This memorandum was drafted to
assist those involved in the current debate over the extension of New York's
rent laws. The analysis is based upon a personal review of hundreds of
studies, reports and surveys generated by government, industry, tenant
and academic experts over the past thirty years.
Updated May 5, 1997
Introduction
New York landlords and their
advocates have spent millions of dollars over the past two decades on lobbyists,
campaign contributions and advertising - all aimed at ending or discrediting
rent regulations. Industry advocates, including the Real Estate Board PAC,
the Rent Stabilization Association PAC and the Neighborhood Preservation
Political Action Fund contributed a total of $401,605 to legislative incumbents
and campaign committees just before the last round of rent law renewals
in 1993. Nearly 90% of those contributions went to Republicans. In the
1994 and 1996 election cycles, Senate Republicans received $883,925 from
real estate industry PACs. Most of those funds went to legislators who
do not have a single rent regulated constituent in their districts.
In my seven years with the New
York City Rent Guidelines Board landlord organizations such as the Rent
Stabilization Association and the Community Housing Improvement Program
spent hundreds of thousands of dollars on studies which invariably concluded
that rent and eviction protections are bad public policies. Notably, research
funded by non-profit organizations, academic institutions or government
agencies produced findings that were starkly at odds with the conclusions
of the landlords groups. Unfortunately, due to limited funding and marketing
efforts the results of these non-partisan efforts rarely received public
notice. As a result, the hard facts about the experience of New York and
other cities with rent regulations have been overwhelmed by a well engineered
public relations effort by the landlords. Today, the myths and rhetoric
generated by the landlords' effort to persuade the public of the evils
of rent regulation are routinely and uncritically echoed in the local media.
The purpose of this brief memorandum is to identify and correct some of
the unfounded assumptions about rent regulations.
History
Contrary to a common perception
that rent controls are a vestige of New Deal liberalism government correction
of market imbalances is a practice that is over 500 years old. Medieval
theologians developed the concept of a "just price" for the necessities
of life and persuaded the English Parliament to regulate the price of bread,
meat, lodgings and other staples of life for centuries. In the American
colonies similar laws followed the English tradition. Many of those laws
continued long after the American Revolution. In fact, New Jersey enacted
a statute regulating the amounts Innkeepers could charge for food and lodging
in February of 1791 - just fifteen months after it ratified the U.S. Bill
of Rights. Throughout the 19th and 20th centuries various price regulations
were challenged and upheld as constitutional exercises of government's
power to protect public health and welfare.
Even if rent and price controls
are within our historical experience and national traditions, hasn't the "free
market" addressed our housing needs throughout most of that history?
The sad fact is that free markets
in New York City have rarely produced an adequate supply of decent and
affordable housing. The horrors of open market housing were well documented
by Jacob Riis in the nineteenth century. Rising rents and evictions led
to extreme public unrest, rent strikes and mass protests at the turn of
the twentieth century and into the 1920's when the City first experimented
with rent controls. The Rent Laws of 1920 lapsed in 1929 because a growing
economy led to a building boom which reduced the need for controls. During
the Depression of the 1930's poverty forced many families to double up.
Overcrowding, along with a deflationary economy kept rents in check. When
state officials met to revise the State's Multiple Dwelling Law in 1946,
they noted that a housing shortage began to appear as early as 1936 but
that the Depression had forced many families to double up which concealed
the shortage.
The
Emergence and Demise of Rent Control
During World War II rent and
eviction protections were reactivated as part of a national price control
program. While demand for apartments was strong, building construction
was stalled due to the diversion of resources to the war effort. After
the war housing construction rose dramatically. The fact that over two
million rental units remained under strict rent controls had no measurable
impact on the development of new housing. The Rent Control system initiated
during the war now governs only 71,000 housing units. Since 1971, rent
controlled apartments in three to five unit buildings have been deregulated
upon vacancy. Rent controlled apartments in buildings with six or more
units which are vacated now fall under rent stabilization. Consequently,
over 700,000 pre-war apartments which were formerly subject to rent control
are now under rent stabilization.
Rent
Stabilization
By the end of the 1960's rising
construction costs and zoning changes slowed the production of new housing.
Strong demand for rental units and a low vacancy rate caused a sharp rise
in rents throughout the uncontrolled housing stock. Complaints flooded
the City's Housing and Development Administration - mostly from middle
class residents of newer and higher priced post-war apartments. In 1969
rent stabilization was established to protect about 400,000 households
living in these uncontrolled apartments. The stabilized stock has since
grown to over one million units with the influx of vacated rent controlled
apartments.
In 1971 the state adopted vacancy
decontrol for both rent controlled and rent stabilized apartments. Rising
rents and complaints that owners were harassing tenants out of regulated
apartments to take advantage of vacancy decontrol led to a re-establishment
of rent stabilization coverage for vacant units in 1974.
In 1971 the state adopted a law
which prevents the City from adopting rent controls that are stricter than
those already in effect. Since then, the City has been deprived of home
rule over rent regulations.
The rent stabilization system
was adopted to ensure reasonable rents for everyone. That is, it was designed
to restore fair bargaining relations between owners and tenants - whether
those tenants are rich or poor. Although it clearly benefits low income
tenants, it was never intended to serve as a social welfare system. The
much repeated criticism that rent regulations were primarily intended to
protect poor people raises a convenient straw man for the critics of rent
controls to knock down. While concern was expressed for those on fixed
incomes and for the displacement of long term city residents, the main
objective contained in the legislative declaration was to relieve tenants
of the burden of "abnormal" rents which had been driven up by
the housing shortage.
The notion that rent regulations
force owners to "subsidize" tenants was rarely heard until the
late 1980's. Until that time the standard critique of rent and eviction
protections proffered by the real estate industry was that such regulations
hurt the housing stock and the local economy. Having failed to make a convincing
case, they came up with the new argument that rent regulations "subsidize" affluent
tenants. Ignoring the traditional "fair rent" objective of the
system, they argued that rent protections were primarily intended to protect
poor people and therefore should not benefit anyone else. This argument
fails to account for the anti-profiteering purpose of the law. The rent
laws were enacted to eliminate unfair bargaining advantages that landlords
have over all consumers who are forced to shop for apartments in an overheated
market. In other words, the law was designed to ensure that a landlord
could not charge $1,200 for an apartment that - in a normal market - would
rent for only $800. Until the lobbyists for the landlords embarked on reconstructing
public perceptions, the relative wealth of tenants was not a concern. Notably,
the landlords' public relations effort has never attempted to explain how
an increase in rent from an affluent tenant given to an even more affluent
landlord serves the public interest. Usually poor landlords do not own
luxury housing.
In 1993 with the passage of the
so called Rent Reform Act, the state imposed a means test on a very small
group of exceptionally affluent tenants. Tenants who earn over $250,000
for two consecutive years and who pay more than $2,000 in monthly rent
are subject to decontrol. The state also imposed vacancy decontrol on apartments
with rents that exceed $2,000 per month. Although these changes were supposed
to effect less than one percent of the housing stock, they have disrupted
the lives of thousands of tenants who must now file income verification
forms every year. Many tenants who earn far less than $250,000 have been
deregulated because forms are returned a few days late or are lost in the
mail or by the DHCR. Many owners have illegally increased rents beyond
$2,000 just to escape coverage under the rent laws. Administratively, the
luxury decontrol provisions have been a costly nightmare. At best they
benefit a few wealthy owners of upscale buildings who have no particular
need for such increases.
Notably, tenants who earn more
that $250,000 and reside in apartments renting for less than $2,000 per
month remain protected by rent regulations. Why is this so? When the rent
laws were revisited in 1993 there was a widespread recognition that the
housing shortage did not effect the luxury market. That is, those who shop
for high rent apartments (above $2,000) have plenty of options. By continuing
protections for all tenants in lower rent units where housing remains scarce,
the legislature reaffirmed the anti-profiteering goals of the system.
In the rental market for apartments
below $2,000 housing is scarce. According to the City's triennial Housing
and Vacancy Survey the vacancy rate for apartments with monthly rentals
above $1,250 declined from 4.47% in 1993 to only 2.5% in 1996. Therefore,
a lowering of the threshold for "luxury" apartments which are
decontrolled upon vacancy (to say $1,500) would erode protections for many
middle income families who now face a tight rental market.
How
would Deregulation Work?
There are three ways to terminate
existing the rent laws.
Vacancy Rates Exceed 5%
Both rent control and rent stabilization
exist because of a housing shortage which is measured through periodic
vacancy surveys (usually in three year intervals). If the vacancy rate
rises above 5% rent stabilization will automatically terminate after a
public hearing. In most cases, that would mean that rents would go to market
once existing leases expire. Landlords would have no obligation to offer
renewal leases. If they did offer leases, they could increase rents as
much as they want and they would be free to rewrite any terms in the new
leases. If the vacancy rate rises above 5% rent control does not automatically
terminate but local authorities are required to implement a plan for "orderly
decontrol".
Currently only 4% of housing
units are vacant and available for rent. Very few of these vacant units
are affordable to middle income households.
The Laws "Sunset" by
Legislative Inaction
The state Emergency Tenant Protection
Act expires periodically and must be renewed prior to each expiration.
The ETPA is now scheduled to expire on June 15, 1997. About one million
apartments are covered by this law. If the law sunsets, landlords will
have total control over rent levels and lease terms as existing leases
expire.
The State Affirmatively Ends
Renewal of Local Laws
About 30,000 rent stabilized
apartments are governed solely by the local Rent Stabilization Law. Also,
some 71,000 apartments are protected under the local rent control law.
These laws were just renewed by the City for three more years. If, however,
the state decides to amend the 1962 enabling legislation which permits
local regulation of these apartments, those protections could also fall.
Varying interpretations of these
laws by government lawyers and state courts could result in an earlier
or later termination. Complex issues such as the funding and function of
the State Division of Housing and Community Renewal's Office of Rent Administration
which enforces the rent laws would have to be worked out.
How
Does Rent Regulation Help Tenants?
Fair Bargaining between Tenants
and Owners
The City's housing shortage places
tenants at a bargaining disadvantage when it comes to rent levels and lease
renewals. Under rent regulations landlords cannot evict tenants unless
they prove in court that a tenant has violated a condition of the tenancy.
In the absence of rent regulations landlords could simply refuse to renew
a lease without any explanation at all. Eviction protections would not
work if landlords could force tenants out through large rent hikes. Similarly,
rent protections would offer little protection if landlords were free to
evict tenants at will.
Reasonable Rents
There is ample evidence that
New York's rent regulations provide critically needed protection against
unreasonable rent increases. According to the City's 1996 Housing and Vacancy
Survey, the average income of rent stabilized households is only $21,600
per year. The average income of rent controlled households is only $12,408
per year. Among the ranks of protected tenants are a relative handful of
the City's rich and famous. By the last available count only about 5% of
rent stabilized households earned $100,000 or more per year. Less than
1% of rent controlled households earned $100,000 or more per year.
Compared to other high rent cities
(Los Angeles, Boston, San Francisco and Washington D.C.) middle and low
income tenants in New York benefit substantially from rent regulations.
According to a 1991 study by the Citizens Budget Commission, a typical
rent regulated tenant who earned less than $100,000 per year paid a little
less for rent as a proportion of income than did similar tenants living
in another high rent cities. For example, rent regulated New Yorkers earning
between $10,000 and $15,000 per year devoted about 38.9% of their incomes
to rent payments. Tenants in the same income group in other high rent cities
spent 48.5% of their incomes on rent. Notably, a typical New York tenant
who earned more than $100,000 per year faced virtually the same rent burden
experienced by their counterparts in other high rent cities. In New York
those earning over $100,000 per year spent 9.5% of their incomes on rent.
In other high rent cities those earning over $100,000 spent 9.4% of their
incomes on rent. Thus, in terms of relative rent burdens rent regulations
do an effective job of protecting low and middle income tenants.
That is not to say that rent
regulations have afforded middle and low income tenants overly generous
protections. The city wide average rent burden for all income groups has
grown dramatically over the years. In 1970 the average New York tenant
devoted only 20% of their income to rent. According to the 1996 Housing
and Vacancy Survey, over 32% of tenant earnings now go to housing costs.
Evictions for non-payment of rent are nearly twice as high as they were
twenty eight years ago - rising from about 13,000 in 1969 to over 24,000
in 1996.
Overcrowding is another indicator
of the bargaining leverage exerted by landlords. In 1984 only 7.7% of rental
units were considered overcrowded (having more than one person per room).
By 1996 overcrowding had risen to 10.3%. If economic growth were to stimulate
a rise in new household formation - and a corresponding decrease in overcrowding
- the City's overall vacancy rate of 4% could fall precipitously leaving
starkly few housing options for new households.
In a nation where the richest
2% of the population has more wealth than the bottom 90%, no responsible
citizen or legislator can ignore the income effects of dramatic changes
in public policies such as rent regulation. Approximately 25,000 individuals,
corporations and partnerships own rent regulated apartment buildings in
the City. If deregulation were to cause only a 15% increase in rents, the
total transfer of wealth from tenants to owners would be approximately
6 billion dollars in the first five years of deregulation. About 12% or
some 3,000 of these owners own fully 77% of the City's residential rental
units and would reap the bulk of this transfer. In short, ending rent regulation
would result in a massive transfer of wealth from largely poor and middle
income households to some of the richest people on the planet.
Protection against Arbitrary
Evictions
Nearly 300,000 non-payment petitions
for evictions are filed in New York City's courts every year. Of these
over 100,000 remain unresolved before a hearing is scheduled. In a typical
year about 25,000 end up in actual evictions. Often tenants withhold rents
to get owners to make repairs. There are over three million housing code
violations of record outstanding in the City so the need to withhold rents
to secure repairs is widespread.
Most owners find that they can
increase profits by cutting back on maintenance. Free market rents will
not resolve this problem because buildings with high maintenance deficiencies
usually house tenants who cannot afford rent increases. It is well established
that income limits have a greater influence over rent collections in low
income neighborhoods than do rent regulations. That is why the tenure protections
secured by rent regulations are so important to low income tenants. Without
such protections low and middle income tenants who assert their right to
safe and habitable housing will encounter owners who simply discontinue
their tenancies by refusing to renew their leases. To be sure, the statutory
defense of "retaliatory eviction" will survive deregulation.
Nonetheless, that defense is very difficult to prove and most owners know
how to defeat it. In the final analysis, deregulation will have a dramatic
chilling effect on tenants who would otherwise have the strength to stand
up to landlords who try to squeeze every dime from their buildings.
Does
Rent Regulation Hurt Owners?
According to data analyzed by
the New York City Rent Guidelines Board in 1993, rent increases have kept
pace with the cost of operation for over three decades. About seven in
ten regulated apartments are located in pre-war buildings. In 1967 it cost
a typical landlord approximately 65 to 70 cents of each rent dollar to
run a rent regulated pre-war building, leaving 30 to 35 cents of each dollar
for mortgage payments, improvements and profit. By 1991 that operating
cost figure remained largely the same at 64 to 70 cents. The changing composition
of the post-war stock (with over one in three post war units having been
converted to co-ops) makes a similar comparison difficult. Nonetheless,
there is no evidence that these newer units lost any income as a result
of rent regulation. In the years since that 1993 study was undertaken landlords
have seen their net operating incomes rise substantially. In short, the
rental increases afforded by rent regulation have been sufficient to preserve
landlord profits and landlords are better off today than when rent stabilization
first began.
Notwithstanding the availability
of rent increases, many buildings in low income areas have experienced
very significant problems meeting operating costs. The root cause of this
housing distress is well documented: rising property taxes along with rent
collection losses resulting from steadily declining tenant incomes and
inadequate shelter allowances. If tenants cannot afford existing rents
- even at controlled levels - owners cannot pay their bills. The decline
in the value of shelter allowances given to public assistance recipients
has greatly compounded this problem. Today a family of four is entitled
to only $312 for monthly rent. If low income tenants could afford the rents
landlords are already allowed to charge, housing distress in New York City
would virtually disappear. Landlords are well aware of this.
The results of a survey of over
300 landlords conducted by the Rent Guidelines Board in 1994 is highly
instructive. When asked "what single city initiative would most improve
building profitability" 40% favored lower property taxes and lower
water and sewer charges; 30% favored establishing a more efficient housing
court; and only 25% favored higher rents.
Do Rent
Regulations Pit Tenants Against One Another and Against Co-op Shareholders?
A common criticism of rent regulation
is that it increases rent inequities among tenants leading to a sense of
unfairness. In fact, such inequities exist in both rent regulated and unregulated
buildings. Several studies show that rent "skewing" occurs wherever
long term tenancies exist. Naturally landlords often give preferable treatment
to long term stable rent payers over more transient tenants. There is strong
evidence that rent regulation promotes long term tenancies and this explains
most of the rent skewing that occurs in rent regulated buildings. One study
by the Rent Guidelines Board in 1994 found that the annual "discount" given
for long term tenants is virtually identical in both rent regulated and
unregulated buildings. Only the fact that rent protected households typically
occupy units about three to four years longer than unregulated households
accounts for the deeper overall discount they receive. In short, except
for promoting long term tenancies, New York's rent regulation system mimics
open market patterns of longevity discounts quite effectively.
Deregulation will not cure these
inequities in a way that satisfies those who now feel that they pay more
than their neighbors. If rent regulation ends rents are likely to go up
for nearly everyone. The fact that your neighbor's rent goes up 25% while
your rent goes up only 10% is not likely to provide much comfort.
Critics of rent regulation have
referred to the lengthy tenure of rent regulated tenants as "housing
gridlock". Tenant advocates see long term tenancies as providing neighborhood
stability. In a City where more than 2 in 3 households are renters and
families have fewer home ownership options, the presence of long term tenancies
is not surprising nor particularly undesirable.
Shareholders in co-ops often
resent the fact that some - though hardly a majority - of rent regulated
tenants in their buildings pay less rent than they pay in maintenance charges.
The comparison between rents and maintenance can be misleading. First,
most co-ops have sizable underlying mortgages which reflects the ownership
interest of the shareholders. Those mortgages are paid off by rents and
maintenance charges. While the co-op corporation gains a larger equity
interest in the property as such mortgages are retired - adding to the
value of each share held by co-op owners - tenants do not benefit from
this. Second, shareholders are permitted to take income tax deductions
for that part of their maintenance charges which go to mortgage interest
and property taxes. This means that co-op shareholders see a good portion
(often 10-20%) of their maintenance returned at tax time. Tenants get no
such discount.
Rent increases for tenants -
especially rent controlled and low rent stabilized tenants - generally
exceed increases in annual co- op maintenance charges. Also, as tenants
vacate their apartments those units may be sold or rented at market. In
sum, upon serious reflection most co-op shareholders realize that they
are not treated unfairly by their rent regulated neighbors. As with all
things, there are some exceptional cases. Those cases can be addressed
through modest adjustments within the present system.
Have
Rent Regulations Hurt the City's Housing Stock?
New Construction
The presence of rent regulations
has never affected new housing starts in the City because new housing was
always exempted from controls. In fact, New York's biggest housing booms
occurred during the 1920's, and during the period from 1947 through 1966
- a time when stringent rent controls covered most of the existing apartments.
In an owner sponsored study examining,
in part, the effects of moderate rent regulations on new housing construction,
economist Anthony Downs found that "repeated studies of temperate
rent controls in the United States provide no persuasive evidence that
such controls significantly reduce new construction here." Opponents
of rent regulation often blame rent regulations for all negative events
in housing markets. This can be highly misleading. For example, among the
several New Jersey cities that adopted rent controls in the early 1970's
by 1977 new apartment construction fell by 52%. In New Jersey cities without
rent controls, new apartment construction fell by 88% over the same period.
Some analysts have suggested
that deregulation will increase the demand for new housing as middle income
families are deprived of "bargain" apartments. These arguments
fail to consider two critical facts: First, their is no guarantee that
such families will shop for new housing in the five boroughs and a loss
of middle income families would be a disaster for New York. Second, rent
increases will cause a decline in tenant savings making it very difficult
for many middle class families to save up a down payment for a new home
or co-op and thereby depressing demand for new housing.
Abandonment
The factors which cause housing
abandonment have been the subject of multiple studies and reports focusing
on local and national markets. The most thorough investigation of the relationship
between rent control and housing abandonment was undertaken by Professor
Peter Marcuse of Columbia University in 1981. Professor Marcuse concluded
that "[t]he substantial evidence available from national as well as
local studies suggests that there is no correlation between rent control
and abandonment. Rent control is neither a necessary nor a sufficient explanation
of abandonment. Abandonment takes place, and as severely, in cities without
rent control as in cities with it." Very few economists who have studied
the actual workings of New York's housing markets have concluded that rent
regulations reduce new construction or cause abandonment. Anyone familiar
with the sources of housing distress readily understands this. Poverty,
joblessness, redlining by lending institutions and excessive property taxation
in low income areas are primary factors which cause abandonment.
The
Views of Economists
The views of professional economists
on this subject are often grossly mischaracterized by the press. The common
misconception that economists universally oppose rent controls appears
to find its source in a survey reported in 1984 where economists were asked,
among other things, if they agreed with the proposition that "a ceiling
on rents reduces the quantity and quality of housing available" [Frey,
Pommerehne, Schnieder and Gilbert, Consensus and Dissension Among Economists:
An Empirical Inquiry, 74 Am. Econ. Rev. 986 (1984)] Of the American economists
responding 77% "generally agreed" and 19% "agreed with provisions".
One has to wonder how anyone could reasonably disagree with such a statement;
A rent "ceiling" would be a drastic measure which would certainly
have dramatic market consequences.
Nonetheless, the consensus on
the effects of a rent ceiling hardly proves that economists are united
in opposition to moderate rent regulations which allow adjustments in rents
to compensate for increases in operating costs and which exempt new construction
from coverage. This is the case with New York's rent laws.
Economists who have directly
studied the impact of New York's moderate rent laws have thoroughly questioned
and criticized the conclusions of those who have considered only abstract
models or only the effects of strict rent control laws.
See Michael J. Mandel, Does Rent
Control Hurt Tenants?: A Reply to Epstein, Brooklyn Law Review, vol. 54,
pages 1267-1274. Professor Mandel observed that:
[E]conomics textbooks, like introductory
books in other fields, often engage in oversimplification to make a pedagogical
point. In this case, the textbook authors needed a way of illustrating
the effects of imposing a price ceiling on a market, and rent control provided
a vivid example to liven up the usual dry supply and demand diagram.
But good examples make bad economics.
A price ceiling, as defined by economists, is a uniform ban on selling
a product above a certain price... It is clear that such a policy inevitably
leads to shortages.
However, rent control laws in
the United States are not price ceilings in this sense. Under all existing
laws, rent control regulates the rent on most apartments built before a
particular date, but new construction is exempted from any rent regulation.
In New York City, for example, the rent laws do not cover apartment buildings
constructed after 1974.
This apparently small difference
makes a tremendous difference in the effects of rent control. We teach
in first-year economics courses that the supply of a good is determined
by the price at which it can be sold. In the case of housing supply, the
construction of new apartments is determined by their rent, which under
existing rent laws is unregulated. This suggests that these laws will not
suppress the supply of new apartments (and ... may even increase supply).
See also Phillip Weitzman, Economics
and Rent Regulation: A Call for a New Perspective, New York University
Review of Law and Social Change, vol. 13, pages 975-988 (1985). Professor
Weitzman concluded that:
The existing empirical literature
does not take into account the rise of second generation [moderate] rent
controls, nor does it attempt to respond to the concerns expressed by tenants
and neighborhood leaders for preservation of their homes and communities.
It is also not clear that enlightened public intervention necessarily has
all the adverse effects so confidently predicted by economists.
See also John Cirace, Housing
Market Instability and Rent Stabilization, Brooklyn Law Review, vol. 54
pages 1275 - 1280. Professor Cirace concluded:
[T]he case against all forms
of rent control is based upon a static efficiency analysis; but static
analysis conceals the time it takes for equilibrium adjustments to occur,
the relative magnitude of the adjustments, and the importance of market
stability. The case for rent stabilization is based upon an analysis of
the housing market that is concerned with the dynamic considerations ignored
by the static analysis.
Housing
Quality
Most analysts who criticize rent
regulations as causing a decline in housing quality fail to examine the
fact that most regulatory systems allow generous rent adjustments for building
wide capital improvements and improvements to individual apartments. New
York's rent laws allow 1/40th of the cost of improvements made to individual
apartments (usually done after a vacancy occurs) to be passed on in monthly
rent increases. That increase stays with the apartment forever. Consequently,
an owner who invests $400 in a refrigerator is entitled to a $10 per month
rent increase forever. By the eighth year the refrigerator is in use the
tenant will have paid the owner $960 for it. Owners are allowed to charge
1/84th the cost of capital improvements. Thus, an investment of $10,000
in a new boiler will yield twice that much over a 14 year period. These
incentives have supported the massive upgrading in heating systems and
weather proofing (such as double pane windows) which occurred during the
1980's.
Buildings that suffer from chronic
neglect are typically located in poorer communities where the income base
of tenants simply cannot support rent increases for major improvements.
In these buildings, the struggle is for day to day minimal maintenance
and the rent laws have little impact.
See Edgar Olsen, What do Economists
Know About the Effect of Rent Control on Housing Maintenance? Journal of
Real Estate and Finance Economics, vol. 1, No. 3 Article 5: Below is an
abstract of Professor Olsen's article written by Beth Kittle:
Economists' views concerning
the effect of rent control on the maintenance of controlled apartments
are based on extremely simple models of housing markets and rent control
ordinances and on casual empiricism. This paper shows that the models are
seriously deficient in that they ignore essential features of actual rent
control ordinances and important responses to them. When these features
and responses are taken into account, the effect of rent control on housing
maintenance of the controlled stock is theoretically ambiguous. The paper
also shows that the few systemic empirical studies have serious flaws.
Therefore, there is no basis for economists' strongly-held belief that
rent control leads to worse maintenance.
One of the most powerful tools
for housing improvement has been the linking of rent increases to the removal
of housing code violations. Unfortunately, the 1971 law which requires
the removal of 100% of serious violations and 80% of all others in the
rent controlled stock has been undermined by cutbacks in housing code inspectors
and administrative inaction.
Do Rent
Regulations Hurt the City's Economy?
To be sure, increased rents would
cause a flood of billions of dollars into the hands of landlords and a
portion of that increase would go to City property tax collectors. But
every dollar that goes to a landlord is a dollar that a tenant will not
have to spend in the local economy or to place into a savings account.
Thus, while landlords may reap the gains of rent increases, local merchants
and service providers would experience a corresponding loss of income as
consumer spending by tenants declines. Sales taxes and other local tax
revenues would suffer, local jobs may be lost and the character of New
York's neighborhoods would change. There is a good deal of evidence indicating
that new businesses already shy away from New York because the City's high
rents produce high wage demands. On balance, there is no credible evidence
that a dollar in a landlord's pocket produces a greater economic benefit
for the community than a dollar in a tenant's pocket.
It is simply myopic to assume
that a transfer of wealth from tenants to owners will increase the overall
wealth of the City. All of the studies sponsored by landlord organizations
fail to credibly analyze the impact of rent increases on the disposable
incomes of tenants and the implications this has for the economy at large.
Conclusion
Without practical arguments to
support ending rent regulations, we are left with a stark ideological dispute:
Does the ownership of property give landlords a moral claim to take advantage
of a housing shortage by unrestricted rent increases and evictions? The
answer lies in centuries old customs, well established constitutional norms
and democratic ethics. It is a resounding "No!". Rent and price
controls rest on a time honored principle that public authorities may intervene
in markets driven by scarcity to ensure fairness in bargaining relations.
This anti- profiteering purpose is well documented in the legislative history
of New York's rent laws. Whether you are rich or poor you should be allowed
to rent an apartment that is worth $1,000 for $1,000. Unless we are prepared
to abdicate our democratic birthright to a handful of conservative ideologues
who believe that property rights should override all other public values,
there is no practical or ethical reason to depart from the goal of fair
rents for everyone.
Timothy
L. Collins
- Partner in the law firm of
Collins and Dobkin
- Assistant Attorney General,
Real Estate Financing Bureau, 1994-95
- Executive Director and Counsel,
New York City Rent Guidelines Board, 1987-1994
- Assistant Counsel, New York
City Department of Housing Preservation and Development, Office of Rent
and Housing Maintenance, 1985-1987
