Endnotes -

THE IMPACT OF VACANCY DECONTROL IN NEW YORK CITY: THE FIRST ESTIMATES FROM THE 1996 HOUSING AND VACANCY SURVEY

* The author wishes to acknowledge the financial support of the New York City Rent Guidelines Board without associating this organization with any of the conclusions reached and to thank Doug Hillstrom, Michael Schill, and Ben Scafidi for helpful comments at the formative stages of the study and Greg Loya and Neil Seftor for excellent research assistance.

1. Although this paper was not completed until after the decision concerning the immediate future of rent regulation was made, preliminary results of the analysis were disseminated a month before the decision at a conference at New York University's School of Law sponsored by its Center for Real Estate and Urban Policy and the New York City Rent Guidelines Board, and they were reported in an article in the New York Times on May14, 1997.

2. Although some units drop out of the housing stock and hence out of the Survey between survey years and others were added to account for newly built units, the overwhelming majority of units surveyed in a year were in the preceding Housing and Vacancy Survey. The preliminary version of the 1996 Survey available for this analysis did not contain the indentification numbers that would make it possible to match units in the1996 Survey with units from the 1993 Survey. So it was impossible to usedata from the two most recent surveys to predict how many households of each type would move between 1996 and1998.

3. All of the information needed to calculate gross rent is collected or imputed for each apartment. However, if the calculated gross rent exceeds $2500 per month, the exact amount is not reported in the publicly available data.

4. The rent discount is the excess of the market rent of the unit over its actual rent. To estimate the rent discount in 1991, data from the 1991 Housing and Vacancy Survey were used to estimate the market rent of each rent regulated unit in the same way as data from the 1996 Survey were used to estimate these magnitudes forthat year. So the details of the estimation of market rents for 1991 will not be provided.

5. To determine the appropriate values of the dummy variables, the 1996 rent discount and gross rent were deflated to account for the change in the Consumer Price Index for the New York metropolitan area between 1991 and 1996.

6. Unless otherwise noted, all means and medians in this analysis are weighted. Essentially, the sample was obtained by dividing the population of housing units into groups and then selecting different fractions of the units in each group at random. (This is a simplified description of the procedure for reasons that are not important to understand.) The weight for an observation is the inverse of its probability of selection. These weights must be used to obtain unbiased estimators of population means and medians. For example, if the sample consisted of observations on two households Bonnie and Clyde from different groups and there are 90 households in Bonnie's group and 10 in Clyde's group and Bonnie's income is $40,000 and Clyde's is $20,000, an unbiased estimate of the population mean is $38,000 [=(90 x $40000 + 10 x $20000)/100]. The unweighted mean $30,000 is a biased estimate.

7. The results of this method were reported at a conference on the New York City's housing market and rent regulations at New York University's School of Law in May 1997.

8. In retrospect, it would have been better to limit the analysis to rent stabilized units.

9. The results reported at the conference were medians.

10. When the estimated market rent of an apartment is below actual rent, market rent is clearly underestimated.

11. This is the difference between the estimated coefficients of Moved Into Unit 1996 and Moved Into Unit 1986-1990 from Table 1.

12. The most refined method incorporates all of the aforementioned adjustments.

13. Unfortunately, the only systematic evidence on these two matters refers to a very different rent regulation and housing market. In a paper entitled "Welfare Analysis of Rent Control with Side Payments: A Natural Experiment in Cairo, Egypt" that will appear soon in Regional Science and Urban Economics, Stephen Malpezzi found that the bribes used to obtain possession of controlled apartments and the extra maintenance undertaken by their occupants eliminated all of the benefit of rent regulation to tenants as a group, though tenants who moved less frequently gained and others lost.

14. Several studies of rent control in New York City in the 1960s found that the benefit of rent control to occupants of controlled units was only 50 to 70 percent of the excess of market over controlled rent on this account alone. See Edgar O. Olsen, "An Econometric Analysis of Rent Control," Journal of Political Economy 80 (November/December 1972): 1081-1100 and Richard Ault and Richard Saba, "The Economic Effects of Long-Term Rent Control: The Case of New York City," Journal of Real Estate Finance and Economics 3 (March 1990): 25-41. Unfortunately, there are no estimates that compare the tenant benefit with the rent discount for rent stabilized apartments.

15. It would have been possible to do an analysis of vacancy decontrol implemented in the spring of 1994 rather than 1996 without making this assumption. The 1996 Survey tells us which households moved into their rent regulated units within the preceding two years. The excess of the market over the actual rents of the apartments occupied by these households is their maximum loss from vacancy decontrol implemented in the spring of 1994. In retrospect, this probably would have been the better approach.

16. Owners of rent regulated apartments prefer tenants with reasonably short stays because they are allowed greater rent increases when vacated units are reoccupied.

17. We deleted from the sample households who said that they had negative or zero income because their reported incomes give a distorted view of their standard of living. This eliminated three percent of the sample.

18. With additional time, it would have been possible to check some of these conjectures using the data from the Survey.

19. The market rent of an apartment in a given location is a reasonable measure of its overall desirability. The mean of the estimated market rents of regulated apartments is substantially greater than the mean rent of unregulated units in each borough except Staten Island.

20. This section deals with changes in the market rent of apartments with specified characteristics rather than changes in the average market rent due to changes in the characteristics of the housing stock. To say that rent levels in the unregulated sector will ultimately fall as result of vacancy decontrol means that the rents of units with each combination of characteristics will fall.

21. See Dirk W. Early and Edgar O. Olsen, "Rent Control and Homelessness," Thomas Jefferson Center for Political Economy, Discussion Paper 298, September 1997, Table 3.

22. The values of all variables for each city are contained in Early and Olsen's Table A.1, thereby making it possible for the reader to replicate the regression results and the estimate of the long-run effect of vacancy decontrol on the level of market rents reported here.