Affordable Housing Institute : US

As a meme, rent control  is tenacious, resisting efforts for its eradication, since it turns citizens into windfall beneficiaries, and beneficiaries into self-interested defenders.  Eliminating rent control directly, via frontal assault, typically requires appealing to a higher level of government (e.g. 35 states pre-empt localities) or a broader circle of voters (e.g. statewide referendum).  This takes extraordinary circumstances (the Massachusetts referendum campaign was furiously fought and passed by only a few points) and is more often beaten back (New York State, 2001) after a political scare campaign verging on hysteria.

 

There’s another, slower approach — individual decontrol, based on vacancy, turnover, individual property conversion, or a hard-dollar cap, as this tale from Gotham City demonstrates:

 

CHANGING LANDSCAPES: At Peter Cooper Village, apartments have begun moving out of the system of regulation.

 

In the last decade, the number of rent-regulated apartments in New York City has been gradually diminishing. Now, statistics indicate, the gradual has become less gradual - the era of rent regulation is ever more rapidly fading.

 

‘Ever more rapidly’ is one of those eye-of-the-beholder quotes, given the scale of the stock:

 

According to the New York City Housing and Vacancy Survey, conducted by the Census Bureau every three years, there were 1,241,367 regulated apartments in the five boroughs in 1981. Over the next 18 years, by 1999, the total decreased to 1,146,459 - a drop of 94,908 units.

 

A drop of 8.2% over 18 years, or less than 0.5% per year — hardly a stampede.  Still, it is accelerating, even if from infinitesimal to minuscule:

 

According to figures provided by landlords to the New York State Division of Housing and Community Renewal, 13,024 apartments were removed from the rolls last year, compared with 8,402 in 2003 and 6,406 in 2002.

 

A rate of 0.6% in 2002, 0.7% in 2003, and 1.1% in 2004.  Hardly a run on the stock, but clearly an uptick that is noticeable mainly because no one builds new rental housing in New York City.  (Fifty-eight years of wealth transfer will do that to a market …) 

 

Even if the rate is tiny, something’s going on.  What is it?

 

Safety valves included into previous renewals of rent control are actually working:

 

1.  Under state rent laws, the owner of a vacated apartment is entitled to a 20 percent increase.

 

2.  Then, if renovations are made, one-fortieth of the cost can be added to the monthly rent, in perpetuity (a $40,000 renovation would provide a $1,000 increase).  [In other words, 30% return on the renovation.]

 

3.  If the vacancy and renovation increases push the rent above $2,000, the apartment can be deregulated.

 

And this deregulatory wave is reaching the illustrated properties:

 

The process is quite visible at Stuyvesant Town and Peter Cooper Village, two vast, adjoining apartment complexes along First Avenue between 14th and 23rd Streets …

 

A fantastic location

 

… that have stood as bulwarks of the city’s rent-regulated stock for half a century.

 

But four years ago, as rents for vacated, renovated apartments at the two complexes reached $2,000 a month, the process of deregulation began.  When a tenant moves out or dies and the allowable rent reaches that level, a landlord can choose to take the apartment out of the [rent control] system.

 

So far, according to representatives of the Metropolitan Life Insurance Company, which owns the complexes, about 20 percent - or 2,240 - of the 11,216 units in 110 buildings have been deregulated.

 

Rent control applies to rental units in buildings constructed before 1947 …

 

Remind me of the public purpose in still regulating the rent of housing built 58 years ago.

 

… that have been continuously occupied by the same tenant or a legal successor tenant since before July 1, 1971.

 

“Yes, commissioner, youthful ward Dick Grayson is my legal successor …”

 

Did you hear that phrase ‘or a legal successor tenant’?  Who maintains a tenancy for more than 34 years?  Guess what, its definition has expanded over the years.

 

That situation, said Andrew Scherer, author of “Residential Landlord-Tenant Law in New York” (West Group, 2001), prompts some owners to start eviction proceedings.

“Where a few years ago a landlord might not have even brought a proceeding,” he said, “they now go to great lengths to find cause to evict regulated tenants, particularly in gentrifying neighborhoods.”  There are more eviction proceedings in Manhattan than in any other borough, he said, with landlords frequently claiming that the residents don’t live there full time, or that they sublet illegally.

 

Virtually everyone who lives in Manhattan knows someone who has a rent-stabilized apartment and a second home in Florida, or couples living in rent stabilized housing themselves becoming landlords by buying investment apartments.  Rent control represents a continuing transfer of wealth (and sometimes, of operational control) from the owner to the sitting tenant.

 

New York City rent control (and its little brother, rent stabilization) have clearly had powerfully distortive effects, driving up the price of market housing:

 

While regulated rents at the complexes range from about $1,400 to $1,800 for a two-bedroom, a deregulated rent for the same space is $3,200.

 

In simple terms, therefore, rent control imposes a surcharge on everyone else in the rental system.  It functionally charges an invisible premium to market renters to convey a benefit to rent control occupants.

 

Others believe that decades of rent regulation have distorted housing prices and discouraged construction and renovation. The shift can’t come soon enough for Peter D. Salins, co-author of “Scarcity by Design: The Legacy of New York City’s Housing Policies” (Harvard University Press, 1992).

 

Dr. Salins said rent regulation has created an imbalance in the housing market, limiting the supply and, thereby, ratcheting up the cost of market-rate units. “The entire supply and demand dynamic only acts on a portion of the market,” he said.  “So astronomical market-rate rents and the price of comparable condos and co-ops indirectly make all housing in the city more expensive.”

 

Nevertheless, many still defend rent control:

 

But Mr. Scherer points out that rent regulation is not merely meant to protect current tenants. An underlying concept, he said, “was that market forces alone weren’t sufficient to keep rents at a level that allows working people and low-income people to stay in the city.”

 

This is the howler, because it is predicated on historical revisionism.  The 1947 rent control was a temporary emergency measure to deal with the spike in rental prices from returning GI’s after World War II.  The 1969 rent stabilization and 1974 Emergency Tenant Protection Act (ETPA) was intended to deal with the utility price spike.  Both were billed as temporary (indeed, the original rent pre-control was part of overall war price controls), and intended only to match the market.  Over time, of course, neither did.

 

Eliminating rent control via slow attrition is a bit like convicting Al Capone of tax evasion — fundamentally unsatisfying but inexorably effective.

 

 

“Hey, incarceration doesn’t end like legal tenancy!”

 

There’s another way to achieve long-term (if not perpetual) affordability: buy it by offering financial incentives.

 

If there is a discernible face on the future of rent regulation in the city, it is in the construction and rehabilitation of buildings through government subsidy and tax-abatement programs.

 

Under those programs, typically, developers must set aside 20 percent of the apartments in their well-appointed buildings for lower-income tenants, or must finance affordable housing elsewhere in the city.

 

These set-aside concepts are popular, with schemes such as linkage in Boston (and many other cities), and Britain’s Section 106 planning gain tax, or inclusionary zoning:

 

Under what is called the Inclusionary Housing Program, market-rate developers are granted varying levels of increased density in exchange for setting aside 15 to 30 percent of their apartments at affordable rates.  “As long as the building stands, the units will be registered and their increases governed by rent stabilization,” Mr. Cestero said.  “And if rent regulations were ever to disappear, these units would remain affordable under a use-restriction placed on the title of the property.”

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