help find and keep affordable housing.

The costs are borne, mostly, by landlords. There are negative externalities from minimal maintenance of buildings and the like. The benefits go to incumbents, a random group from the point of view of economic well-being. And, to answer Jessica, yes, removing it would make finding an apt in NYC much easier. A higher vacancy rate reduces the need for brokers and generally lowers search costs.

One caution, that several have mentioned. The immediate result of removing rent control would likely be a sharp increase in rents. New units don't get built in a day (though I've lived in some that seemed like they had been). Over time the rental market finds its equilibrium.

Mara: It would be her home if she owned it. Instead, it's an apartment she pays rent on.

Minus rent control, one imagines she would have moved out decades ago to a smaller place. Why should the State, in effect, subsidise her giant apartment? The emotional connection she has to living there? Well, that'd be nice, but too bad such a subsidy harms the next few generations, huh?

I have this crazy idea that the State should generally be out of the business of providing people shelter, and that where it must do so, it should build and run the buildings directly and not pretend to be doing anything other than running poor-folks housing. At least that way we don't end up with such godawful distortions in the housing market.

Move out of Manhattan.

BTW, here's a fun piece on rent control from back when Krugman was thinking like an economist and not a partisan:
http://www.pkarchive.org/column/6700.html

Bernard,
Actually, I agree that it is difficult to imagine any sort of highrise that would look appropriate on Beacon Hill. Personally, I am not sure if I would want such a structure to be built. I guess I was unsuccessful in making the point that I did not want to debate the zoning laws, which certainly have their uses, but rather wanted to point out how Boston is in some ways unusual. As for the rest of your latest post, I not only agree with it, I think that you have expressed your points very well.

2. They don't allow for an efficient allocation of resources. It's ridiculously easy to get them and consequentially this decreases the incentive to pursue a course of study that offers a reasonable chance for employment. Because you are spending someone else's money you have less incentive to be prudent. Yes, you pay it back (at lower than market rates) but not until you are done and in many (most?) cases the interest is paid by the taxpayer.

3. It has the effect of driving up the cost of post-secondary education. Because the borrower is not spending his own money (and it is cheap to borrow), he has less sensitivity to the ridiculous rising costs of tuition.

Very true, on the other hand it is very difficult (but not impossible) for private lenders to break the information barrier. Since student loans would be paid back by a job that won't even exist for maybe 4 years from the date the loan is undertaken, it is quite a risky investment. Even if you don't like the current policy, there would seem to be some role for gov't to use its position to facilitate student loans in some way.

Average Joe,

Thanks for the kind words. Sorry for any offense. I misunderstood what you were driving at.

Michael -- I should clarify; when I said "see 17 apartments," I should've added, "and of those 17, maybe one is both inhabitable and in your price range. Maybe. And that's the one with the $3000 broker's fee."

I just know how long it took Jane to find the place she's in with Finnegan now. And I didn't envy her the search.

Sigivald: It would be her home if she owned it. Instead, it's an apartment she pays rent on.

Every time they rewrite the rent controlled/stabalization laws, the one group that is uniformly exempt from the rent changes is the elderly.

My neighbhor is 97. She's in a small one-bedroom apartment with a stove from 1957. Last year, she was moving out to live with her niece and the niece's husband in their home in Jersey. The niece's husband died (he was 80) just before the move and now she has nowhere to go. The niece decided to go to a nursing home, the husband was the only "healthy" person in the house.

The 90+ crowd becomes a bigger problem for the state if they take that apartment away. My neighbor has outlived everyone else - I know, I did all the checking up on her when she was mugged last spring. She loses that apartment or gives up a small one bedroom apartment for some "deserving young person" who wants to live down here, where's she going?

It is her home.

I used to commute from here (Kew Garden Hills) to NYU (via the E or F trains). It took my about an hour door-to-door. Got a lot of reading done on the train. And I'm far enough out that I have a chance at getting a seat.

Speaking of which, I should be going now. Currently, I commute to midtown, east-side. So my commute is about 20 minutes shorter.

Mara - where should she go? How about to a sr's home like her daughter?

Don't they have any like my 92 y.o. grandmother is in? 2 sides-1 that can take care of oneself and my gram's side, meals, laundry, cleaning and dusting provided. And a mix of SS and people like my gram who pays full freight. And she's never been "rich" under anyone's definition.

If her daughter goes, who's going to clean out the apartment?

Again, read Sowell and his Basic Economics book.

----

As to student loans, what about when colleges have multimillion and billion endowments? When should the gov't start saying pay for some stuff yourself (Harvard, Cornell and Northwestern come to mind.)

Sam, that's a wonderful column by Krugman. (Sure is wasting himself as a political hack columnist these days, that's for sure!)

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