Rent Control

Report Confirms Obvious: Rent Control Works

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Now that the new legislative session has opened in Albany, the Housing Justice for All campaign has ratcheted up its fight for Universal Rent Control, a platform of bills that strengthen and expand tenants’ rights across the state. Even with united Democratic control for the first time in decades, there are a lot of structural obstacles in place that could derail the campaign over the next few months.

Half of all renters in New York City and the vast majority in the state don’t have any protections and aren’t typically activated in the fight for tenants’ rights. The real estate industry has millions of dollars to spend on lobbying and media influencing. And many legislators, just like the average person, have a lot of outdated misconceptions about rent control.

Changing the popular narrative of rent control is one of the most important, and hardest, challenges facing the Housing Justice for All campaign for Universal Rent Control. We only need to look to California, where the real estate lobby spent $80 million exploiting the same misconceptions to help defeat a rent control initiative called Prop 10.

This week, help came in a big way from Oksana Mironov of Community Service Society of New York who published a timely report on rent control in New York City that should help every activist fighting for Universal Rent Control frame their arguments for the general public.

It’s no secret that housing policy is a vast and confusing assortment of policies, agencies, acronyms, and formulas that scares off most people. Rent control (broadly used here to incorporate all rent regulations) is one of the most confusing aspects of this larger very confusing space.

That makes it hard to step back and understand the bigger picture of rent control, which is really quite simple and positive. This report shows why that is the case. It makes three important points that deserve quick focus:

Rent Control is the best affordable housing policy

As the report points out, there is an inherent power imbalance between landlords and tenants. Landlords will always have more information, more control, more political access, and more money than a tenant, particularly in a stressed market (which NYC has always been and most cities have become). The marxist critique would go further and highlight the absurdity of tenants providing the capital that gives the landlord power over them.

Rent control is the best way to offset this dynamic by securing real protections and power for tenants. One of the biggest achievements of the report is how clearly it explains how rent regulations do this and why it matters. Put simply, it shows that rent control is the best affordable housing policy we have (aside from expanding public housing).

Rent control is a legal structure that helps cities and towns stay affordable without massive direct public subsidies. They restrict a landlord’s ability to raise rents, they guarantee a tenant’s right to a lease renewal, and they provide legal resources to combat abusive behavior. These tools together give tenants the power to negotiate with a landlord that they simply don’t have when they can’t easily move to a cheaper or better apartment or fear getting kicked out.

It also has a larger impact on the health of a city. Rent control provides tenants and communities of color long-term protections against displacement in rapidly gentrifying neighborhoods. It offers more housing security for seniors, lower-income workers, and formerly homeless families than market rate housing. It also scares off speculators like private equity firms that raise property values, which gives non-profits, community land trusts, and other local ownership models the opportunity to own buildings.

The report also goes through a brief but widely unknown history of rent control laws in the US and in New York particularly, showing how widespread it used to be and why it was so necessary as a policy. It’s worth reading, but the gist is simple: we’ve always been in a housing crisis because housing doesn’t function like a normal market.

If the market was even somewhat designed to incentivize affordable housing, we’d have more affordable housing. But it isn’t and we don’t and never will by relying on it. Our solution now is to give billions of public dollars to private developers to subsidize “affordable housing units” that aren’t affordable, aren’t permanent, and aren’t built enough.

The report makes the overwhelming argument that rent control is a much sounder policy for private affordable housing policy.

Current laws suck, Universal Rent Control is the fix

Even though rent control works, it doesn’t take a housing nerd to see that current laws…don’t. They don’t “work” in a number of ways that the report covers well. It also shows how Universal Rent Control fixes them.

First, rent control doesn’t protect enough tenants. Of 8 million renters in New York state, only 2.5 million have any type of protections. The vast majority of those folks live in NYC, but still less than half of all rental units are regulated. That doesn’t leave a lot of tenants protected or interested in fighting for them.

Second, the current laws basically undermine the entire point of rent control. This is largely because the real estate lobby has effectively written these laws from the beginning. Their biggest problem is called vacancy decontrol, which allows units to exit the system and return to market rate when they reach $2733. This gives landlords a powerful motive to find ways to raise rents to that threshold. They have means through a series of loopholes that allow landlords to raise rents on existing tenants or in between leases.

Throw in the fact that oversight is flimsy at the state and city level (one issue that URC needs to address better) and you’re left with a system that does not protect tenants as much as it suggests it would. Since 1994, almost 300,000 units have been deregulated. That offsets all of the units protected under Mayor de Blasio’s housing plan.

The problem isn’t rent control as a concept, it’s rent control that is designed to fail slowly. Given this analysis, it’s no surprise that the report endorses the full platform of Universal Rent Control because it fixes these problems (ending vacancy decontrol, eliminating every loophole, expanding legal rights.) Most importantly, URC extends new protections to all renters, including market rate tenants, across the state.

Rent control critics are wrong either on purpose or by accident

The final part of the report is the most important for housing activists because it debunks the lazy talking points against rent control. These will absolutely be used by the real estate lobby and will likely be repeated uncritically by the media. Much like the emerging debate over marginal tax rates, this is either because critics don’t actually understand how housing works or they are operating in bad faith.

I encourage you to read the full section, but I’ll highlight one of the most important myths debunked in the report: rent control limits the supply of new construction, which raises rents for everybody.

Ignore for a moment that new construction isn’t even covered under rent regulations (unless they receive tax subsidies) and focus on the logic. If rent control magically vanished, would rents go down and would construction boom?

Well, no. We can look at examples like Cambridge, MA, where rent control vanished in 1994. Property values went up dramatically, and rents doubled in just three years. But there was and remains no construction boom that lowered rents. Rents continue to rise and displacement of low-income residents has increased, especially over the last five years, sparking housing protests from the Movement for Black Lives.

Rents are going up in Cambridge and plenty of other places without rent control and construction isn’t keeping pace. So what is driving that? Scarcity of land, speculation, and zoning restrictions. Even without rent control, these factors still exist. You can debate solutions to those problems, but rent control doesn’t impact them and it’s absurd to suggest that it does.

The only obvious way to protect tenants right now is capping rents. The only way to make it an effective policy is to have strong protections that reach all tenants.

Now that Governor Cuomo has announced his intention to address “aggressive rent regulations reforms” during the budget process over the next few months, it is crunch time to make the case for strengthening and expanding rent protections. There are many obstacles ahead, including the governor. Every member of Housing Justice for All and every housing activist should read and share this report to make sure people know why we must pass Universal Rent Control.

What the Fight for Universal Rent Control in New York Can Learn from Prop 10’s Defeat in California (Via Shelterforce)

We’ll find out soon (homeBody)

We’ll find out soon (homeBody)

This article was originally published in Shelterforce

Voters in New York have spoken, and they want relief from the affordable housing crisis. Last week, they handed control of state government over completely to Democrats, most of who ran on progressive, pro-tenant platforms. Particularly in the state senate, which flipped for the first time in years, many first-time candidates beat pro-developer incumbents by rejecting real estate money and instead embracing the call for universal rent control.

This doesn’t mean that voters will get relief, however. With current rent regulation laws set to expire early next year, voters have set up an unprecedented fight between progressive housing groups and real estate interests. It will be a brutal fight. For proof of this, housing advocates in New York need only to look at California.

National real estate groups spent $80 million successfully defeating a rent control ballot initiative known as Prop 10.  These groups, as well as powerful local groups like the Real Estate Board of New York and Rent Stabilization Association, won’t blink at spending lots of money to fight universal rent control in New York. (One of the biggest is Blackstone, which owns Stuyvesant Town in the East Village where I live.)

California and New York have extremely different political contexts, so making direct comparisons has limited value. However, there are several important lessons that New York housing advocates can take away from Prop 10’s defeat.

  1. Define Universal Rent Control clearly

Prop 10 didn’t stand a chance as a ballot initiative, partly because of the money aligned against it, but equally because it was confusing. It was not a “Yes/No” vote on rent control. The language of the proposal was about repealing the state’s Costa-Hawkins Rental Housing Act that prevented local cities or towns from enacting any kind of new residential rent control.  

That left a lot undefined for voters. They were asked to vote on repealing something—and many did not have a specific sense of what repealing it would mean for their city or town, or for them personally as renters or homeowners. Even with millions of dollars from tenant groups and the AIDS Healthcare Foundation, this dynamic made it easy for well-funded real estate interests to fill in the gaps and define it how they wanted to. This clearly cost Prop 10 a lot of should-be voters.

That is less of an issue with Universal Rent Control in New York. Although the scope of the proposal is still being worked out, the broad goals are clear and who benefits is clear: every rental unit in New York state will become protected (it’s less than half now.) Every loophole that allows landlords to raise rentsevict tenants, or deregulate units will be removed. Every renter will have new eviction and harassment protection.

Though URC is easier to understand than Prop 10, it is important that activists and progressive legislators work together quickly to define the specific proposals around universal rent control before real estate interests start flooding the air with advertisements against it. This will make it easier to rally the broad spectrum of renters that stand to benefit from the plan, particularly market rate tenants that must be brought on board to pressure other legislators in the Democratic Party.

  1. Seize the new political landscape in Albany

Pressure is key. California, just like New York, is blue, but that hasn’t translated into progressive housing legislation. This pattern cost them with Prop 10, which first died in a Democrat-controlled committee before reappearing as a ballot initiative. There are not enough Democrats in office in California with the stomach to challenge the real estate industry and their wealthy homeowner constituents to enact the type of far-reaching reforms necessary to fight the housing crisis.

That had been the case in New York before the November election, but now Democrats control all three branches of elected government and have a rare window to challenge the status quo. Democrats have dominated the Assembly for years, but the big difference is the Senate, where Democrats took control for just the third time in more than fifty years, fueled by an aggressively pro-tenant wave of first-time candidates.

Housing Justice for All rally on Nov. 15, 2018. Photo Credit: Pete Harrison

The wildcard will be New York’s Governor Cuomo, who ran to the left because he was pushed there by a spirited challenger. He has been a big friend of the real estate lobby for as long as he’s been in politics. He is now in uncharted territory, but it appears that he can no longer hide behind New York’s long standing closed-door dealdynamic.

Unlike in California, having complete control of state government should mean that universal rent control would get considerable attention from legislators. The severity of the crisis along with the significant shift away from real estate money in elections should keep pressure on the Governor and other members of the Democratic Party who might otherwise be wary of angering the real estate industry. 

Defining the proposals for URC quickly and keeping activist groups engaged throughout the process will hopefully be enough to turn the electoral momentum into firm legislative action.

  1. Debunk classic economic arguments against rent control

In California, the real estate lobby spent the majority of its money on television ads harping on the classic Econ 101 arguments against rent control. These arguments are not as strong as they appear. The reality of the housing market has always been more complicated than simplistic models suggest and it is critical to push back on them.

First, studies that claim rent control harms the creation of new housing or the quality of existing housing fail to properly account for the more demonstrable variables that limit supply in tight and densely populated markets like New York, San Francisco, or Los Angeles like natural geographic barriers, social preferences of land use, the limited extent of transportation networks, and even a desire to limit competition among developers.

Second, they tend to underplay how decades of (federal and local) government policies have privileged real estate and empowered financial markets to commodify housing.  The housing market ‘s priority is enriching investors instead of meeting the overwhelming demand for affordable shelter. That explains how the Low Income Housing Coalition estimates that the U.S. is missing 7.2 million affordable housing units, yet 250,000 units sit empty in New York City alone.

Third, they ignore the bigger problem with the housing market: rent-seeking behavior. There’s only so much land, particularly in desirable markets like New York where it’s value has skyrocketed over the last 20 years as more people and firms want to move here (for better or worse). This has made city landowners incredibly wealthy.

The pay-to-play nature of our political process means that they also have a disproportionate amount of power over things that impact the housing market like property taxes, zoning, and affordable housing policy. This almost always harms the public while driving up property values. It helps explain everything from why so many commercial spaces are empty to why it costs so much to build new affordable housing and homeless shelters.

When we acknowledge that the housing market in reality encourages rent-seeking behavior and show how much it corrupts public policy, rent control becomes a legitimate and necessary intervention to empower tenants and the broader public against economic and political exploitation.

Prop 10 was ultimately a bad presentation of a compelling and urgent public policy choice. Even if real estate interests hadn’t spent so much money distorting it, it failed to capture the general public’s attention or imagination.

That doesn’t have to be the case in New York, where Universal Rent Control has already done that for many renters and voters. Now that it has a shot in Albany, California’s experience can help it get over the finish line.

Rent control doesn't work, but universal rent control could (via Data for Progress)

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This blog originally appeared in the Econo-missed section of Data for Progress

Dear Econo-missed,

I live in a major city and I’m increasingly engaged in local politics. But I’m still trying to get a sense of the issues - I hadn’t thought much about them before.  Candidates I like like Zellnor Myrie and Julia Salazar talk about the idea of universal rent control? I’ve heard from economists that rent control is bad because it distorts free markets, which have never failed anyone. - Definitely Not Sean, New York

Universal rent control (URC) at this point is a fairly broad term, but in the context of New York City, it’s essentially a series of policy proposals that aim to fix the many flaws in current rent regulation laws (which, for the purpose of this blog, includes rent stabilization and rent control policies, but not Section 8 or public housing policies). These laws only apply to some, mostly older buildings and have tons of loopholes that allow units to be deregulated. Universal rent control would expand protections to every rental unit and remove those loopholes. It would “distort” the housing market, but, as we’ll discuss, it could also fix the bigger issue distorting it.

The URC fight has been embraced by a group of insurgent state candidates on the left and has the support of many leading activist groups in the city and upstate (full disclosure: I volunteer for the Ocasio-Cortez and Salazar campaigns). With these laws up for renewal in Albany next year, this framing marks an important shift away from previous (mostly losing) battles over the issue and is quite timely.

What really excites me about URC goes to the second question about rent control and markets. URC would of course impact rent costs, but what it could do to land costs is potentially even more important.

Rent regulations are one of economists’ favorite “gotcha” concepts because they go against every basic market theory that says the highest and best use of an asset is intrinsically the best for a society. The scale of displacement in NYC puts that concept to bed. New York City has been a vibrant place historically because it has been possible to be poor and working class here. Without protecting these New Yorkers, that vibrancy will end.

Rent regulations limit how much a landlord can charge for an apartment and how much they can increase rent over time. They are often blamed for raising rents and/or lowering supply in cities overall but these arguments vastly overstate their impact compared to more pressing issues like rising construction costs and, especially, skyrocketing land costs.

Land costs are the key here. Economists argue that rent regulations create terrible inefficiencies in markets, but they should also be worried about rent-seeking behavior doing the same.  An “economic rent” is the extra wealth earned from an asset used in its present form (not to be confused with the “rent” we pay each month) and rent-seeking is the attempt to manipulate circumstances to increase that rent without creating new value from it. Owning land, particularly in a city like NYC, is a “gotcha” example of rent-seeking behavior run amok.

The economic value of housing is mostly tied to the value of the land its on, which has little to do with a landlord’s investment and more to do with surrounding public investment. From the tenant’s perspective then, why should she pay more for something the landlord didn’t even create? You don’t need to be a Georgist to see that this is inefficient. It robs the tenant and the economy of more productive use of her income (while completely ignoring the overall well-being of her community.)

To be clear, current rent regulation laws in NYC aren’t designed to challenge rent-seeking behavior. Given the patchwork history of legislation and the oafishly corrupt nature of Albany politics, they don’t have a cohesive goal, let alone design. They limit the rent increase for some renters to some degree, but they ignore or create a host of other problems.

Universal rent control does challenge rent-seeking behavior. Doing so could fundamentally change the economic calculus in NYC real estate and the potential value of land by making housing more of a utility than a commodity. Keep in mind URC is still just a series of broadly defined proposals, but conceptually it offers a glimpse at a more equitable and democratic future.

To start with, less than half of all rental units in NYC fall under current rent regulations, which severely limits the political power of renters as a united front against the well funded and organized real estate industry. There is little incentive for market-rate tenants to cooperate with rent-regulated tenants. This leaves a smaller, poorer, and older population to fight for tenants’ rights for everyone.

URC calls for extending rent regulations to all rental units in New York, which would radically change this political dynamic. The sheer number of renters as a political constituency could offset the financial power of the real estate industry in Albany and create more protections and, most importantly, real innovation in affordable housing.

Another problem with current laws is loopholes - too many perverse means and motive for landlords to force rent increases and/or to force out tenants. The most disastrous policy, vacancy decontrol, allows apartments to leave rent regulations altogether when they hit $2,733/m. The city lost an estimated 147,500 affordable units over the last 24 years to this alone.

URC would end vacancy decontrol and remove loopholes around vacancy bonusespreferential rents, and major capital improvements. In effect, they would permanently prevent the speculative (and cynical) calculations that some landlords make to get passed regulations.

It’s not that landlords can’t still make a profit, but there would be a cap. This would suppress the speculative value of land across the city. It would certainly scare off the worst actors in the market and likely create space for local landlords, non-profits, and models like community land trusts to enter the market instead. This would be a net positive for NYC.

Rent regulations attempt to maximize the value of shelter over financial value, which is a foreign concept at this stage of late capitalism America. Most economists think that’s a mistake, but keeping wealth and power in local communities rather than private equity firms or foreign investors is more democratic, better for the economy, and better for the life of the city in the long run. Universal rent control can help rebalance our economic priorities in NYC.

NYC Passes New Tenant Protections, But Needs More From State

The city is, but will the state? (urbanjusticeleague)

The city is, but will the state? (urbanjusticeleague)

On Wednesday last week, the New York City Council passed a series of bills aimed at protecting tenants from harassment caused directly or indirectly by landlord’s construction projects.  In all, 18 bills were passed and are expected to be signed by Mayor de Blasio.  The “Stand For Tenant Safety” package comes in light of other recent efforts by the city to help tenants such as right-to-counsel and shows a remarkable shift in housing policy as a response to the ongoing affordable housing crisis.  However, without a larger comprehensive redesign of rent regulation laws, these efforts only raise the potential cost of abuse rather than remove the underlying motivations for landlords and developers. 

When a rent-regulated tenant moves out, the landlord can raise rent a lot more than they can if the tenant stays.  That basic logic creates a perverse incentive for some landlords to try to push the tenant out.  Such tactics have included cutting off power, heat, or gas; not properly protecting tenants from in-building construction work; physically damaging a tenant’s unit during construction, or doing work or inspections at odd hours of the night or early morning.  The intended purpose of these practices is to make life so unbearable for a tenant that they voluntarily move.

In other cases, landlords begin construction projects under the guise of upgrades only to intentionally create damage that forces certain tenants (or potentially every tenant) to move.  There have been several high-profile criminal cases recently involving landlords who have used these tactics and the stories are difficult to comprehend.

It’s safe to say most landlords and developers do not resort to unethical, even criminal, behavior, but it is impossible to know how widespread even milder versions of these practices are across the city. Up until now, the city hasn’t had clear guidelines to identify such practices.

Stand for Tenant Safety is designed to find out just how often they occur and to raise the cost of these behaviors.  The bills have three main focuses: first, one creates an Office of Tenant Advocates within the Department of Buildings to make it easier for tenants to log complaints about construction work. Second, it increases penalties for construction jobs without proper permits and proper tenant messaging to cut down on scopecreep. Third, it classifies visits or calls from landlords at odd hours as harassment.  

The bills will make documenting potential abuses much easier for tenants and city officials and will serve as a bulwark against landlords attempting to harass tenants through sabotaging a building’s quality of life.  These are much needed protections for all tenants, whether they are regulated or market rate.

However, the basic logic that I spoke of earlier remains the core problem in the rental market.  Specifically for rent-regulated units, the lure of vacancy decontrol – the ability for a landlord to significantly raise rent after a tenant moves out or when the rent hits $2500 – remains too tempting a target for landlords.  (It’s easier for landlords to raise rents on market units obviously, but the speed of appreciation in certain fast-growing neighborhoods raises the specter of such tactics even for market-rate tenants.) 

The current mechanics of the market and the regulatory regime within it guarantee that capital will find ways to force out tenants in order to raise rents. And it will continue to attract the speculator landlord/developer over the service provider landlord/developer.

There is an entire cottage industry within the real estate world that specializes in identifying and buying buildings with rent-regulated tenants with the explicit purpose of forcing them out, or to “de-tenant” then flip the building.  The industry of course uses euphemisms like “under-performing assets” or “under-utilized inventory” to describe the buildings and uses others like “revitalize” or “reoptimize” to describe the process of kicking out tenants, but the message to investors is clear and universal: Buy low, sell high.

Without removing the incentive provided by vacancy decontrol (and other loopholes around rent regulations) all the tenant protections in the world won’t prevent certain landlords from looking for ways out.  Only the New York State legislature can change the rent laws to address this fundamental issue. There are many political reasons why that is unlikely to happen anytime soon.

I always think of rent regulation in terms of Abraham Lincoln’s famous “A House Divided” speech on slavery.  NYC can’t function in the long run half regulated, half market.  There is little logic or basic fairness to the system now – for landlords and tenants alike.  It needs to be either one or the other. 

I’ve strongly advocated for universal rent regulation for rental apartments in order to avoid the more fundamental problems that our current mixed market encourages.  Only with an entirely new rent regulatory system, one that doesn’t look like the system we currently have to be clear, can we really avoid the type of speculative displacement that is eroding the long-term health and diversity of the city. It's also the only way to remove the more speculative, short-term actor from entering the landlord business in the first place.

In the basic Econ 101 model, rent regulated units are akin to any distressed asset like a failing business.  If an asset is not performing to its “highest, best use” you change some variables and try to make it more productive.  This type of business will always attract a certain type of speculative buyer.  That’s fine if you’re talking about a restaurant or even a publicly-traded company. It’s not so simple if you’re talking about a home.

A home is more than an asset.  How you measure the utility of living in a home – especially one that the resident rents – is difficult to measure in our classical economic models.  That doesn’t mean it’s impossible to measure, it just means that it involves assigning value to certain activities or behaviors that most economists have shied away from historically.

As a result, we have plenty of economic research about the “costs” and “damage” of rent regulations (although all data collection is subjective to a degree) based on classic models, but don’t have much research that measures the broader “health” of a city with rent regulations.  These models aren’t interested in the empirical state of a city as much as the theoretical state.

The discussion about rent regulations comes down to one of values.  On the one hand, creating more economic activity and growth is a good thing for the city.  On the other, how much activity and where it occurs can be a bad thing for the city if it isn't spread out. 

Mayor Bloomberg famously thought having every billionaire in the world living in NYC would be great for the city.  We currently do have the most amount of billionaires, but it’s hard to argue that the city greatly benefits either through their economic contributions, tax contributions, or social contributions. 

For a democratic society to truly be healthy, you need a variety of incomes (and their resulting economic and social contributions) to be stakeholders at the city and neighborhood level. If housing is treated as a commodity, that system breaks down over time, as it has been in NYC. Our failing rent regulatory regime is just a symptom of this larger illness. Until we address this problem on a larger, fundamental level, we’ll never escape the cycle of landlord’s looking to get around rent regulations. No city-level laws will ever be able to keep up.

Why You'll Never Get that Awesome Rent Controlled Apartment by the Park

Tenant advocates protesting rent increases (nycurbed)

Tenant advocates protesting rent increases (nycurbed)

This week the Rent Guidelines Board held a preliminary vote that called for an increase of 0-2% in one-year leases and a .5-3.5% increase in two-year leases for any leases signed between Oct 2016 and Sept 2017 across more than 1 million rent regulated apartments in NYC. Though there will be five public meetings before the final vote takes place on June 27, this initial vote frames the debate going forward.  This means that last year's historic rent-freeze (on one-year leases) will almost certainly not be repeated this year.  Still, as is the case with every other year, both landlord groups and tenant groups are unhappy with the result.

Tenant advocates protesting rent increases (brokeassstuart)

Tenant advocates protesting rent increases (brokeassstuart)

Background on Rent Regulation

Just to give a quick overview, NYC has two forms of rent regulations - rent control and rent stabilization.  Just under half of all rental units in NYC fall under some type of rent regulation. 

Rent Control was initially introduced in NYC by the federal government in 1943 to control inflation during WWII and the housing crunch expected with returning veterans; it was reformed to include all buildings built before 1947, but none after.  NY State took over rent control in 1951 (most states abolished it, but NY still had severe housing shortages) and introduced some ability for units to be decontrolled if their rent reached a certain threshold or became vacant. Despite every New Yorker's dream of finding a rent controlled apartment by the park, the reality is that rent controlled apartments only represent 1.8% of rental units, or about 38,000 units and they are disappearing fast. So you're not gonna find one.

Rent Stabilization was introduced by the state in 1969 after vacancy rates had plummeted and rents started to skyrocket over the previous few years. The law included all buildings built after 1946 with more than 6 units and any rent controlled buildings that had been decontrolled.  Stabilization has less restrictions than Control, mostly around when they can be deregulated and what other costs can be placed on tenants in them. Rent stabilized apartments (including my apartment in Stuy Town) represent 45% of rentals or 987,000 units. 

The rent laws are periodically renewed in Albany and have been the center of some truly epic fights, most recently in 2015. I won't get into those battles in this post, but will in the future. The main thing to remember is that these laws, in theory, would come off the books if the NYC vacancy rate ever surpasses 5% - which it hasn't done in over 50 years (it was 3.45% as of 2014).   In the meantime, the RGB is where this battle plays out every year.

The RGB as sin eater for city and state politicians (sbkmulletman.deviantart.com)

The RGB as sin eater for city and state politicians (sbkmulletman.deviantart.com)

The Rent Guidelines Board

The Rent Guidelines Board was set up in 1969 to oversee what, if any, increases in rent would be passed to rent-regulated tenants.  The board is made up of 9 members all appointed by the Mayor.  Two seats go to tenant advocates, two go to landlord advocates, and the other 5 (including the Chair) are intended to represent the general public. The terms of each appointment are staggered slightly between 2 and 3 years depending on the seat. Currently all nine have been appointed by Mayor de Blasio and, in some circles, it has been considered the most tenant-friendly board on record.

The main tool the RGB uses to determine their policy decisions is called the Price Index of Operating Costs (PIOC).  This factors in the yearly variances in the price of goods and services (like oil, electricity, staff, insurance, property taxes) that impact the overhead for landlords. This year, the Board determined that the PIOC fell by 1.2%, only the second time in its history, which some observers had suggested, before the vote this week obviously, might mean yet another freeze or even a roll-back. The backlash against the freeze from last year was likely too much for the board to ignore this time around, resulting in the increase.

Most landlord advocates, including the Rent Stabilization Association (the city's largest landlord organization) argue that PIOC fails to determine the actual costs to landlords for two main reasons. First, a blanket recommendation can not possibly factor in the varying impact of costs between big and small landlords, between different parts of the city, and different types of buildings.  The second is that it does not factor in major capital improvements, new compliance costs, or debt service, which are significant budgetary items for many landlords.

Most tenant advocates argue that the Board actually overestimates landlord's costs (which the RGB report itself describes) and that last year rent stabilized landlords had a net operating income return of 50%, which has increased every year over the last 10.  Especially now that energy costs have gone down, they argue that landlords have benefited significantly while interest rates and wages have not kept pace in the same time span.

Not surprisingly, I think both sides have fair points.  The RGB and its PIOC calculations are clunky and inelegant tools to address such a vast and complex system.  But something has to address it and the RGB does so while serving as a sort of sin eater for city and state politicians - a helpful symbol for parties to attack that at least partially insulates officials from the universally unpopular results. It functions as a populist valve rather than a meaningful policy vehicle.  This does a disservice to the many legitimate issues that landlords and tenants want addressed, but that is surly some of the point.

 

What does the future hold for NYC? (rogersmavel.com)

What does the future hold for NYC? (rogersmavel.com)

What is to be done?

Renting a home may not be the oldest profession, but it has been around for a long time and arguing over the rent is never going away. Landlords and tenants know that.  But they can still find common ground that could potentially improve everyone's position and the collective health of the city.

First, in a strictly micro-sense, they could advocate that the RGB and the city incorporate more dynamic IT solutions (coughs) to better calculate individual landlord costs and individual tenant costs.  Whether it's water use, heating, electricity, gas/oil whatever - there are already countless tools available that could be installed to measure the efficiency of buildings and the use-demands of individual tenants.  This could help calibrate a more accurate and tailored PIOC report as well as a fair allocation of costs within a building while also incentivizing better resource management for all parties. The cost to install these tools isn't cheap currently, but it could be spread out in tax-abatements. The argument here is that they would eventually significantly reduce the city's operating costs to monitor these elements and save the city in the long-run.  More information, and better ways to analyze it, will drive down costs for everyone in the market.

Second, in a macro-sense, landlords and tenants must both advocate for building more housing.  Obviously.  And though this can be done through changes in zoning, land-use, building diversity, transportation and many other factors, politically those options create divisions among tenants groups and landlord groups.  None of these issues fall easily into pro-landlord or pro-tenant categories so progress is painfully slow or non-existent.  Creating a clear policy platform that can gain the support of the most tenants and the most landlords would be difficult, but not impossible. Mayor de Blasio has tried, perhaps successfully, but the response hasn't differed all that much from the response to the RGB. 

Finally, in a philosophical sense, landlords and tenants should address some fundamental questions: Would everyone be better off if there was no rent regulation or universal rent regulation?  Before any landlord or tenant screams bloody murder, hear out the logic for both.  Considering radical alternatives might reveal practical solutions. (Assume for this debate that we live in a more elastic housing construction market and can build more housing across the board.)

No Regulation - What if there was some ideal natural vacancy rate (there are interesting debates about this) for NYC and the region factoring in employment and wage figures, inflation, goods/services costs, that would remove the need for rent regulation while still providing enough options for tenants and competition for landlords to retain affordability and diversity in any given neighborhood?  Houston is generally considered to be a model of affordability in a major city and has no regulation at all.  There is a 10% vacancy rate in the city which means there are a lot of options for people.  Now, you'll never see me argue for the type of sprawl that Houston is famous for, and I'm not suggesting 10% is universally ideal (or even ideal to Houston) but clearly we can learn something from the supply/demand tension that it has. Advocates are right to defend rent regulation right now because it's sudden absence without a significant increase in housing would result in massive disruption.  But if the city/region was able to produce the amount of housing that creates an ideal vacancy rate, that disruption (and the cost of subsidizing housing) would vanish.

Total Regulation - Before anyone gets the idea of some Soviet-style apparatus controlling where and how you live, think about what establishing a basic floor and ceiling for all rent pricing would look like.  It might look like a city that treats housing as a basic human need rather than a wealth generator.  Part of the reason that housing ends up being so expensive is the speculation on the value of the land it is occupying. If you remove that price inflation but guarantee some fair return on costs and risk, you would turn off some of the worst type of speculators and leave people interested in the long-term development of a neighborhood (and likely encourage local ownership).  You would still encourage personal investment and reward it fairly, but you would remove the extreme profit motive that in some cases perverts the landlord-tenant relationship. A major criticism levied against much of the modern development and redevelopment of NYC is how it maximizes short-term profits while sacrificing long-term sustainability and community health.  It might seem radical to suggest departing from this model, but it might create a more livable and exciting city than we are heading towards.

I introduce these concepts partly because I do think they both have merit and are helpful to think about, but more so to show again why institutions like the RGB are holding us back from the more important conversations and decisions we need to make as a city.  No one thinks the housing system works right now, as the most recent RGB vote showcases.  How can we just nibble on the edges or blame partisans for a system that is obviously designed to avoid the harder challenges?  We don't need sin eaters, we need prophets.