Rent control in the Big Apple
Here’s a column by George Will that tackles New York’s very odd rent control/stabilitzation laws—which have been in effect in one form or other for far longer than my lifetime, and which are being challenged in court:
The tenants in the Harmons’ three rent-controlled units [in their owner-occupied building] are paying an average 59 percent below market rates. The Harmons would like to reclaim one apartment for a grandchild, but because occupants of two of the units are over 62, the Harmons would have to find the displaced tenant a comparable apartment, at the same or lower rent, in the same neighborhood.
In addition to rent control’s random dispersal of benefits ”” remember, half of the Harmons’ apartments are uncontrolled ”” rent control is destructive because it discourages construction of new apartments and maintenance of existing ones.
Here are more details about the Harmon case.
I must confess that, even were I the beneficiary of these laws, I would have to (reluctantly) acknowledge their basic unfairness. Of course, life is unfair, but the law should strive to be as fair as possible, and rent control seems extraordinarily arbitrary, a sort of squatter’s rights to rental real estate at greatly reduced prices, and the subsidy of some renters at the expense of the others who happen to have come later.
The question is: what’s the remedy? Is the law really unconstitutional? Remember, it’s a state law at this point (see the details and the history here).
Will’s argument for its unconstitutionality is the Fifth Amendment:
Rent control is unconstitutional because it is an egregious and uncompensated physical occupation of property. The Constitution says that private property shall not “be taken for public use, without just compensation.”
A property right in a physical thing is a right to possess, use and dispose of this thing. Because government-compelled possession of property by a third party is an unambiguous taking, the Harmons’ property right has been nullified.
Of course, these apartments were not “taken.” If the government had commandeered the Harmons’ brownstone and forced them to convert it to apartments and take in tenants, that would be the case, but the Harmons (or their parents and/or grandparents) seem to have freely decided to take on these tenants (or their parents; rent-controlled apartments in NY can be inherited) before the current stabilization law went into effect. So it’s hard to see this as a government taking exactly, since the government did not take over the units entirely, and the Harmons still own the building and can sell it if they want.
The “public use” part of the law, though, would probably apply, because it has been liberally interpreted to mean practically anything that’s arguably in the public interest or to promote the public good, and rent control laws were originally intended to do that.
The best remedy would probably be repeal of the law by the NY state legislature, or for New York to opt out at the city level. Neither of those things is likely to happen, although legislators in the state have been slowly watering the rent control and rent stabilization laws down over the years. Repeal would have the virtue of being clear, but it wouldn’t answer the question of the constitutionality of such laws.
Why am I writing about all of this? Well, as an ex-New Yorker, I’ve long known about the city’s strange rental situation. But it’s part of a larger issue which has reared its ugly head lately: class warfare. The city’s rent-control laws were originally intended to protect the poor from the allegedly rapacious rich, and although they’ve long ceased to have any real relationship to that, if you read the comments on message boards about rent control issues, you’ll see that that’s what’s driving the discussion.
It’s a lot like the sort of thing we’ve become familiar with during the Obama administration, and in the Republican primary as well. At stake is the direction the country will take vis a vis capitalism and free markets. How unfettered should they be? Do people need protection from exploitation, and if so who, and from whom, and how can it best be accomplished without gumming up the whole works? Even those who advocate and support rent control laws must recognize the unintended consequences for the entire housing market, if they’re being honest.
Funny thing—I set about to write this post because I’m so tired of the primaries, and I wanted to tackle something completely different. But in the end it’s not so different after all, is it? It all comes down to how much the government should intervene to control our financial lives—and even our lives in general.
Neo,
This is OT, but I know how closely you followed this case:
http://www.commentarymagazine.com/2012/02/16/muhammad-al-dura-blood-libel-palestinian-israel-myth/#more-784153
Neo,
You want to know how far government will go to control our lives? Have you followed the story of the little North Carolina girl whose lunch from home was inspected and found not up to federal guidelines. She was forced to buy a cafeteria lunch with nuggets.
Her’s the link about Big Brother and the little girl:
http://www.thenewamerican.com/culture/education/10880-state-inspector-girls-sack-lunch-unhealthy-she-must-eat-cafeteria-food
This is easy. Require the state/city to reimburse the loss to the owner. Making the law no longer an(other) unfunded mandate. The law would soon take care of itself, the state being greedier than any land owner could dream of being (regardless of how it may seem).
As for fairness, that can’t exist here, now. Some will be rich, by their own hands or their parents gift (along with some thinking on their part, it isn’t easy to stay rich). Some of us, most of us, will never know true wealth. Then again, that’s actually a good thing. Wealth, I have to think, is it’s own curse. At some point, the money owns you. What you do for it is unspeakable.
Even those who advocate and support rent control laws must recognize the unintended consequences for the entire housing market, if they’re being honest.
Well, there’s your problem right there.
I recently bought and renovated two homes and rent them out.
If I couldn’t recover market rate I would not be the good landlord that I am. It might be a landlord who didn’t care and therefore kept carpet and tile counters instead of the wood floor and Persian gold granite that I put in.
It’s not a protection of the poor. Being poor, today, isn’t a problem. Are you kidding me? The poor live better than all the kings in history.
It’s protection of the freakin lazy and unhappy and envious.
I agree that rent control laws are misguided, but Will is foolish to think this can win in court. The Supreme Court has basically only ruled something to be a taking if the owner loses all economic loss to the property. They even upheld a law that allowed the owner to build one house on a huge tract of land worth millions of dollars. There are lots of other examples. Basically, if the owner has some economic value still (and they do), the Supreme Court will not find it to be a taking.
“Of course, these apartments were not ‘taken’.”
I believe that Glenn Reynolds and Richard Epstein have both written about the legal question of ‘takings’.
This is easy. Require the state/city to reimburse the loss to the owner. Making the law no longer an(other) unfunded mandate.
Another possible solution: impose wage controls on residents of apartments that are rent-controlled.
Cap their wages at whatever percentage of market rate that their rent is controlled. Their rent is 60% of market rate? Great – their pay is capped at 60% of market rate.
How is that not fair?
To me the proper role of government is clear. I’ll let Maggie T do my talking: http://tinyurl.com/76ho4gz
It’s time for conservatives to take their lumps and admit there are freedoms not expressly granted by the Constitution. The bill or rights was always the base bottom of our rights (the deadlines the government should not pass). We painted ourselves in this corner over abortion… but, for instance, the legal concept and precedents regarding ‘a right to privacy’ also included economic activity. Re: the government has no more right to pass rent control laws than interfere in your personal life… or your healthcare…
If Will is only citing the bill of rights… it is not happening yet… None of the court cases against Obamacare bring it up… that it is just not the government’s place to be involved in rationing our healthcare. Be sorta ironic if we loose our freedom in that sphere of our lives over it…
Berkeley excuse me Berserkeley- has rent control. A consequence of rent control has been a rental shortage.
Landlords took units off the open market and rented units to family and friends.
As Neo has noted, rent control does not favor the poor.
Recommended: a href=”http://www.nmhc.org/Content/ServeContent.cfm?ContentItemID=1186″> The High Cost of Rent Control. An excerpt:
Middle class professionals took over the rental units in Berkeley, forcing Cal students out to Oakland and Richmond. Cambridge no longer has rent control.
Try that again: The High Cost of Rent Control
Great post.
You’re correct- it’s not a taking. The property would have to be rendered practically useless before a taking would occur. Regulation diminishes value- often- so a very lenient standard has been developed.
I wonder if poor people, or people ostensibly speaking for the poor, understand that this merely restricts housing development, which results in even higher rents? And when rents are high and people can’t afford it they cry, “Government, intervene!” Thus always.
Or as the link Gringo posted details…
Gringo, I was about to add a comment re Berkeley’s rent control, which came into being just as I was finishing grad school (IIRC).
Rent control came in as a way to ensure “affordable” housing to students. Yay! Then came June. Students left for the summer, and local non-students moved in. Cheap housing – woo hoo!
Come September and the students returned. Apartment for rent? Uh … no. All units are currently occupied. Sorry.
Turns out the brain trust hadn’t figured out that a) students come and go like the tide, b) below market rates undercut turnover in rental properties, and c) when the students leave, non-students who like to save money will move in but will tend not to move out again.
I laughed my ass off. All totally, totally predictable to any grownup, and therefore completely unexpected by the leftists.
Thomass, the Bill of Rights, itself, says that there are rights not enumerated. Finding them hidden in the Constitution is specious, but we have many rights. What we do NOT have are rights to other people’s property, or money, or behavior.
This week, too, we are talking about unlikely rights. Somehow, in forty years, we have leapt from “Keep your government out of my womb!” to, “Extract money from other people, using the force of government, to pay for my abortions!”
Here’s a fact sheet about rent Control versus rent Stabilization: two very different laws.
http://www.housingnyc.com/html/resources/faq/rentstab.html
When the rent controls phase out, the rents in NYC will skyrocket to Tokyo levels, because there are always gazillions of people who want to live here. I’m in a 300-square-foot apartment with no sink in the bathroom and Third World wiring, and I pay $1,022/month –that’s stabilized. When I moved into this Lower East Side tenement building (1881), the landlord was damn glad to have me: someone with a job who would cause him no trouble.
Now he’s driving out tenants with process abuse, harassment, break-ins, and flipping these tiny apartments illegally to “market rates”: $4500/month for a 300-sq.ft. apartment with a chintzy redo, conducted by crews of illegal aliens paid chump change and working illegally (Code violations) and violating asbestos laws, electrical safety rules (overloaded fuse boxes) and all the rest.
My sister, meanwhile, has a 2-bedroom, 2-bath, LR, DR, eat-in kitchen, and balcony, with free parking, for $750/month, in Nashville (which, by the way, has a high per capita income).
Ever since vacancy decontrol was enacted, the landlords, like Goldman, my overlord (he owns 4,000 buildings in NYC, so don’t cry for him, Argentina), have been ruthless in muscling people out of the buildings. With stabilization, our rents go up every year at a higher-than-inflation rate of increase, at least double, and usually 3 or 4 times. These guys aren’t suffering, believe me.
Lastly, in what universe do any of you think they’ll lower their rents if the rent laws are thrown out? There’s an apparently endless supply of rich kids from around the globe whose parents are willing to fund their adventures here (two in my little tenement building already). It’s easy for you folks to say I should be evicted when I’m paying, what, five times the rate per square foot to live here, but hey, it isn’t your life. Nor do I consider that rate to be “freeloading.”
But, if you like, I will cheerfully swap MY landlord for YOURS any day.
What is astounding is that this kind of thing (rent control) is actually tolerated by the people of the United States over a long and sustained period of time. This is a clear reminder that our rights are not secure and government theft is willingly tolerated in the United States. People actually tolerate this kind of nonsense.
As we hurl at the speed of light toward greater and greater socialism, let this example be a warning to all that our rights to the fruit of our labor are in jeopardy and are easily taken from us without shame or apology.
The rich will survive, thank you very much, one way or the other, but the middle class will eventually bear the greatest burden of oppresive government. As they sleep walk into the future, let us hope that the revulsion our forefathers felt toward diminished liberty will reemerge and freedom will ring again.
To Beverly aka a Whiny Liberal:
Stike up the violins.
Sorry Beverly if you boil down your comment you get- “I don’t feel it is right for me to have to compete with all the “rich” kids that may want to compete for my rental unit. It is my right to rent from the “Rich” landlord at a price that I think is OK.”
But if you look at some of the alternative solutions in this comments section i.e. – Cap your salary to your rent i.e. 1/4 based on your $4500 to $1022/ month, You would be screaming about how unfair it is. But you cannot see the similarities since you compartmentalize things.
As for the comment about the rent your sister pays- Move there and you can pay the same rate.
Beverly
When I moved into this Lower East Side tenement building (1981), the landlord was damn glad to have me: someone with a job who would cause him no trouble.
Cousins who moved into the Lower East Side/Soho in the 70s encountered the same. They improved their own apartments at their own cost. Such as putting in a wood floor, or changing a circa 1950s foot wide ceramic sink such as found in a gas station bathroom for a genuine kitchen sink. At tenant’s expense.
There has been hardly any construction in the Lower East Side for the last 100 years. When I was there several years ago, I was surprised to find some new buildings. [Some new construction was to my chagrin: while I used to pay $10/day to park my car in a parking lot, the same location had changed to a parking garage: $30-$40 /day.]
NYC building code makes it very problematic for new construction. The hoops that you have to jump through are considerably more than in other places.
My niece and her husband moved from Greenwich Village to Hoboken. Cheaper.
Your saying that there are plenty of rich parents who will pay for an expensive NY apartment for their offspring rings true. One change I noticed on my cousins’ street was a lot more yuppie bars. Which is a slight change from previous years, when one could encounter a dope dealer every 50 feet. All those bars also increases the noise level at night.
@ Beverly:
Your post seems to assume you have a right to live in another person’s apartment and pay that person only 23% of the fair rental value of that unit. What gives you that right? And where did the government get the right to put a private citizen in jail for refusing to give away a valuable asset to another private citizen at a 77% discount?
You apparently aren’t impoverished, but even if you were, why iwould it be your landlord’s responsibility to subsidize your housing so you can afford to live in Manhattan?
You mentioned “there are always gazillions of people who want to live” in NYC. Is there a particular reason your desire to live in the city should supersede theirs, given their willingness and ability to pay vastly more money for the privilege?
I’m not a rich person by any means, but I’ll certainly defend the rich against the government’s tyrannical attempts to play Robin Hood at their expense. For one thing, I don’t want the government someday to order me to pay 77% of someone else’s food bill or 77% of somebody else’s car payments. It’s not right and it’s certainly not something we should tolerate — let alone demand — in a free society.
Of course this is a taking. In the South Carolina beach case some years back, the state adopted a reg which made it impossible for the owner who’d paid nearly a million for 2 lots to build on the lots. The state didn’t “take” the lots (using your understanding of the word) because he still owned the land. He was just barred from using them for the purpose intended. All the economic value was taken away from him without compensation.
Property encompasses far more than just a nominal fee simple interest in real estate.
It’s time for conservatives to take their lumps and admit there are freedoms not expressly granted by the Constitution.
But it’s also time liberals take their lumps and admit that explicit provisions of the Constitution mean exactly what they say, with no “adumbrations” or “penumbrae” read into them.
Of course, these apartments were not “taken.”
Yes, they have.
I rent. At any time before my lease is up, my landlady can tell me that she’s chosen to no renew my lease, and I would have to
find accomodations on my own.
And I would love to have my rent set at 59% of the going rate.
Now he’s driving out tenants with process abuse, harassment, break-ins, and flipping these tiny apartments illegally to “market rates”: $4500/month for a 300-sq.ft. apartment with a chintzy redo, conducted by crews of illegal aliens paid chump change and working illegally (Code violations) and violating asbestos laws, electrical safety rules (overloaded fuse boxes) and all the rest.
Leave.
Simple, really.
I couldn’t get out of there (this apartment building in particular, NYC in general, the whole Northeast for that matter) fast enough.
Occam’s Beard:
I couldn’t get out of there (this apartment building in particular, NYC in general, the whole Northeast for that matter) fast enough.
I am hearing this from someone residing in the tarnished Golden State.
Lastly, in what universe do any of you think they’ll lower their rents if the rent laws are thrown out? There’s an apparently endless supply of rich kids from around the globe whose parents are willing to fund their adventures here.
One last comment. One of the arguments for instituting rent control was to “maintain socioeconomic diversity,” which translated from the Gibberish into English means, “the servants, maids, doormen, chauffeurs, bank tellers, store clerks, barkeepers, flunkies and other assorted hoi polloi who wait on us have to live somewhere, or we’ll have to do that crap ourselves.”
So let the wealthy price everyone out of NYC, and then, inevitably, its environs. Who then does the scut work? The wealthy? Of course not. Either flunky wages rise, the city becomes less attractive to the wealthy, new construction takes place, something, but a city comprising only the wealthy is unsustainable.
In any case, socioeconomic equilibrium will be re-established. The problem with rent control is that it interferes with establishment of that equilibrium. Leftist tinkering with the economic ecosystem causes (or exacerbates) the very problems it seeks to ameliorate.
A metaphorical case in point: when lightning strikes started forest fires the Forest Service used to rush to put them out. Yet periodic fires are part of the ecosystem, burning out underbrush without damaging established trees (because the fires are accompanied by the rain of the thunderstorm), and clearing the ground for the seeds of new trees to take root. (The seeds are sequoias need such fires to be activated, btw.)
Fighting the fires allowed a lot of underbrush to collect around trees so that when a fire could not be controlled, it burnt the surrounding trees too, and in the meantime the underbrush and unburnt leaves and needles on the ground prevented new trees from taking root.
Turns out Mother Nature knew best, and earnest tinkering was counterproductive. Imagine.
“… seeds OF sequoias …”
Sorry.
I am hearing this from someone residing in the tarnished Golden State.
Gringo, funny you should say that. I just finished retiling a wall, repairing some drywall, and fixing a plethora of other small but long-deferred maintenance jobs, preparatory to listing our house for sale on our target date of 1 March.
Forgot to add, “to move to Arizona.”
The rent control cant be fixed unless you want to change zoning control and height games. most people dont know HOW big buildings are made or not… besides zoning and other demands like having to have a section of your luxury housing available to the poor… you also have height credits (dont know what they are called). so if you want to build a building, you have to also acquire the right to the height. parking lots with no buildings have usually sold all their height rights…
with those two things effectively capping and restricting new buildings, their contents and capacities… without the rent laws you wouldn’t have the little people around that run the place. they would live too far out to get in and make bagels int he morning, deliver packages, etc.
they favor tenants who get into a nice place and stay a long time rather than get a home or leave to other parts of the USA…
sometimes they keep a neighborhood that isnt so nice from becoming an empty ghost town till it cleans up.
but the key to all these things are the interlocking laws and how they work TOGETHER not laws in isolation.
abortion with social engineering picking winners and making losers is eugenics (as the winners tend to go less to abortion, and the created losers by denouement tend to go a lot more or misplan due to circumstances that change with political whim)
if you stopped the height caps, removed zoning contortions… the building boom would make apartments cheaper than rent control prices and they could be halted.
do note huge numbers of section 8 welfare housing units…
which is the real key to this rent control law…
buildings are run by landlords and by the state… they charge stabilized prices…
rents are paid by regular people who are always the focus, but ALSO paid by the state on behalf of a HUGE percentage of section 8 housing.
if they let the rents double, their welfare pay outs for housing double or triple over night.
they CANT change those rent laws because they set the prices that feed back to the welfare rolls.
this despite that on average they are raised at a faster than inflation rate while salaries mostly have not been keeping par.
i would love a 7% increase just once in the past 8 years of working… but i have not even gotten 3% in years… my salary has been pretty flat while here and i have watched my rent go from 800 to 1300 in 3-10% increments with no 0% raises ever whether good times or bad.
a 50k salary with 3% a year raises goes to 67k in 10 years. A 1000k a month rent with an average raise of 6% would rise to 1790 in 10 years.
the person living in such a situation would have to find 9480 a year more for rent. their salary went up 17k, but so did their tax liability. couple this with rising fuel, inflation, and other costs like health..
and with rent controls you cant keep up if your not way ahead to start with. at the end of it all, you have nothing and your landlord has million dollar equity (the equity value is never discussed as the claim is to have one apartment building capable of supporting itself and the kind of landlord that has one building. the argument is seldom about the companies that literally own thousands, and can be wretches as property owners)