The Economics of Rent Regulation

Monday, July 29, 2013

East Village apartments (Echiner1/flickr)

Adam Davidson co-founder of Planet Money and contributor to the New York Times, revisits the economic arguments for and against rent regulation through the lens of the East Village and Lower East Side .


Adam Davidson

Comments [23]

Does anyone want to comment on a proposal to the City Council to establish similar controls on the "obscenely greedy" sale prices for single family residences ("co-ops", "condos", and single family buildings) that gouge the 99% seeking the benefit of equity-building ownership?
Why is the value of publicly supported improvements in: infra-structure (e.g., transportation and parks); public agencies (e.g., police, fire department, public schools), etc. ..., allowed to accrue to a relatively localized population, rather than "clawing back" the surplus profits for use in the service of the general welfare?

Jul. 30 2013 12:10 PM
Bob A. from NYC

Rents on all rent stabilized apartments have gone up at least 3.5% per year annually for the past 50 years, even in periods of low or zero inflation. Rents on rent controlled apartments have gone up even higher, but landlords must apply for the increase and certify that major violations have been corrected. So owners of these apartments are guaranteed a fair return. What they are looking for is an astronomical profit. Is that a good reason for justifying the decent wage-earner who made the neighborhood a great place to live?

Jul. 29 2013 10:40 PM
Frank from NYC

Here's a crazy idea: how about the market decides! No subsidies for developers. Tax breaks? Not a chance. But also abolish rent control. It's a fallacy. It distorts the market. Don't believe it? Go get an Economics 101 textbook.

Keep in mind, San Francisco has similar rules -- and like New York, it has some of the highest rents/real estate prices of anywhere in the US.
Coincidence? Hardly.

Jul. 29 2013 10:11 PM
Keira from Manhattan

"It would make me nervous to imagine a Manhattan with no poor people". This comment by Mr. Davidson I think sums up best the inanity of this conversation in its approach to the problems of high rents and poverty.

Jul. 29 2013 06:43 PM
rob hollander from Lower East Side

Economists agree on across-the-board rent regulations, but that's not New York's model. New units in NYC are not required to be regulated, so rent regulations here incentivize new construction. Deregulation would remove that incentive since raising rents and evicting tenants are cheaper and easier than construction. The New York model is actually healthy for the market.

Mayers completely forgets that deregulated tenants don't simply disappear from the rental pool. If they have to vacate, they move from upscale neighborhoods into middle class neighborhoods and create a tighter market, raising rents there. So deregulation will hurt the middle class especially. In aggregate: deregulation = same # of units, same # of renters, just more wages going into rent.

Jul. 29 2013 12:57 PM
Ben from Brooklyn

Adam Davidson is a great financial reporter and economists (as Davidson noted) LOVE discussing rent control.

That being said, the topic is OVER and there are a hundred things far more worthy of airtime.

As Davidson said -- only 40K out of three million units in NYC are under rent control. Journalists love talking about that one person with the amazing deal, but rent control just doesn't justify the amount of airtime it gets.

Sorry landlords, get over it. Those apartments are grandfathered in and you know that.

As for other rent regulations like "Rent Stabilization," the landlords won on that one too, through their political influence (i.e. money). It's going away as well.

Apartments that get over $2000 are out of the program, annual raises are taking units out of the system, and all sorts of landlords harassment is now legalized to get tenants out of the system.

So why are we discussing this again?

Jul. 29 2013 11:08 AM
RJ from prospect hts.

Rent/ownership of living space cannot be considered in isolation. As the landlord who called in noted, economic disparity is a key issue. Also education quality in neighborhoods, quality neighborhood health availability, availability of community-based day/afterschool care, well-paying job availability in the neighborhoods people live in--an overall vision of the city (unlike Mayor Bloomberg's focus on the well-off developers) that increases the availability of rent-beneficial homes because the desirability of being in neighborhoods that are currently the focus on high-income/regulated-apartment destroying policies.

I think your discussion today was way too narrow to be useful.

Jul. 29 2013 10:59 AM
thatgirl from manhattan

The landlord who called had it right: until incomes climb 4-6% per annum, "market-rate" (which means whatever a landlord wants to charge) rents do not make sense.

Davidson is dead wrong, and typical of someone who's grown up with the advantage of rent regulations: they tend to pull up the ladder behind them.

He failed to also address the fact that landlords have had every economic advantage thrown at them here by our electeds, including J-51 tax abatement, which many took and then (illegally) de-regulated thousands of apartments that should have remained within the system in exchange.

Jul. 29 2013 10:59 AM
Tony (Anthony) Jannetti from Lower East Side

This speaker is a apologist for the real estate plan begun in the mid-seventies to turn Manhattan into an island of the rich. The first caller spoke clearly and effectively for the real problem. NYC is less interesting a city to be living in since landlords have lost any conscience.

Jul. 29 2013 10:59 AM
Brock from Manhattan

Landlords (the suppliers) don't increase rent. The tenants (the demanders) do. Blame them.

Jul. 29 2013 10:58 AM
lucy from brooklyn

Are you also against the millions of dollars given to the big developers who then charge outrageous rents for their subsidized buildings? Through tax breaks and outright millions of dollars in direct subsidies, as well as getting special zoning for their over-sized highrises, these are the people who are hurting regular New Yorkers by pushing rents higher and higher. If you get rid of rent regulated apartments where will the working people live who do the real work of NYC?

Jul. 29 2013 10:58 AM
Susan from Park Slope

My grandparents owned 180 rent controlled and rent stabilization units. There feeling was that you take care of the tenants and they will take care of you. There were 3 year leases, no 20% vacancy increase and middle class stability and mobility into the middle class for all ethnicites and races.
ADAM IS WRONG about tying the person to the unit...The unit must be available to anyone....

Jul. 29 2013 10:58 AM
Truth & Beauty from Brooklyn

As we all know, rent regulation is good for tenants and bad for landlords and this issue is one not likely to be resolved in our lifetime.

Jul. 29 2013 10:57 AM
jgarbuz from Queens

Ricardo's "Iron Law of Wages" is the theory that wages tend toward a level sufficient only to maintain a subsistence standard of living. And rents depend on wages.

Jul. 29 2013 10:56 AM

This is such nonsense. The rent would decrease slightly and then rise back up after a couple years because people outside of NYC will hear "rents are lower now!" so everybody will come back in and dry up the supply and rents will be back where it was before. So what's the point?

Jul. 29 2013 10:54 AM
Jessie Henshaw from Way Uptown

Adam, you're overlooking that the "market rent" values are confused in a market with 1/3 of the market having incomes that grow at compound rates, and 2/3 don't. New York is the "poster child" of the enormous financial inequities that naturally follow from that.

So... no one rule will fit the whole market, ergo "rent regulation"

Jul. 29 2013 10:53 AM
michael from manhattan

the premise that landlords would drop rents if rent regulation went away is patently absurd. you can spout your silly theories all day long, but landlords who get more money will want more money. the end result will be an even whiter, younger manhattan populace of investment bankers pushing double-wide baby strollers thru the village.

Jul. 29 2013 10:52 AM

Why is the topic of zoning never discussed in the context of housing affordability? The reality is that for whatever rent level one considers reasonable, there's a limit to how many people would pay it. Rents are so outrageous now because the supply is substantially below that limit and remains below that limit because the zoning regulations will not allow any substantial increase. Here's my idea for how to make neighborhoods like the Upper West Side more affordable: allow the streets between the avenues, which currently avenue-building border to avenue-building border six-stories high, to become 2/3 to 3/4 40 stories high. Yes it will change the character of the neighborhood, but it is time to acknowledge the choice between having the current neighborhood character and having rents in a more desirable range.

Jul. 29 2013 10:52 AM
Jen from Hamilton Heights

I read the article in the Times, and am listening to your guest and both forget one important element about a rent stabilized apartment - which is that it is subject to rent regulations for rent increases. Whereas if you have a market rate apartment the landlord can raise your rent however much they feel like it.

Jul. 29 2013 10:52 AM
RJ from prospect hts

It is useless to discuss rent regulation without discussing tax breaks and other subsidies given to developers.

Jul. 29 2013 10:51 AM
Tyrone from Bronx

Developers and landlords of free market apartments have done great... but owners of rent stabilized or controlled apartments have seen their taxes, maintenance, fuel, regulatory costs increase way, way faster than the allowed increases. The only way to not hemorrhage money every month in almost all cases is to try to deregulate. The system as it stands now is pretty screwed up as there is no incentive to improve or create more regulated apartments.

At some point we need to bite the bullet and deregulate. There were cries of the end of the world when Boston did it and nothing really happened. If you look at the housing stock of NYC, I can assure you that millionaires wont live in 98% of it so prices will not skyrocket. If anything, it may go up slightly at the low end (but only in certain areas), but it will most certainly come down for the bulk of the middle class and people trying to start out in the city as more inventory becomes available.

Jul. 29 2013 10:34 AM
Sheldon from Brooklyn

Well said Brock...However, you left out the small fact that landlords and developers have never had it better the last 15 years, and have bought votes 10x as much.

Jul. 29 2013 10:18 AM
Brock from Manhattan

Two-faced politicians like Quinn will bellow the "economic" benefits for tenants as a means to buy votes on the back of other people's (landlords) efforts.

Jul. 29 2013 10:08 AM

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