Market Urbanism

Liberalizing cities | From the bottom up

“Market Urbanism” refers to the synthesis of classical liberal economics and ethics (market), with an appreciation of the urban way of life and its benefits to society (urbanism). We advocate for the emergence of bottom up solutions to urban issues, as opposed to ones imposed from the top down.

Rent Control: Trying to Make a Bad Policy Worse in NYC

By

In New York, lawmakers are currently debating a compromise between New York City and upstate interests to change the policies that shape residents’ housing costs. New York City lawmakers are fighting for an extension and expansion of current rent control laws, while Governor Cuomo wants to tie this extension to a two percent cap on yearly property tax rate increases.

Legislators voted against a temporary extension of the current policy on Wednesday. The Wall Street Journal reports:

The Senate Democrats had been urged by tenant advocates to reject even a short-term extension in an attempt to ratchet up attention on their efforts to expand protections for existing tenants.

“Our members have said from the start: extension is not enough—we need to strengthen regulations,” said Austin Shafran, a spokesman for the Senate Democrats.

Senate Republicans, meanwhile, blamed the Democrats for the defeat, noting that they are acting against a bill pushed by Gov. Andrew Cuomo, a Democrat who supports expanding regulations.

NYC Rent Control

City lawmakers ignore that in fact rent control laws make housings costs more expensive for many residents and would-be residents in order to appease the fervent interest group of tenants who currently live in apartments priced below market rates.

In 1972, the Swedish socialist economist Assar Lindbeck famously wrote, “In many cases rent control appears to be the most efficient technique presently known to destroy a city – except for bombing.” Why then, are New York City politicians  — politically to the right of Lindbeck — fighting to protect rent control today? Rent control policy is detrimental to all those unable to find housing at rent stabilized or controlled prices as well as landlords.

Rent control has not had the dire impact in New York that it has in other cities because the number of apartments that are fully rent-controlled is a small portion of the total. A much larger number are rent stabilized (about 50 percent according to Wikipedia). Rent stabilization laws dictate the rate at which landlords can raise rents,] rather than permitting housing prices to equilibrate supply and demand. The tightening of the current price ceilings that city lawmakers support will further limit the rental market from serving middle class and lower income tenants who are not lucky enough to secure rent-controlled or rent-stabilized units.

All of the evidence against rent control begs the question: Why does such a detrimental policy persist with many favoring expansion? On Wednesday, pro-rent control protestors in Albany were arrested for blocking lawmakers’ access to the capitol, and clearly most democratic lawmakers think the current laws do not go far enough.

Rent control has some classic aspects that make it an enduring policy.  The costs are dispersed across all city residents while the tenants in rent-controlled buildings reap the concentrated benefits. Additionally, the harm of rent control is a classic case of unseen costs. Residents may see only the benefit of reduced rent without seeing the policy’s negative impacts.

 

Comments

  1. 64 % of NYC apartments are regulated in some way, so its a disgusting case of numbers & politics.
    These “housing activists” make me sick

  2. 64 % of NYC apartments are regulated in some way, so its a disgusting case of numbers & politics.
    These “housing activists” make me sick

  3. This sounds like a policy era where national-level legislation banning rent control would be useful. The rent control advocates are strong enough to heavily influence state-level legislation, but I doubt they have the pull to protect their rent-seeking against a determined national-level effort in D.C. You could easily sell it as pro-development (which it is).

  4. That’s an interesting idea. In general, I am in favor of devolving power to the local level, but in this case national legislation to tie state and local policymakers hands could be beneficial.

  5. If the New York state and the feds would adequately fund transit improvements and implement congestion charging, the resulting mobility would drive up rents in formerly marginal areas and lower rents in the most desirable areas.

    Rent control is the attempt to carve out middle income enclaves in an otherwise unaffordable city… getting all worked up about rent control on philosophical grounds won’t improve NYC. Detroit has managed to become the new world’s answer to Dresden by having the polar opposite problem of investing way too much in mobility.

  6. 64% isn’t simply carving out middle income enclaves. its a highly flawed strategy

  7. Does this happen anywhere else in the world?  There are rent control laws in San Francisco and New York, the two really urban environments in the USA, as well as the nicest parts of L.A.

    But there are no such rules in Tokyo or Buenos Aires or Barcelona as far as I know.  How about London and Paris?  Is it a uniquely American idiocy?

  8. I remember reading that over 50% of DC’s rental units are elligible for rent controls, but I don’t think anyone has hard numbers on how many actually participate and how far below the equilibrium price the rents are held at.

    I didn’t realize LA had rent control laws, though – that’s interesting. I understand that Chicago does not, which, along with its relatively laissez-faire attitude towards new development, could explain its affordability relative to other large, dense US cities.

  9. Like most of the rest of them you appear to only be a “federalist” when you agree with local policy or disagree with national policy.  Or you are “in favor of devolving power to the local level” when you agree with local policies, which isn’t really any kind of principle.

    Be careful what you wish for.  If we argue that local rent is an issue of national importance, which it is not, I bet we are more likely to get national rent control than bans on rent control.

  10. Paris is almost entirely rent-controlled (much more draconian than that that exists in any US city, ditto most cities in northern Europe), and Tokyo, Buenos Aires, and Barcelona each have (and have had) various forms of rent control over the years. I’m not sure on London, but I’d be willing to bet that there are and have been rent control schemes at least in certain portions or for certain types of housing.

    It’s a terrible policy in any shape or form, but it’s something that easily takes hold during a time of general inflation (take a look at the time periods where SF and NY enacted their major rent control statutes) and/or housing inflation and is then nearly impossible to get rid of – especially in cities that are majority renter, just because getting rid of it would mean that many folks have to vote against their interests.

  11. LA the city doesn’t have rent control (at least not price controls). They do have more pro-tenant laws than other places though, and there are many other cities in California in similar situations (Oakland to name another)

    Santa Monica (in LA County) and Berkeley are the only cities in California aside from SF that have actual rent price controls in place.

    As far as comparing Chicago to anywhere in California, rent control has a fairly small effect, IMO, compared to prop 13, CEQA, earthquake standards, and general NIMBY attitudes related to all three of those.

  12. One more note – I think that it’s actually a fairly unique American phenomenon to have most housing without rent control. Even Canada has rent control (allowable increases are a percentage of CPI) on almost all rental housing.

    In most countries, rent control exists because there is usually a “right to housing” enshrined in the constitution. There are of course other ways to make that work, but that’s the usual line.

  13. Yeah, pretty much. The issue with a national strategy is that the politicians who care about rent control tend to represent communities that are for it. The Congressional delegations from Texas and Georgia may not have rent-controlled constituents, but neither do they have close ties to landlords who are hurt by rent control. (Well, maybe some DC-area developers, but I doubt it.) The New York-area politicians have ties to both, but usually the big controlling financial interest on this subject is developers, who don’t care about it either way because new development is in principle market-rate.

    Realistically, the only way it can be sold as is a general deregulation. But then it starts raising questions about why states aren’t allowed to regulate, etc. I think it’s Michael Lewyn who phrased such a bill as a developer’s bill of rights, a name by which it would get a negative number of votes.

  15. While I believe that “overall” rent control is not helpful to the City of New York, it seems to me that most anti-rent control arguments miss several important issues and are thus less effective than they might be.

    1) As others have already mentioned, NYC has various forms of “rent controls,” and this, obviously, complicates the discussion.  The current form of rent control that is actually called “rent control” does have negative effects, so it seems to me, but it is not quite as bad as most anti-rent control people make it out to be.  The current system does allow for regular yearly increases in rents (and increases for fuel prices and for major capital improvements), and this is a great improvement over the “original” version of the current law, which did not even recognize inflation (or increases in fuel prices!) but only allowed for rent increases when the old tenant moved out — leading to some outrageously unfair rents and some bizarre price disparities.

    In at least one way, it seems to me that the current form of rent control is actually better than “rent stabilization,” a later form of rent control that deals with newer buildings.  “Rent stabilization” grants different rent increases depending on the length of a lease(two-year or three-year?) — again leading to strange price disparities.

    And, of course, there are other programs that are, in effect, a form of rent control although they are usually not labeled as rent control.

    2) Generally speaking, I think that most anti-rent control advocates have not really completely thought through and articulated why rent controls are, “overall,” not helpful to the City.  For instance, many times, especially in years past, anti-rent control advocates have argued that (the original form of) rent control discouraged new construction.  While there may be some truth to this, the effect is indirect as new construction is not covered by (“classic”) rent control.  So I think this has lessened somewhat the credibility of at least those anti-rent control advocates.

    Also, it’s sometimes claimed that doing away with rent controls would eventually result in lower rents.  While there may be some truth to this, I think the lowering of rents effect would be in terms of the overall city.  But in terms of the very high demand neighborhoods, the effect would likely be minimal.  So here, the anti-rent control advocates are really talking past the pro-rent control advocates.

    I do think there are benefits to the City of a true market system, but these benefits are diffuse and low key — and thus a hard sell.

    a) Less needless confusion about the state of the City’s housing market.

    b) Higher rents in high rent districts could help the City fiscally speaking, if the City taxes these properties properly.

    c) Perhaps the biggest benefit would be better maintenance by landlords and a higher quality of housing stock overall (which, I believe is the argument that Nicole Gelinas has made in a recent article about the current controversy).

    3)  It seems to me that other factors, particularly wrong-headed anti-density and anti-development sentiments, are, in fact, more deleterious to the City’s health overall than the various forms of rent control.  They make it difficult for de-control to be successful (e.g., not create hardships during a transition).  Even if rent controls were lifted, supply is still overly restricted.  So in order to successfully do away with the various forms of rent control (i.e., allow the market to do its work), one has to first deal effectively with the anti-density and anti-development sentiments that control supply.

    Benjamin Hemric
    June 18, 2011, 9:50 p.m.

  17. The commerce clause has been stretched quite far in the past, but I don’t see how you can justify federal intervention in what is pretty clearly an economic regulation that has now impact on interstate commerce.  Seems patently unconstitutional to me.

Trackbacks

Meta