WSJ: Rent Control Is the Real New York Scandal

In case you didn’t catch it last weekend, Eileen Norcross wrote an excellent piece on rent control in New York. She touches on Charlie Rangel’s four rent control apartments scandal, some history of rent control in New York, the destructive results of rent control, vast inefficiencies caused by rent control, and moves to further subsidize low and middle income housing in New York.

I found this paragraph to be particularly startling, and I would bet that the vacancy rate for stabilized apartments is well below the overall vacancy rate:

New York has a city-wide vacancy rate of just 3% — and when good rent-stabilized apartments come on the market, you have to either know someone or pay someone (a broker, for example) to get it.

The result is that many renters who pay below-market rents are reluctant to move — because it’s too difficult to get as good a deal elsewhere in the city. Thus, economists Ed Glaeser and Erzo Luttmer estimate that 21% of the city’s renters live in apartments that are bigger or smaller than they would otherwise occupy. The controlled rents certainly don’t increase the number of affordable apartments.

This demonstrates the hoarding effect, which we can see hampers mobility and the ability of a location to adapt to market shifts.

Norcross agrees, ending the rent control regime will be a step towards solving New York’s housing shortages:

There is a better way to address the lack of reasonably priced housing in the city. If Rep. Rangel, Gov. Paterson and all the other well-to-do New Yorkers lost their rent-controlled or rent-stabilized apartments, there would be a loud public outcry to loosen regulation and allow more new construction.

  • Benjamin Hemric

    Some Overlooked (?) Issues with Rent Control — Part 1

    I like your weblog’s attempt at putting together an all-in-one-place comprehensive critique of rent control. Forgive me if, with all weblike linking (I’m product of printed page era), I’ve missed some things, but here are some thoughts that I’d like to add:

    1) First off, though, just a technicality that might help avoid some confusion later: NYC has what might be called two forms of rent control: a) “rent control” proper and b) “rent-stabilization.” (Actually the city may have a few other forms as well, which I’ll get to in a bit, but they aren’t usually thought of as being rent control.) Here’s a very rough overall description.

    a) Rent Control proper was started in WWII and originally only allowed for rent increases after a tenant moved. So if a tenant was in an apartment from, say, 1947 to 1967, the rent would have stayed EXACTLY the same during that period, I believe. Then, when the tenant moved out, the landlord was allowed to raise the rent only such-and-such rate. So a person moving into an apartment that had had only one tenant during all that time would be paying a phenomenally low rent, while someone moving into pretty much the same apartment elsewhere in the same building would be paying a lot more if that apartment had had a high turnover! This system was changed in the late 1960s – early 1970s, I believe, and now the city decides across the board (for all rent controled apartments) how much a landlord can increase the rent each year or so.

    b) Rent Stabilization was started in the early 1970s, I believe. Off hand I forget exactly what the criteria are that determine if a building falls under rent stabilization — but generally speaking these buildings were built after 1947(?). With rent stabilization there is some kind of special rent stabilization board that each year (?) votes on how much landlords can raise rents — with different allowable rate increases being set for two- and three-year leases. (This can create situations similar to the those that were a result of the original rent control, I believe, if one apartment has a series of two-year leases, rather than a series of three-year leases.) The rent stabilization board hearings and meetings that deal with rent increase are open to the public, and can get really raucous and are usually featured in the media.

    In addition to these forms of rent control, there are also a number of New York State and New York City housing subsidy programs that have, in effect, created additional “rent controlled” apartments. One is the New York State Mitchell-Lama housing program, where landlords get tax abatements, etc. for “x” number of years, IF they pass along some of the savings to tenants. Another form of rent control are apartments in buildings built under inclusionary zoning programs that allow a builder to build “x” additional apartments if some of the apartments are set aside for low- and moderate-income people at reduced rents. And, for purposes of looking how rent controlled housing affects the marketplace, even public housing might be considered a type of rent control.

    I see this background post is longer than I thought it would be, so I’ll begin with my comments (which will probably be shorter) in a second post.

  • Benjamin Hemric

    Some Overlooked (?) Issues with Rent Control — Part 1

    I like your weblog’s attempt at putting together an all-in-one-place comprehensive critique of rent control. Forgive me if, with all weblike linking (I’m product of printed page era), I’ve missed some things, but here are some thoughts that I’d like to add:

    1) First off, though, just a technicality that might help avoid some confusion later: NYC has what might be called two forms of rent control: a) “rent control” proper and b) “rent-stabilization.” (Actually the city may have a few other forms as well, which I’ll get to in a bit, but they aren’t usually thought of as being rent control.) Here’s a very rough overall description.

    a) Rent Control proper was started in WWII and originally only allowed for rent increases after a tenant moved. So if a tenant was in an apartment from, say, 1947 to 1967, the rent would have stayed EXACTLY the same during that period, I believe. Then, when the tenant moved out, the landlord was allowed to raise the rent only such-and-such rate. So a person moving into an apartment that had had only one tenant during all that time would be paying a phenomenally low rent, while someone moving into pretty much the same apartment elsewhere in the same building would be paying a lot more if that apartment had had a high turnover! This system was changed in the late 1960s – early 1970s, I believe, and now the city decides across the board (for all rent controled apartments) how much a landlord can increase the rent each year or so.

    b) Rent Stabilization was started in the early 1970s, I believe. Off hand I forget exactly what the criteria are that determine if a building falls under rent stabilization — but generally speaking these buildings were built after 1947(?). With rent stabilization there is some kind of special rent stabilization board that each year (?) votes on how much landlords can raise rents — with different allowable rate increases being set for two- and three-year leases. (This can create situations similar to the those that were a result of the original rent control, I believe, if one apartment has a series of two-year leases, rather than a series of three-year leases.) The rent stabilization board hearings and meetings that deal with rent increase are open to the public, and can get really raucous and are usually featured in the media.

    In addition to these forms of rent control, there are also a number of New York State and New York City housing subsidy programs that have, in effect, created additional “rent controlled” apartments. One is the New York State Mitchell-Lama housing program, where landlords get tax abatements, etc. for “x” number of years, IF they pass along some of the savings to tenants. Another form of rent control are apartments in buildings built under inclusionary zoning programs that allow a builder to build “x” additional apartments if some of the apartments are set aside for low- and moderate-income people at reduced rents. And, for purposes of looking how rent controlled housing affects the marketplace, even public housing might be considered a type of rent control.

    I see this background post is longer than I thought it would be, so I’ll begin with my comments (which will probably be shorter) in a second post.

  • http://marketurbanism.com MarketUrbanism

    Thanks for the lesson on NYC rent control Benjamin.

    I tried to keep the 4 part posts on rent control location-neutral, especially since it was a big issue in California at the time. NYC rent control is complex, as can be seen in your comment, and would deserve it’s own special analysis.

    I don’t consider the subsidy programs to be rent control. They are a less-evil form of intervention simply because they are voluntary for developers. On one hand they do help increase the stock of affordable housing, and build economic diversity in an area (which isn’t always a good thing). On the other hand, they create some problems in society and the market place. I plan to go into these deeper at one point, but here’s a preview of the main problems:

    - corruption: beneficiaries of the affordable units are often politically connected
    - beneficiaries fall into the same mobility traps as rent control
    - set-asides prevent higher density construction of the otherwise highest-and-best-use development (however, more often zoning is the ceiling)
    - the bureaucracy of these programs creates a cartel of large, politically-connected developers who can maneuver in the extremely complex process of earning the tax credits and subsidies. What’s bad about that is that land prices get driven up by the cartel players, and the smaller, honest players can’t compete. Less new development happens as a result of the high land prices…
    - the inclusionary zoning programs just show us how oppressive the zoning is in the first place. Many more market units would be created than the combinaton of affordable/market units in such developments. Overall, absorbtion of the additional units will help affordability city-wide.

  • http://marketurbanism.com Market Urbanism

    Thanks for the lesson on NYC rent control Benjamin.

    I tried to keep the 4 part posts on rent control location-neutral, especially since it was a big issue in California at the time. NYC rent control is complex, as can be seen in your comment, and would deserve it’s own special analysis.

    I don’t consider the subsidy programs to be rent control. They are a less-evil form of intervention simply because they are voluntary for developers. On one hand they do help increase the stock of affordable housing, and build economic diversity in an area (which isn’t always a good thing). On the other hand, they create some problems in society and the market place. I plan to go into these deeper at one point, but here’s a preview of the main problems:

    - corruption: beneficiaries of the affordable units are often politically connected
    - beneficiaries fall into the same mobility traps as rent control
    - set-asides prevent higher density construction of the otherwise highest-and-best-use development (however, more often zoning is the ceiling)
    - the bureaucracy of these programs creates a cartel of large, politically-connected developers who can maneuver in the extremely complex process of earning the tax credits and subsidies. What’s bad about that is that land prices get driven up by the cartel players, and the smaller, honest players can’t compete. Less new development happens as a result of the high land prices…
    - the inclusionary zoning programs just show us how oppressive the zoning is in the first place. Many more market units would be created than the combinaton of affordable/market units in such developments. Overall, absorbtion of the additional units will help affordability city-wide.

  • darrenmclard

    So much information in a comment. Usually people comments are 2 to 5 lines long. I am currently working from home for a NYC company and looking forward to moving to NY. This is why I am looking for apartments in New York NY and one should really get informed prior moving here. Thanks a lot again for the info.

  • http://www.newyorkluxury.com New York Real Estate

    Hi, i don't agree with it completely on rent control in New York

  • Pingback: vision inspection systems Dearborn