Rent Control and Rent Stabilization: Looking Good at Another’s Expense

Sadly, Albany has decided to let rent control and stabilization continue to plague New York City. It looked hopeful for a while. The legislature seemed poised to let these distorting, inequitable rules expire. But in the end, the politicians decided to maintain the pain, not, of course, for the lucky few who enjoy a break on their rent, but for everyone else in the city who, in one way or another, must pay a high price for these policies, not all of it economic.

Rent control and rent stabilization have been around for a long while. The former was instituted right after World War II. Because the war had limited new construction, returning veterans had so few housing choices that the city, to prevent gouging, capped rents as an emergency measure. Though rent control applies only to buildings constructed before 1947, the emergency seems to have stretched almost seventy years to the present day. Rent stabilization is broader based. It covers apartments in buildings of six or more units built before 1974 that rent for $2,700 a month or less and whose tenants have incomes of less than $200,000 a year. Under it, New York City’s Rent Guidelines Board determines how much landlords can raise rents. The board recently determined no increase on a one-year lease and a 2 percent increase for a two-year lease.

Combined regulations rules apply to some 47 percent of New York City apartments and benefit a bit over one million New Yorkers, according to research done at the Furman Center for Real Estate and Urban Policy at New York University’s Law School. Doubtless, a sensitivity to these votes swayed Albany’s decision to keep the rules alive. It is a shame that the politicians failed to consider all those who will carry the burden of this generosity, and there are many who pay this price in a variety of ways.

Heading this list are all the other rental tenants in the city. Because these people are not lucky enough to live in a protected apartment, they must pay market rents for their living quarters. And because the laws keep a large block of apartments off the market, landlords can set rents on the remaining apartments commensurately higher. Indeed, so much living space is embargoed by these rules, it is likely that the rent and stabilization laws keep up prices on condos and co-ops as well, at least above where they would otherwise settle if the regulated apartments were on the market.

To be sure, it is not as if an end to these regulations would suddenly increase the city’s stock of available apartments. The folks in them, after all, have to live somewhere. But because these laws favor tenants in place, a change would increase the amount of available living space. The elderly widow, for instance, in her three-bedroom, two-bath, rent-controlled or stabilized place stays even though she no longer needs or wants the space because she cannot get a better deal elsewhere, even on a much smaller place. If such incentives to stay in place were removed, much of this space would become available. Landlords could cut it into smaller apartments or rent it to families that need larger apartments. Some estimates put this potential influx of living space at the equivalent of one million new apartments, a supply that would hold down rents generally and also allow a more effective use of the city’s existing housing stock.

Control and stabilization laws hurt tenants in a different way by eroding the quality of the city’s existing housing stock. Because the Rent Guidelines Board seldom allows rent increases that match the growth of landlord’s expenses – only twice in the last 15 years, according to the board’s own statistics – landlords lack the funds to maintain the properties as they otherwise might. It is, of course, easy to argue, as Mayor de Blasio does, that landlords should maintain quality regardless of the revenue shortfall. That money does not come out of his pocket. Even if some landlords have the resources to do this, many do not. They are small investors who have put their life savings at risk and do not have the surplus to spend, certainly not when rent laws shortchange their investment returns.

For all these unfair economic burdens, the highest cost imposed by these laws is the damage they do to people’s confidence in government. If politicians were straightforward about its desire to help a particular class of renters, they would use tax monies to subsidize them. That way the burden of the support would spread equitably across all citizens, who could then pass judgment on the practice at the polls. Because the current system disguises the costs and apportions them inequitably, it allows politicians to give benefits without having to account to the voters. All, even those who take advantage of the rules, must sense the deceit and dishonesty involved and accordingly have that much less respect for the government that sanctimoniously and cynically supports such a system.

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