Note: the following Law Review article was written primarily to address certain constitutional claims with regard to whether or not rent regulations deprive landlords or property rights. Beginning with Section IV (Sources of the Subsidy Fiction), the author addresses the claim often asserted by landlords that rent regulation is a form of subsidy. The article documents the "rent regulation is a subsidy" notion is the product of a well-engineered publicity effort by real estate organizations.

I. INTRODUCTION

Two legal fictions[1] have been used to describe the ultimate product of rent control laws. This Article explores the development and operation of each of these fictions. The first is a long-standing presumption that a properly structured system of rent regulation results in "fair" or "reasonable" rents.[2] The second fiction is a presumption of more recent vintage which suggests that public intervention in private markets which directly benefits one party at the expense of another produces a "forced subsidy." Both fictions have some grounding in western economic and legal traditions.[3] Nonetheless, as operative assumptions used to analyze whether landlords subjected to rent regulation are unconstitutionally deprived of their property rights, both fictions are fundamentally incompatible.

The Fifth Amendment's Takings Clause, made applicable to the states through the Fourteenth Amendment,[4] establishes a constitutional border between popular sovereignty and private economic prerogatives.[5] Legal precedent which openly examines and persuasively selects one or the other of the fictions described herein could defuse at least one of the many skirmishes which appear to be breaking out along that border.[6] Although the immediate impact of such a selection may be limited to those who are affected by rent controls, the acceptance of one or the other of these fictions may influence views on the constitutionality of more broadly structured regulations of property and markets.

The disparate legal impact of choosing between the fair rent and forced subsidy fictions is exemplified by two judicial opinions. The first, and most recent, is a majority opinion written by Judge Bellacosa of the New York Court of Appeals, in Manocherian v. Lenox Hill Hospital.[7] Judge Bellacosa's opinion squarely incorporates the subsidy fiction.[8] The second is a dissenting opinion written by Justice Scalia in Pennell v. City of San Jose.[9] Although that opinion addressed a takings claim which was declared premature by the majority of the Court, Justice Scalia's dissent clearly acknowledged the legitimacy of the traditional fair rent objective of rent regulation.[10]

To illustrate these distinct approaches, parts II and III of this Article, respectively, discuss the Manocherian and Pennell opinions. Part IV attributes the emergence of the subsidy fiction to the growing influence of economic theory in constitutional analysis, and briefly considers the potential implications of this trend. Part V discusses New York City's rent regulations, analyzing their purpose with respect to the fair rent and subsidy fictions. The Article concludes that the semi-conscious nature of this transmutation from the traditional fair-rent fiction to the subsidy fiction will, if left unexamined, seriously undermine democratic accountability.

II. MANOCHERIAN V. LENOX HILL HOSPITAL

In the 1960s Lenox Hill Hospital, a Manhattan-based not-for-profit teaching hospital,[11] leased several apartments for its medical staff in a building located near the hospital.[12] In 1976 the Manocherian family, one of the city's largest property owners,[13] purchased the building while Lenox Hill's personnel were still in occupancy.[14]

Two citywide problems arose in the early 1980s which, although not involving the apartments leased to Lenox Hill, led to the unintended temporary removal of rent protections for Lenox Hill's employee subtenants. First, some absentee tenants were subletting apartments at much higher rents than owners were permitted to charge.[15] Second, absentee tenants were subletting their units to retain valuable inside purchasers' rights in the event of a conversion to cooperative ownership.[16] In short, a law that was designed to prevent landlord profiteering had, in some instances, facilitated the rise of tenant profiteers.

In an attempt to remedy these and other abuses, the New York State Legislature amended the New York City Rent Stabilization Law[17] and the Emergency Tenant Protection Act.[18] These amendments impose strict limitations on the right of rent-regulated tenants to sublet their apartments.[19] Among other changes, these reforms removed the right to sublet from all but prime tenants who intended to return to their apartments within a specified time.[20]

As a corporate tenant, Lenox Hill Hospital could not be a prime/occupying tenant.[20] As a result of the statutory change, approximately one hundred of Lenox Hill's employees, residing as subtenants in the Manocherian building and other buildings in the vicinity, faced eviction.[22]

In recognition of this unintended consequence, the New York State Legislature again amended the New York City Rent Stabilization Law and the Emergency Tenant Protection Act by reestablishing rent stabilization protection for not-for-profit hospitals that sublease apartments.[23] Under this exception to the prohibition against non-primary tenancies, Lenox Hill Hospital could continue renting apartments for the purpose of providing reasonably priced housing for their employee subtenants.[24] The Manocherians, claiming that the re-establishment of the rent protections for Lenox Hill employees effected a regulatory taking, filed suit in state court.[25] Their claim relied in part on Seawall Associates v. City of New York.[26]

The Seawall case involved an effort by New York City officials in the mid-1980s to stem the tide of conversion, alteration, and demolition of low rent single room occupancy housing.[27] This housing was thought to be a vital resource for some of the city's low income tenants.[28] The law at issue imposed a moratorium on conversion, demolition, or alterations of such housing, except if a $45,000 payment was made to a special housing fund for each converted unit.[29] In addition, the law mandated that owners repair and rent out unoccupied or "warehoused" units.[30] Finding that the buy out provision amounted to a form of "ransom"[31] and that the rent-up provision resulted in a forced physical occupation of property,[32] the New York Court of Appeals held that the moratorium violated of the Takings Clause.[33]

In addressing the regulatory taking claims implicated by the law, the New York Court of Appeals considered, among other things, the heightened scrutiny standard of review for takings claims applied in Nollan v. California Coastal Commission.[34] The court found that "a burden-shifting regulation of the use of private property will, without more, constitute a taking: (1) if it denies an owner economically viable use of his property, or (2) if it does not substantially advance legitimate State interests."[35]

In Nollan, the Supreme Court concluded that where a condition is imposed as a quid pro quo for granting a building permit, it must serve the same end as the governmental purpose served by the general restriction on building.[36] A failure to establish such a nexus violates the second prong of the takings test.[37]

The Nollan case involved several elements that were present in Seawall. First, in Seawall the buy out option-—a forced payment to avoid a general prohibition-—arguably amounted to an unconstitutional condition.[38] Nollan similarly involved an unconstitutional condition: the California Coastal Commission demanded that a property owner cede an easement across a beach in exchange for the lifting of a building restriction designed to secure visual access to the oceanfront.[39] In Seawall, the rent-up provision amounted to a specific exaction,[40] while in Nollan the easement was a specific exaction.[41] In Seawall, the rent-up provision also imposed a forced physical intrusion.[42] In Nollan, public use of the easement arguably amounted to the same.[43] The only notable distinction between Nollan and Seawall was that Nollan involved an individualized decision by the California Coastal Commission,[44] whereas Seawall involved a local law of general application.[45]

Although the New York Court of Appeals seems to have taken the lead in utilizing Nollan's essential nexus test as a generic standard for all takings claims, including challenges to regulations of general application,[46] the Supreme Court has yet to apply Nollan's heightened scrutiny of property regulations outside of an individualized context where owners of specific property are being coerced to accept an "unconstitutional condition" in exchange for the lifting of a general prohibition.[47] Nollan established the need for some causal nexus between the condition imposed and the burden lifted in order for the condition to avoid a takings claim.[48] In Dolan v. City of Tigard,[49] the Supreme Court refined this standard by requiring "rough proportionality" between the condition imposed and the public burden being alleviated.[50]

Manocherian[51] involved none of the critical elements present in Nollan, Seawall, and Dolan. There was no physical intrusion of any kind (the tenants were lawful occupants),[52] no specific exaction (the units would remain under rent regulation if vacated by the hospital employees),[53] no unconstitutional condition (the Manocherians were not being coerced into giving something up in exchange for lifting a general prohibition),[54] and no individualized determination (chapter 940 was general use legislation affecting all similarly situated hospitals).[55]

Notwithstanding these critical distinctions, the Manocherian court found that "the statute [did] not protect and benefit specific occupant subtenants, but rather erect[ed] a subsidized housing regime for Lenox Hill Hospital's preferential allotment."[56] Explicitly relying on the Nollan standard, the court concluded that Chapter 940 "suffers a fatal defect by not substantially advancing a closely and legitimately connected State interest."[57]

The New York Court of Appeals did briefly acknowledge the fair rent objective of rent regulation by recognizing that protection against profiteering was at least one purpose of the rent stabilization system.[58] Specifically, Judge Bellacosa noted that "the State intended to protect dwellers who could not compete in an overheated rental market, through no fault of their own . . . and to 'forestall profiteering, speculation and other disruptive practices.’"[59] Yet, in applying Nollan's essential nexus test, Judge Bellacosa wrote:

The central, underlying purpose of the [Rent Stabilization Law] is to ameliorate the dislocations and risk of widespread lack of suitable dwellings. Chapter 940 does not contribute to that desirable altruistic aim. It affects a tiny number of dwelling units. The effect of the statute is also quite ephemeral. These apartments were subject to rent stabilization prior to the enactment and will remain so, irrespective of the outcome of this long-standing dispute affecting a dwindling number of apartments, still in controversy in this litigation, with respect to the hospital's prime tenancy lease renewal entitlements. Accordingly, chapter 940 fails to substantially or functionally prevent or relate to excessive rents and profiteering.[60]

The amelioration of dislocations and the prevention of profiteering are two distinct (although related) public purposes. Notably, profiteering is identified through the actions of a seller,[61] whereas dislocation is a welfare concern which is measured through the experience of consumers.[62] The New York Court of Appeals did not clearly distinguish which purpose was being examined for a nexus with which impact-—the purported failure to prevent dislocations or the failure to protect against profiteering. This lack of clarity may be critical to any evaluation of whether the court properly applied or effectively transmuted Nollan's nexus test,[63] if that test is applicable at all.[64] If the prevention of dislocation was the purpose being analyzed, the court may have inappropriately ignored the state's clear anti-profiteering goal[65] by focusing on welfare and dislocation concerns.[66] That would be a mere error in application.

If, however, the anti-profiteering goal was indeed recognized, and the court simply disapproved of the fact that the Legislature chose to extend protections to a non-occupant, institutional consumer, the result is much more significant. The court explicitly found a cognizable property interest and an unlawful subsidy where one particular class was protected (non-profit hospitals).[67] By implication, the court found either no subsidy or a subsidy that was somehow constitutional where other beneficiaries (tenants in general) are concerned. By finding a "legitimate state interest" in protecting the latter, but not the former, the court may have discovered extraordinary judicial prerogatives within the "legitimate state interest" prong of the Nollan,[68] Seawall,[69] and Dolan[70] line of cases. This result invites comparison with the kind of judicial veto power over progressive economic measures that prevailed during the Lochner era.[71]

In a related finding, the New York Court of Appeals concluded that the statute was constitutionally infirm because it "benefits one special class for an essentially unrelated economic redistribution and societal relationship."[72] This conclusion also rests on the subsidy fiction. The court failed to recognize that every tenant (wealthy or not) entering into a lease during a recognized housing emergency or shortage is vulnerable to profiteering (i.e., the exaction of unfair rents). Had the court recognized this. it could have logically concluded that only by exempting certain classes of renters from protection does the law (perhaps quite properly) become concerned with "essentially unrelated economic redistribution and societal [relations]."[73] Only a premise that the product of rent regulation is something less than fair rent (i.e., that it is a subsidy) supports a conclusion that some housing consumers are deserving of such protections, while others are not.

The New York Court of Appeals' decision in Manocherian to apply the heightened scrutiny standard of review for regulatory takings claims,[74] developed by the Supreme Court in Nollan[75] and Dolan,[76] is difficult to fathom. This was the first application of the standard to a case involving a general legislative determination which required no conveyance of any previously recognized property right, no element of forced physical intrusion on the property, and which imposed no "unconstitutional condition" on the granting of a discretionary government benefit.[77] The only coherent way to explain the result in Manocherian is in terms of the majority's willingness to embrace the subsidy fiction.[78]

III. PENNELL V. CITY OF SAN JOSE

In Pennell v. City of San Jose,[79] the Supreme Court was confronted with a local rent ordinance which permitted tenant hardship to be considered as a factor in the review of applications for special rent adjustments.[80] The appellants, a local landlord and a property owners association, claimed, inter alia, that the hardship factor did not serve the purpose of eliminating excessive rents, and thereby resulted in a taking.[81] The majority found that the lack of evidence that the hardship provision had ever been relied on rendered any judgment on the takings claim premature.[82]

Justice Scalia, joined by Justice O'Connor, dissented on the finding of prematurity and reached the takings claim.[83] In examining the takings claim, Justice Scalia found that the hardship factor unconstitutionally asked property owners to bear public burdens alone.[84] In explaining his finding he articulated the antiprofiteering nature of rent regulation and the nexus this purpose has to the elimination of excessive rents:

Traditional land-use regulation (short of that which totally destroys the economic value of property) does not violate [the] principle [of not forcing some individuals to bear public burdens alone] because there is a cause-and-effect relationship between the property use restricted by the regulation and the social evil that the regulation seeks to remedy.... The same cause-and-effect relationship is popularly thought to justify emergency price regulation: When commodities have been priced at a level that produces exorbitant returns, the owners of those commodities can be viewed as responsible for the economic hardship that occurs.

... When excessive rents are forbidden... landlords as a class become poorer and tenants as a class (or at least incumbent tenants as a class) become richer. Singling out landlords to be the transferors may be within our traditional constitutional notions of fairness, because they can plausibly be regarded as the source or the beneficiary of the high-rent problem. Once such a connection is no longer required, however, there is no end to the social transformations that can be accomplished by so-called "regulation," at great expense to the democratic process.[85]

When long settled legislative prerogatives permit the elimination of excessive rents and, hence, the establishment of fair rents, asking owners to accept less than that amount may, as Justice Scalia argued, be asking owners to "'bear public burdens which, in all fairness and justice, should be borne by the public as a whole.’"[86]

In Yee u. City of Escondido, the Supreme Court explicitly decided not to review a regulatory takings claim concerning an ordinance regulating the rental of space in a mobile home park and considered only a physical takings claim. 503 U.S. 519, 536-38 (1992); see R.S. Radford, Rent Control and Regulatory Takings, C997 ALI-ABA COURSE OF STUDY: INVERSE CONDEMNATION AND RELATED GOVERNMENT LIABILITY 473, 484 (May 4, 1995) ("[T]he High Court has reviewed takings challenges to peacetime rent regulations on only three occasions, and has never sustained such measures against a regulatory takings claim." (footnotes omitted)).

Similarly, if one accepts the fair rent fiction, a law asking owners to charge no more than fair rents asks owners to bear only those burdens connected with the excessive rent problem. Any other finding attacks the traditional premise of all anti-profiteering measures: that public authorities may, from time to time, conclude that market mechanisms depart from accepted standards of fairness.[87] In this regard Justice Scalia clearly affirmed and applied the received tradition.

IV. SOURCES OF THE SUBSIDY FICTION

The recent appearance of the subsidy fiction in legal arguments[88] may reflect a broader movement to displace settled modalities of constitutional interpretation with the precise, but arguably myopic, measures of value supplied by classical and neo-classical economics.[89] An examination of what motivates and sustains this movement in a given area may provide some insight into whether it is driven by logic or broad public experience, or whether it simply reflects the political and social engineering skills of propertied interests.

Until recently, the incompatibility of the fair rent and subsidy fictions remained largely dormant. This may be due to the fact that the forensic analysis which governs court decisions in this area operates independently from the analytical framework of classical or neo-classical economics. Under the paradigm of classical economics, government control of prices results in a forced transfer of wealth that benefits, or subsidizes, one party at the expense of another.[90] Since such controls interfere with market mechanisms, they fail to meet standards of economic efficiency and utility which are fundamental values within that analytical framework.[91]

Under western legal traditions, the establishment of a "just price," particularly for the necessities of life, does not produce unfair subsidies, but rather, eliminates unfair advantages.[92] Unlike economic theory, legal analysis, particularly constitutional analysis, will accommodate evolving standards of justice which, in turn, may be driven by changing cultural and religious values and sensibilities.[93] Of course, such values may, over time, incorporate a greater public affinity for the assumptions which underlie economic analysis, and hence result in a gradual merger of both economic and legal presumptions and priorities.[94] However, whether or not the incorporation of economic analysis into judicial reasoning is a desirable trend, any presumption that economic efficiency (based on a market driven measure of value) provides a neutral or conclusive basis upon which to analyze legal problems (such as the meaning of the word property) is highly problematic.

All arguments on behalf of economic efficiency are essentially ethical in nature.[95] Of course, if an economist were to suggest that a rise in the price of bread will cause less bread to be sold, that economist is not necessarily making an ethical argument.[96] Yet, a suggestion that bread should be sold at a market price is a clear statement about ethics. Most economists are fully conscious of this.[97] The following observation by Paul A. Samuelson, co-author of what remains the standard college text on economics,[98] illustrates the point:

[W]e must not leave the subject of efficient pricing without a warning. We have not proved that laissez-faire with perfect competition maximizes the greatest good of the greatest number. We have not proved that it produces a maximum of social utility. We have not proved that it results in the best attainable level of social welfare.

Why not? Because people are not equally endowed with purchasing power. Some are very poor through no fault of their own. Some are very rich through luck or inheritance rather than skill or wit.

So the weighting of dollar votes, which lie behind the individual demand curves[,] ... is not necessarily equitable or even tolerable as judged by various ethical systems (whether these be Christianity, Judaism, Islam, or secular humanism).[99]

Implicit in this passage is the fact that economic efficiency, as a possible alternative to other ethical standards, may itself operate as an ethical standard. As such, it is one of many possible commitments that could inform an intelligible view of the distribution of public and private power under the Constitution. While useful, economic efficiency is not now, and never has been, a public value which controls interpretation or somehow trumps settled meanings of constitutional language.[100] The very idea of a constitutional democracy seems incompatible with the maintenance of a single ethical, ideological, or theological metric of value. These observations do not, however, force a conclusion that the public values recognized in constitutional interpretation must change with each shift in popular sentiment.

When engaged in a review of constitutional matters, courts must be concerned with the maintenance of a democratic structure which will survive the impulses of momentary majorities.[101] Moreover, courts interpreting the Federal Constitution need to be particularly wary about the subtle influence of changes in the common culture which may transpire without a thorough or reflective public discourse. Transient public mood swings may obfuscate longer term commitments or values, commitments that could emerge into focus with a more directed or conscious apprehension of the issues at hand. More fundamentally, significant constitutional change outside of the amendment process (a reflective discourse by design) poses well recognized problems for representative government.[102]

Not only does the public deserve a clear exposition of the reasoning which underlies any such change, the integrity of the judicial process demands it.[103] Thus, when economic values or assumptions are incorporated into legal reasoning, it is incumbent upon the courts to explain why and how other values have been displaced. The absence of such an explanation may derail the ability of future courts or the public to recognize or identify such change, leaving them unable to consider whether the change proved to be worthwhile or well founded.[104] As the Manocherian decision illustrates,[105] precisely such an unexamined change may be under way in the area of price/rent regulation where the value system of classical economic theory presently threatens to directly displace the remnants of a far more ancient value system rooted in Judeo-Christian ethics.[106]

Why did this change appear at this particular juncture? The fashion of describing the product of rent regulation as a subsidy probably began with a public relations effort to characterize rent regulation as a bad anti-poverty strategy.[107] Once it is concluded that rent regulation is designed to preserve affordable rents, the idea that rent regulation was initiated to eliminate "abnormal"[108] rents in an overheated market fades with time.

When it is assumed that the object of rent regulation is to transfer wealth from well-to-do interests (owners) to arguably less affluent interests (tenants), policy analysts find themselves in a position to quantify the transfer to see if this purported goal is being accomplished. When rent regulation is found to be an imprecise or inconsistent means for attaining the stated objective, with some upper income tenants benefitting while some less affluent owners lose out, the system is judged a failure.

With the change of premise (some might say the raising of a "straw man"), the path to a conclusion that rent regulation cannot be reconciled with the Takings Clause[109] is, if not clear, at least easier to construct. The constitutional attack comes in two contradictory packages. One argument is that, as an effort to assist needy citizens, rent regulation places a public burden on landlords "which in all fairness and justice, should be borne by the public as a whole."[110] An alternative argument is that because rent regulation does such an allegedly bad job of protecting needy citizens, it fails to "substantially advance legitimate state interests."[111] The major premise of both challenges—-that rent regulation is primarily designed to preserve housing affordability—-is simply wrong.

V. THE NEW YORK CITY RENT REGULATIONS

A. In General: The Elimination of "Abnormal " Rents

The foremost purpose of rent regulation in New York City has been to eliminate "abnormal" rents in an overheated market.[112] New York's current rent control program began during World War II as part of a national price stabilization effort designed, in part, to avoid the consequence of a decline in the construction of housing at a time when the demand for housing was rising as workers moved into war production areas.[113] Indeed, poverty in New York was far worse in the decade that preceded the war, and yet no rent control measures were implemented.[114] While a housing shortage began to appear as early as 1936, the shortage was largely concealed because the Great Depression had forced many families to double up.[115] In the absence of a low vacancy rate and upward pressures on rents (recalling the deflationary economy of the 1930s) rent protections made little sense. Nonetheless, affordability problems were pervasive.

By the late 1960s New York City was beginning to witness heavy demand pressures on uncontrolled rents, including rents "in the traditionally high rent areas of the City" and in "large newer buildings."[116] It thus instituted its rent stabilization program which, at the time, affected some 400,000 uncontrolled apartments, most of which were located in post-war buildings.[117] This program, which extended a modest form of rent protections to those occupying some of the city's best and newest housing, was clearly not conceived of as an anti-poverty strategy. The unmet shelter needs of the lowest income households were generally being addressed (if imperfectly) through publicly assisted housing.[118] While concern was clearly expressed for rising rent burdens, the problem of profiteering or "rent gouging" did not materialize with high rent burdens, but with the fact that those burdens were being driven by housing scarcity.[119]

The precise legal basis for continuing controls over the intervening years has had little to do with the affordability of market rents. Rather, both rent control and rent stabilization are subject to discontinuance if the citywide vacancy rate exceeds five percent.[120]

If, for example, a severe recession were to cause an increase in the number of families doubled up, and this were to result in a rise in the vacancy rate to over five percent,[121] rent regulations would be terminated notwithstanding the fact that rents may be even less affordable to households faced with job losses or pay cuts.[122] Rents may decline over the long term, restoring affordability, but this does not alter the fact that rent regulation is presently designed to temper excessive demand driven rent increases, or to otherwise control "profiteering" in a market where demand chronically outstrips supply.[123]

Of course, housing shortages work particular hardships on lower income households, and it would be misleading to suggest that such hardships did not enter into the minds of those who authored New York's rent laws. The prevention of "severe hardship to tenants" and the "uprooting [of] long-time city residents from their communities" are explicit concerns in the Findings and Declaration of Emergency upon which the rent stabilization system is premised.[124] Nonetheless, the 1969 law was considered "necessary in order to prevent exactions of unjust, unreasonable and oppressive rents and rental agreements and to forestall profiteering, speculation and other disruptive practices"[125] at a time when the nation had just witnessed the longest period of economic growth and prosperity in modern history.[126] Moreover, rent protections never slowed eviction proceedings or non-payment actions in city housing courts.[127] Finally, rent regulation has done little to improve housing affordability over time. The average (median) renter in New York City devoted about twenty percent of household income to rent in 1970.[128] By 1993 that figure had risen to thirty-one percent of income.[129] In short, while protection against evictions, dislocation, and unaffordable rents may have been an important subsidiary concern, market fairness was the primary motive for the adoption (and renewal) of these laws.

This objective is the same for all anti-profiteering measures. Such measures are commonly adopted to protect the public from those who would take advantage of abnormal shifts in demand for various goods and services caused by natural disasters,[130] war related changes in production or consumption patterns,[131] special market conditions allowing monopolistic pricing,[132] and sustained imbalances in supply and demand leaving consumers (or producers) in unfavorable bargaining positions.[133]

The conclusion that securing market fairness was the primary intent of those who authored New York's residential rent protections is further supported by New York's partly co-extensive experience with commercial rent regulation, a system where residential displacement was obviously not a concern. The constitutionality of that law was sustained against a due process challenge in Twentieth Century Associates v. Waldman.[134] Notably, the New York Court of Appeals commented on the commercial interests protected by the law:

[W]e find in the material before the Legislature ample evidence that unjust, unreasonable and oppressive leases and agreements in large volume had been exacted by landlords from tenants .... So far as such tenants are concerned, the Legislature was justified in concluding that there was no reality of consent; [and] that their "freedom of contract" had become an illusory concept....[135]

New York's Commercial Rent Law remained in place for nearly two decades.[136] In 1963 commercial rent regulations were terminated, while residential rent controls were continued.[137]

B. The Rent Reforms of 1993

By the Spring of 1993, New York's rent control and stabilization laws were about to sunset.[138] Over the previous two decades, the rent laws had been extended routinely.[139] Owners mounted an unusually strong effort in an attempt to gain some concessions before the laws would be extended once again.[140] A protracted deadlock on extension led to four last minute temporary extensions, including one where Governor Mario Cuomo entered the Senate chamber at 11:58 P.M. to sign a three day extension before the midnight deadline.[141]

One of the key strategies by landlords seeking concessions was to emphasize the notion that rent regulations were subsidizing rich tenants.[142] This sentiment was echoed in local editorial pages.[143] As a public relations effort, the strategy was highly influential. As a legislative reform effort, it met with limited success.

The Rent Regulation Reform Act of 1993 changed existing regulations by permitting decontrol of apartments renting for more than $2,000 per month upon vacancy, and decontrol of apartments renting for over $2,000 per month that were occupied by households earning in excess of $250,000 per year over a two year period.[144]

Over the following year this income test would affect less than three thousand units in a universe of over one million.[145] In fact, it appears that the industry was less concerned with the legislative changes than it was with establishing, for the longer term, the popular notion that rent regulation is a form of subsidy.

On July 4, 1993, John Gilbert, then president of the Rent Stabilization Association, an advocacy group representing some 24,000 rent-regulated property owners, was quoted as saying "‘[t]he biggest victory here is that people have finally acknowledged that rent regulation is a subsidy.’"[146] Another industry advocate, Daniel Margulies, Executive Director of the Community Home Improvement Association, was equally explicit: "they have applied a means test and exposed the system for what it is, a subsidy system."[147] Furthermore, prominent local real estate attorneys were considering whether to challenge the system, on constitutional grounds, utilizing the subsidy theory.[148] One real estate attorney observed that "[d]uring the debate on both the Assembly and Senate floors, rent regulation was clearly defined as a form of 'subsidy.’"[149] Again, local media echoed the sentiment.[150]

What these comments fail to emphasize is that the Legislature decided to maintain rent protections for all income categories (including those earning $250,000 per year and more) where monthly rents were less than $2,000.[151] On its face, this result may seem absurd. Actually, the Legislature was responding to a widespread understanding that the housing shortage had largely abated in the higher rent sectors, while the stratum of units with rents in the middle and lower ranges continued to experience low vacancy rates.[152] Because the Legislature chose to maintain protections for tenants from all income categories in this lower rent stratum, the fair rent objective was not only maintained by the new law, it was reinforced by it. Any other interpretation of the fact that wealthy persons in high rent apartments lost protection, while their even wealthier counterparts in low rent apartments remained protected, would suggest that the Legislature had acted irrationally.

The point of these observations is not to suggest that the Legislature had somehow fallen victim to a well-orchestrated public relations effort. What is important is that the Legislature employed the subsidy concept for a very small luxury submarket, and yet maintained the fair rent objective for the bulk of the regulated universe where vacancy rates remained low. Whatever the Legislative judgment, that judgment is subject to popular reconsideration and revision. Such reconsideration is unavailable, however, when the subsidy fiction is constitutionalized. At least with regard to the employee subtenants of not-for-profit hospitals, that change now appears to be irreversible.[153]

VI. CONCLUSION

The recent appearance of the notion that rent regulation generates subsidies contradicts a long-standing premise that the product of a properly structured rent regulation system is fair rents. Recognition of the existence and fundamental incompatibility of these conflicting fictions should invite a closer examination of which fiction best serves a coherent and convincing understanding of the meaning of the Fifth Amendment's Takings Clause where price and rent regulations are concerned. Only a public examination of the economic, historical, and legal assumptions underlying both fictions will allow future courts to make this choice a principled one.

# # #

* Partner, Collins & Dobkin, New York City; J.D., New York Law School, 1985; LL.M., New York University School of Law, 1995. The author wishes to thank Professor William E. Nelson, New York University School of Law, for his encouragement and support.

Footnotes:

1. The employment of the term "fiction" here refers to the kind of ongoing and inconspicuous adaptations described by Lon Fuller in Legal Fictions:

[L]egal categories are constantly being remade to fit new conditions. Words like "possession," "estate," and "delivery" have, in the course of legal history, undergone rather obvious expansion. In a less obvious way this is true of all legal categories, and is going on constantly. Generally we do not use the term "fiction" in describing this process, for the simple reason that we are unaware of the process itself. This adaptation is so inconspicuous and gradual that it does not impress itself on our minds at all. It is only when a particular step in this process of adaptation is unusually bold and cutting that we cry "Fiction!" Often the term "fiction" involves, not simply the consciousness that a particular adaptation has taken place, but that it has taken place in an ungraceful and inelegant manner ....

LON L. FULLER, LEGAL FICTIONS 65-66 (1967).

2. The "fair" or "reasonable" rent concept used in this Article generally assumes an attempt by public authorities to roughly simulate long term equilibrium rents in markets where exceptional demand or limited supply prevents the realization of such rents through normal market mechanisms. See Michael D. Bergman, Property Law: Recent Developments in Rent Control and Related Laws Regulating the Landlord-Tenant Relationship, 1989 ANN. SURV. AM. L. 691, 734. Concededly, some regulators have sought to establish rates of return which do not adhere to this long term equilibrium objective. See id. at 735-36. For a summary of various challenges to these disparate rate of return methods, see id. at 699-727.

3. See infra notes 90-99 and accompanying text.

4. Dolan v. Tigard, 114 S. Ct. 2309, 2316 (1994).

5. At least one consequence of a radical expansion of property rights is to narrow the scope of self government. In the extreme, democracy itself is placed at risk. As Frank Michelman has profoundly (and ominously) observed:

[T]he better we learn the analytical lesson of conceptual severance--that every particle of legally sanctioned advantage is property--the more we are forced to recognize in every act of government a redefinition and adjustment of a property boundary. The war between popular self-government and strongly constitutionalized property now comes to seem not containable but total.

...[C]laims of popular sovereignty and classical property cannot, in truth, be stably reconciled at a very high level of abstraction or generality.

Frank Michelman, Takings, 1987, 88 COLUM. L. REV. 1600, 1627-28 (1988) (footnotes omitted).

6. For an overview of various land use, environmental, and commercial regulations where the role of the Takings Clause has generated recent litigation and scholarly dispute, see Symposium, Perspectives on Regulatory Takings, 6 FORDHAM ENVTL. L.J. 405 (1995).

7. 643 N.E.2d 479 (N.Y. 1994), cert. denied, 115 S. Ct. 1961 (1995).

8. See infra notes 56-78 (discussing Judge Bellacosa's adoption of the subsidy fiction in Manocherian).

9. 485 U.S. 1, 15-24 (1988) (Scalia, J., dissenting).

10. See infra notes 85-86 (discussing Justice Scalia's adoption of the fair rent presumption in Pennell).

11. Manocherian, 643 N.E.2d at 480.

12. Id. at 496 (Ciparick, J., dissenting).

13. According to a magazine account:

The three Manocherian brothers ... emigrated to the U.S. from Iran in the 1940s and together they now own a little less than 15 acres of Gotham. Included in that total is a significant amount of East Side real estate on side streets from the Forties to the Eighties, as well as properties along Third and York avenues.

George Russell, Who Owns New York?, REAL ESTATE (N.Y., N.J., Conn.), Spring 1987, at 34, 41. One of the brothers, Amir, was a lead plaintiff in this case. See id.; Manocherian, 643 N.E.2d at 479 (Bellacosa, J., majority).

14. Manocherian, 643 N.E.2d at 489 (Levine, J., dissenting).

15. See Michael D. Hinds, Landlords Move to Halt Illegal Sublets, N.Y. TIMES, NOV. 17, 1985, § 8, at 1 (describing illegal subletting as "widespread because of the city's negligible vacancy rate, the high market rents for unregulated apartments and the relatively cheap rents of most of the 1.2 million regulated apartments").

16. See Lawrence A. Kanusher, Note, All in the Family. Succession Rights and Rent Stabilized Apartments, 53 BROOK. L. REV. 213, 216-17 (1987).

17. Rent Stabilization Law of 1969, N.Y. UNCONSOL. LAW §§ 26-501 to 26-520 (McKinney 1987 & Supp. 1996).

18. Emergency Tenant Protection Act of 1974, N.Y. UNCONSOL. LAW §§ 8621-8634 (McKinney 1987 & Supp. 1996).

19. The Legislature amended the Rent Stabilization Law to provide, in pertinent part, that rent stabilization coverage would include the following:

a. Class A multiple dwellings not owned as a cooperative or as a condominium... containing six or more dwelling units which:

(1) were completed after February first, nineteen hundred forty-seven, except dwelling units... (f) not occupied by the tenant, not including subtenants or occupants, as his primary residence ....

Act of June 30, 1983, ch. 403, sec. 41, 1983 N.Y. Laws 1777, at 1802 (codified as amended at N.Y. UNCONSOL. LAW § 26-504 (McKinney 1987)) (emphasis added).

The Legislature likewise amended the Emergency Tenant Protection Act so that, inter alia, it limits the rent charged to a subtenant, requires maintenance of a tenant's apartment as his or her primary residence, and limits the total period for which an apartment is subleased. Act of June 30, 1983, ch. 403, sec. 57, 1983 N.Y. Laws 1777, at 1810 (codified as amended at N.Y. UNCONSOL. LAW § 8630-a (McKinney 1987)).

20. See supra note 19; see also Marc J. Luxemburg & Mark S. Borten, Court Ruling on Takings Opens Judicial Pandora’s Box, N.Y. L.J., Mar. 13, 1995, at S1 (noting that the 1983 amendments "significantly curtailed the subletting rights of rent-stabilized tenants... [and] required the prime tenant in a subleasing arrangement... to use the apartment as a primary residence").

21. Luxemburg & Borten, supra note 20.

22. See Legislative Bill Jacket to Act of Aug. 6, 1984, 1984 N.Y. Laws 27, at 29 (Letter of July 27, 1984, from Allan C. Anderson, President, Lenox Hill Hospital, to Yvonne Scruggs-Leftwich, Commissioner, New York State Division of Housing and Community Renewal, regarding S. 9983).

23. Act of Aug. 6, 1984, ch. 940, sec. 1, 1984 N.Y. Laws 2636, at 2636 (codified as amended in N.Y. UNCONSOL. LAW § 26-504 (a)(1)(f) (McKinney 1987) (Rent Stabilization Law of 1969)); Act of Aug. 6, 1984, ch. 940, sec. 3, 1984 N.Y. Laws 2636, at 2637 (codified as amended in N.Y. UNCONSOL. LAW § 8625(a)(11) (McKinney 1987) (Emergency Tenant Protection Act of 1974)).

24. Chapter 940 amended both the Emergency Tenant Protection Act and the Rent Stabilization Law to provide that:

For the purposes of ... [the respective provisions limiting application of the Emergency Tenant Protection Act and the Rent Stabilization Law to primary tenancies] where a housing accommodation is rented to a not-for-profit hospital for residential use, affiliated subtenants authorized to use such accommodations by such hospital shall be deemed to be tenants....

Act of Aug. 6, 1984, ch. 940, sec. 1, 1984 N.Y. Laws 2636, at 2636 (codified as amended in N.Y. UNCONSOL. LAW § 26-504 (a)(1)(f) (McKinney 1987) (Rent Stabilization Law of 1969)); Act of Aug. 6, 1984, ch. 940, sec. 3, 1984 N.Y. Laws 2636, at 2637 (codified as amended in N.Y. UNCONSOL. LAW § 8625(a)(11) (McKinney 1987) (Emergency Tenant Protection Act of 1974)).

25. See Manocherian v. Lenox Hill Hospital, N.Y. L.J., Sept. 5, 1995, at 29 (summarizing the litigation history of the case).

26. See Manocherian v. Lenox Hill Hosp., 643 N.E.2d 479, 482 (N.Y. 1994) (citing Seawall Assocs. v. City of New York, 542 N.E.2d 1059 (N.Y.), cert. denied, 493 U.S. 976 (1989)), cert. denied, 115 S. Ct. 1961 (1995).

27. Seawall, 542 N.E.2d at 1061.

28. See id. at 1068; see also ANTHONY J. BLACKBURN, SINGLE ROOM OCCUPANCY HOUSING IN NEW YORK CITY i-1 (1986) (prepared by Urban Systems Research & Engineering, Inc., for The City of New York Department of Housing Preservation and Development).

29. Local Law 9, Local Laws of the City of New York, sec. 2 (1987) (amending NEW YORK CITY ADMIN. CODE § 27-198.2(d)(4)(a)(1) (Lenz & Riecker 1996)).

30. Local Law 9, Local Laws of the City of New York, sec. 5 (1987) (amending NEW YORK CITY ADMIN. CODE § 27-198.2 (Lenz & Riecker 1996)).

31. Seawall, 542 N.E.2d at 1069-70.

32. Id. at 1063.

33. Id. at 1071-72. The Takings Clause provides that "private property [shall not] be taken for public use, without just compensation." U.S. CONST. amend. V.

34. Seawall, 542 N.E.2d at 1065 (citing Nollan v. California Coastal Comm'n, 483 U.S. 825, 834 (1987)).

35. Id.

36. See Nollan, 483 U.S. at 831-37, 841-42.

37. See id. at 837.

38. Seawall, 542 N.E.2d at 1062-65. Since the moratorium itself was found to be unconstitutional, the court's chosen description of the buy-out provision as a form of "ransom" may be more fitting.

39. Nollan, 483 U.S. at 837.

40. Seawall, 542 N.E.2d at 1065 ("[T]he constitutional guarantee against uncompensated takings is violated when ... the governmental action is 'forcing some people alone to bear public burdens which ... should be borne by the public as a whole.’" (quoting Armstrong v. U.S., 364 U.S. 40, 49 (1960))).

41. Nollan, 483 U.S. at 841-42.

42. Seawall, 542 N.E.2d at 1065.

43. Nollan, 483 U.S. at 832.

44. Id. at 828.

45. Seawall, 542 N.E.2d at 1061. This distinction may be quite relevant in determining whether or not Seawall properly applied the Nollan standard. In Dolan v. City of Tigard, the fact that an "individualized determination" was present appeared to control the Supreme Court's conclusion that the burden of proof rested on the relevant governmental body to justify the required dedication. See 114 S. Ct. 2309, 2319-20 (1994). Apparently, the Court agreed that, at least with regard to zoning regulations, and presumably other general regulations of property use, "the burden properly rests on the party challenging the regulation to prove that it constitutes an arbitrary regulation of property rights." Id. at 2319-20 & n.8.

46. See, e.g., Manocherian v. Lenox Hill Hosp., 643 N.E.2d 479, 480 (N.Y. 1994), cert. denied, 115 S. Ct. 1961 (1995) (declaring unconstitutional a law requiring perpetual lease renewals for rent controlled apartments used by staff members of non-profit hospitals); Rent Stabilization Ass'n v. Higgins, 630 N.E.2d 626 (N.Y. 1993), cert. denied, 114 S. Ct. 2693 (1994) (applying the Nollan test in holding that new rent control regulations, expanding the definition of protected family members, were constitutional); Seawall Assocs. v. City of New York, 542 N.E.2d 1059, 1065 (N.Y.), cert. denied, 473 U.S. 976 (1989) (striking down as unconstitutional a local ordinance mandating restoration of single-room occupancy housing units and, in the alternative, allowing buy out of such restoration).

47. See R.S. Radford, Why Rent Control Is a Regulatory Taking, 6 FORDHAM ENVTL. L.J. 755, 758-62 (1995) (renewing Takings Clause cases in which the Court has applied heightened scrutiny).

48. Nollan v. California Coastal Comm'n, 483 U.S. 825, 837 (1987).

49. 114 S. Ct. 2309 (1994).

50. Id. at 2319.

51. Manocherian v. Lenox Hill Hosp., 643 N.E.2d 479 (N.Y. 1994), cert. denied, 115 S. Ct. 1961 (1995).

52. See id. at 480.

53. See id. at 484.

54. See id. at 481.

55. See id.

56. Id. at 480.

57. Id.

58. See id.

59. Id. (citations omitted) (quoting N.Y. UNCONSOL. LAW § 26-401(a) (McKinney 1987)).

60. Id. at 484.

61. See Kanusher, supra note 16, at 218 (noting that "rent stabilization laws are designed to protect the tenant from pressures that in a free market, landlords could, and did assert").

62. See id. at 227 (noting the potential dislocation faced by tenants having no succession rights to the apartments in which they lived).

63. See Nollan v. California Coastal Comm'n, 483 U.S. 825, 834-37 (1987).

64. See supra notes 46-47 and accompanying text (noting the manner in which the New York Court of Appeals, in contrast to the United States Supreme Court, has utilized the Nollan nexus test).

65. See supra note 59 and accompanying text.

66. Judge Levine's dissent in Manocherian clearly identified this problem. Judge Levine criticized the majority's assertion that "‘[t]he central, underlying purpose of the [Rent Stabilization Law] is to ameliorate the dislocations and risk of widespread lack of suitable dwellings.’" Manocherian v. Lenox Hill Hosp., 643 N.E.2d 479, 491 (N.Y. 1994) (Levine, J., dissenting) (quoting the majority opinion), cert. denied, 115 S. Ct. 1961 (1995). Judge Levine observed:

Even under the heightened judicial scrutiny standard applied by the majority, a court is not permitted to pick and choose among the express purposes of legislation in employing the test of whether the requisite connection exists between the particular regulation and the problems the Legislature sought to ameliorate.

Id.

Judge Levine found that ‘at least one of the original primary purposes of the rent stabilization laws was 'to prevent speculative, unwarranted and abnormal increases in rents’ and ‘to forestall [landlord] profiteering, speculation and other disruptive practices.’" Id. at 492 (quoting N.Y. UNCONSOL. LAW § 26-501 (McKinney 1987)). Judge Levine concluded that Chapter 940 "directly and undeniably serves the legislative protective and preventive goals with respect to abnormal rental increases and landlord profiteering." Id. at 493.

67. Id. at 485-86 (Bellacosa, J., majority).

68. Nollan v. California Coastal Comm'n, 483 U.S. 825, 834 (1987).

69. Seawall Assocs. v. City of New York, 542 N.E.2d 1059, 1065 (N.Y.), cert. denied, 493 U.S. 976 (1989).

70. Dolan v. City of Tigard, 114 S. Ct. 2309, 2317 (1994).

71. Lochner v. New York, 198 U.S. 45, 64 (1905) (striking a state law that limited the number of hours an employee could work); cf West Coast Hotel Co. v. Parrish, 300 U.S. 379, 399-400 (1937) (upholding a state law which set minimum wages for women); Nebbia v. New York, 291 U.S. 502, 538-39 (1934) (upholding a state statute which fixed a minimum price for milk). See generally Michael R. Antinori, Note, Does Lochner Live in Luxembourg?: An Analysis of the Property Rights Jurisprudence of the European Court of Justice, 18 FORDHAM INT'L L.J. 1778, 1815-39 (1995) (providing an overview of Lochner, the resulting substantive due process jurisprudence, and criticism of the doctrine created by the case).

72. Manocherian v. Lenox Hill Hosp., 643 N.E.2d 479, 485 (N.Y. 1994), cert. denied, 115 S. Ct. 1961 (1995).

73. Id.

74. See id. at 482-87.

75. See supra notes 34-37 and accompanying text (discussing the Nollan test).

76. See supra notes 49-50 and accompanying text (discussing the Dolan test).

77. See supra notes 51-57 and accompanying text (discussing application of this standard in Manocherian despite the differences with prior cases in which it was used).

78. See supra notes 56-72 and accompanying text (discussing Judge Bellacosa's adoption of the subsidy fiction in Manocherian).

79. 485 U.S. 1 (1988).

80. Id. at 4.

81. Id. at 8-9.

82. Id. at 14-15.

83. Id. at 15 (Scalia, J., dissenting, joined by O'Connor, J.). Justice Scalia's dissent is the only opinion by a member of the United States Supreme Court to address the merits of a regulatory takings challenge to a rent regulation statute in this half of the twentieth century.

84. Pennell, 485 U.S. at 15-16 (Scalia, J., dissenting).

85. Id. at 20-22 (emphasis added).

86. Id. at 19 (quoting Armstrong v. United States, 364 U.S. 40, 49 (1960)).

87. See id. at 13 (Rehnquist, C.J., majority).

88. See, e.g., Manocherian v. Lenox Hill Hosp., 643 N.E.2d 479, 482-87 (N.Y. 1994), cert. denied, 115 S. Ct. 1961 (1995); see supra notes 56-78 and accompanying text (discussing the New York Court of Appeals' adoption of the subsidy fiction in Manocherian).

89. See Eric Kades, Avoiding Takings "Accidents": A Tort Perspective on Takings Law, 28 15. RICH. L. REV. 1235, 1236-37 (1994) (asserting that "according to common scholarly wisdom, the Constitution and economics mix poorly").

90. See, e.g., Richard A. Epstein, Rent Control and the Theory' of Efficient Regulation, 54 BROOK L. REV. 741, 750 (1988) (asserting that "[i]n the short run rent control transfers windfalls from landlords to tenants, where neither side has any special claim to privilege" but that '[i]n the long run rent control perpetuates only these windfalls for a select class of lucky tenants").

91. Id. at 759-74. As Epstein observed, "[t]he social welfare standards of economists give no particular favor to one class of individuals or occupations, but instead point powerfully to the acceptance of the principle of freedom of contract in markets that can approximate the competitive ideal." Id. at 772.

92. For a discussion of the "just price" doctrine's origins, see Joseph L. Sax, Takings and the Police Power, 74 YALE L.J. 36, 55-57 (1964). The following passage may explain why neither the fair rent nor forced subsidy fictions seem all that unfamiliar:

We have become so indoctrinated with the idea that quantitative value maintenance is a constitutional principle and a dictate of "natural equity" that we have conveniently forgotten the extensive non-property background in our law. While it is true that the Roman tradition exalted the free market-private property concept, that tradition is just one of the roots of our legal system. Another and equally important part of the background... must be recognized. That is the Christian tradition, which devised the legal concept of "just price."

Id. at 55 (footnotes omitted).

Grotius, a prominent seventeenth century scholar who is known as "the father of the compensation clause," advocated government regulation of prices. Id. at 54. The following comments also acknowledge early support of government price regulation:

Statutory regulation of industry is by no means a novel idea in Anglo-Saxon statecraft. During the Middle Ages in England legislative interference in the conduct of business was common. Not only were the prices of staple articles of merchandise frequently fixed by law, but the wages to be paid to laborers were in like manner determined.... Probably the earliest laws for the regulation of prices were based upon the doctrines of the canon lawyers as to "just" or "reasonable" price. To sell for gain, and a fortiori to exact the highest price which the needs of the purchaser would induce him to pay, was deemed immoral by the theologians, who then controlled the State as well as the Church. Long after the clergy had ceased to have an important voice in the making of laws, however, Parliament continued to enact successive "assizes" of bread, wine, and meat, as well as "statutes of laborers," fixing wages, and at times even prohibited trading in a certain manner or in certain articles.

William H. Dunbar, State Regulation of Prices and Rates, 9 HARV. Q. J. ECON. 1, 4 (1895) (footnotes omitted).

93. Perhaps the most famous formulation of this principle is found in Justice Holmes' dissent in Lochner v. New York:

[A] constitution is not intended to embody a particular economic theory, whether of paternalism and the organic relation of the citizen to the State or of laissez faire. It is made for people of fundamentally differing views, and the accident of our finding certain opinions natural and familiar or novel and even shocking ought not to conclude our judgment upon the question whether statutes embodying them conflict with the Constitution of the United States.

198 U.S. 45, 75-76 (1905) (Holmes, J., dissenting).

More succinctly (and perhaps cynically), Justice Scalia has written that "a law can be both economic folly and constitutional." CTS Corp. v. Dynamics Corp., 481 U.S. 69, 96-97 (1987) (Scalia, J., concurring).

94. Indeed, one might argue that the medieval strains of legal thought which underlay much regulation of property had outlived their usefulness by the late eighteenth and early nineteenth centuries. As legal historian William E. Nelson describes:

In contract as well as property and corporation law it became a post-revolutionary maxim that "a man ha[d] a right to use his property as he please[d], provided by doing so he... [did] not injure another's." Two complementary principles followed. One was that a man ought to be permitted to enter into whatever contracts he wished and that the law ought to enforce all contracts he entered into. The other was that a man ought not to be compelled to enter into contracts when he did not wish to and that the law ought not to enforce liabilities to which parties had never given their consent. Over the course of several decades these two principles undermined the traditional customary and ethical basis of contract law and led to a new understanding of the essential nature of contract.

... As early as 1789 it was asked "with some degree of plausibility, why a man ... [should] not set a price on his own money [unrestricted by usury laws], as well as on his own goods." ... By the 1820s this challenge had expanded beyond usury, and all "unnecessary, useless, and embarrassing restrictions" imposed by law on economic activity freely entered into were being questioned.

WILLIAM E. NELSON, AMERICANIZATION OF THE COMMON LAW: THE IMPACT OF LEGAL CHANGE ON MASSACHUSETTS SOCIETY, 1760-1830 136 (1994) (alterations in original) (footnotes omitted).

This transformation no doubt played a critical role in eliminating the stifling mercantilist policies of the eighteenth century and supported the mass expansion of commerce that would mark the nineteenth century. Id. at 146-49. Yet it never fully prevailed, and, at least with regard to claims that restrictions on the use of property exceeded the power of public authorities, the courts maintained a broad source of regulatory authority in the states' police power. See, e.g., Mayor & Aldermen of Mobile v. Yuille, 3 Ala. 137, 143-44 (1841) (upholding state regulation of bread prices); Commonwealth v. Alger, 61 Mass. (7 Cush.) 53, 101-04 (1851) (upholding a prohibition of wharve construction). Even in the late nineteenth and early twentieth centuries, throughout the U.S. Supreme Court's Lochner era, which witnessed judicial invalidation of child labor laws, union protection laws, minimum wages, limits on work hours, and other social reforms, rent and price regulations survived most court challenges. See Lochner, 198 U.S. at 45, 64-65 (striking down a New York law which limited work hours for bakery employees); see also Williams v. Standard Oil Co., 278 U.S. 235, 240-45 (1929) (striking price regulations not "affected with a public interest"); Chastleton Corp. v. Sinclair, 264 U.S. 543, 546-49 (1924) (striking a rent law when the emergency condition, upon which the law was premised, ceased to exist); Adkins v. Children's Hosp., 261 U.S. 525, 559-62 (1923) (striking down a law fixing minimum wages for adult women); Hammer v. Dagenhart, 247 U.S. 251, 275-77 (1918) (finding unconstitutional a statute which prohibited transportation in interstate commerce of goods which were products of child labor); Adair v. United States, 208 U.S. 161, 179-80 (1908) (finding unconstitutional a congressional statute which made it a criminal offense to discharge an employee because of his membership in a labor organization). Compare Block v. Hirsh, 256 U.S. 135, 159 (1921) (upholding a rent regulation); Railroad Comm'n Cases, 116 U.S. 307, 333-37 (1886) (upholding the regulation of railroad fares); Munn v. Illinois, 94 U.S. 113, 135-36 (1876) (upholding various price regulations).

95. See, e.g., PAUL A. SAMUELSON & WILLIAM D. NORDHAUS, ECONOMICS 804-19 (13th ed. 1989) (discussing the relationship between equality and economic efficiency).

96. As philosophical pragmatists will point out, however, such statements are rarely made outside of some kind of argument relating to a proposed course of action. Placed in context then, statements of "fact" are typically instrumental in nature and hence reflective of values. To a pragmatist this fact/value distinction is therefore somewhat illusory. As John Dewey wrote, "[w]hen physics, chemistry, biology, medicine, contribute to the detection of concrete human woes and to the development of plans for remedying them and relieving the human estate, they become moral; they become part of the apparatus of moral inquiry or science." JOHN DEWEY, RECONSTRUCTION IN PHILOSOPHY 173 (Beacon ed. 1957). Dewey's apparent optimism about science may have given way to a more skeptical view in the present era in that we now recognize that the hard sciences seem to generate as many moral questions as they resolve. However, his central point remains valid. The vast bulk of scientific "fact" is inseparable from the moral sensibilities of those who have designed scientific inquiries, values which many of us may share, like preventing disease or improving production. Similarly, the choices that economists make prior to structuring economic inquiries are value laden. See SAMUELSON & NORDHAUS, supra note 95, at 5-9 (discussing the use of a scientific approach in economic analysis, while noting that "[l]ike other people, [scientists and economists] are prisoners of their theoretical preconceptions"). Yet, the product of these inquiries are often presented as value neutral observations. Absent the fact/value distinction, the question of whether economic inquiry is positive or normative in nature dissolves. Moreover, the categorization of economics as a non-ideological academic discipline becomes suspect.

97. See, e.g., SAMUELSON & NORDHAUS, supra note 95.

98. See Sylvia Nasar, A Hard Act to Follow? Here Goes, N.Y. TIMES, Mar. 14, 1995, at D1 (discussing a new rival to Samuelson's preeminent economics text).

99. PAUL A. SAMUELSON & WILLIAM D. NORDHAUS, ECONOMICS 488 (12th ed. 1985).

100. See Kades, supra note 89; see also Jeffrey Rosen, Overcoming Posner, 105 YALE L.J. 581, 603 (1995) (referring to economic efficiency as a "nonconstitutional" value).

101. Malfunction [in constitutional adjudication] occurs when the process is undeserving of trust, when (1) the ins are choking off the channels of political change to ensure that they will stay in and the outs will stay out, or (2) though no one is actually denied a voice or a vote, representatives beholden to an effective majority are systematically disadvantaging some minority out of simple hostility or a prejudiced refusal to recognize commonalities of interest, and thereby denying that minority the protection afforded other groups by a representative system.

JOHN H. ELY, DEMOCRACY AND DISTRUST: A THEORY OF JUDICIAL REVIEW 103 (1980).

One may be hard pressed to describe property owners as the kind of insular minority that would warrant the heightened protection needed to overcome such malfunctions. Clearly, a heightened protection of property interests is not what Justice Stone had in mind when he drafted his famous footnote in United States v. Carolene Products Co. See 304 U.S. 144, 152 & 153 n.4 (1938) (suggesting "some rational basis" as the standard for review of economic legislation challenged under the due process clause, while demanding a "more searching judicial inquiry" where "prejudice against discrete and insular minorities" has limited access to "those political processes ordinarily to be relied upon to protect minorities").

102. This is not to suggest that profound constitutional change cannot or should never occur outside of the Article Five amendment process, but only that such change should be accompanied by extraordinary historical circumstances which approximate the kind of public accountability secured by formal amendment. See BRUCE ACKERMAN, WE THE PEOPLE FOUNDATIONS 44-57 (1991) (comparing the constitutional amendment processes utilized in the Reconstruction, New Deal, and Reagan eras).

103. In legitimating the judiciary's role in a democracy, reasoned decision-making serves important systemic functions. The credibility of a decision is established by articulating the weighing process underlying the decision. The public is made conscious of the agonized awareness of the judicial decision-makers and is thereby assured that all of the reasonable options and costs were painstakingly assessed. Reasoned decision-making also informs, elevates and shapes the public discourse which, in controversial cases, is likely to continue long after the specific case has become a mere historical artifact. If fully and openly reasoned, even a "wrong" decision will enrich the legal matrix.

Thomas M. Franck & James J. Eisen, Balancing National Security and Free Speech, 14 N.Y.U. J. INT L L. & POL. 339, 342 n.18 (1982).

The following comment further illustrates this point:

Commentary on judicial review is rife with a concern with how judges can be limited and held accountable for their use of power-—even, or especially, when they think they are doing good. Beyond political checks and balances, prudential avoidance of constitutional issues, and substantive self-restraint, one way to regulate power is by requiring judges to conform what they do to pre-established method and to explain publicly how they have employed that method, so that the exercise of authority can be scrutinized. Method itself is the limitation, confirmed by public accountability through published justification.

WILLIAM F. HARRIS II, THE INTERPRETABLE CONSTITUTION 121-22 (1993).

104. See James G. Wilson, The Role of Public Opinion in Constitutional Interpretation, 1993 B.Y.U. L. REV. 1037, 1134 (concluding that courts should incorporate public opinion into constitutional interpretation when the issue requires it).

105. Manocherian v. Lenox Hill Hosp., 643 N.E.2d 479 (N.Y. 1994), cert. denied, 115 S. Ct. 1961 (1995); see supra notes 56-78 and accompanying text.

106. See supra notes 88-94 and accompanying text.

107. Studies sponsored by various real estate industry groups began to appear in 1988, and the conclusion that generally applied rent regulations are an unsuitable anti-poverty strategy, with greater "benefits" or "subsidies" accruing to high rent/high income households, was echoed in later studies. See, e.g., CITIZENS BUDGET COMM'N, REFORMING RESIDENTIAL RENT REGULATIONS (1991); ANTHONY DOWNS, RESIDENTIAL RENT CONTROLS: AN EVALUATION (1988) PEAT MARWICK MAIN & CO., A FINANCIAL ANALYSIS OF RENT REGULATION IN NEW YORK CITY COSTS AND OPPORTUNITIES (1988); see also Laurie P. Cohen, Home Free: Some Rich and Famous of New York City Bask in Shelter of Rent Law, WALL ST. J., Mar. 21, 1994, at A1 (asserting that rent regulations subsidize the wealthy the most and the poor the least); William Douglas, Big Earners May Lose Rent Haven, NEWSDAY, Mar. 26, 1992, at 106 (acknowledging that rent control has failed to guarantee affordable housing for the needy and instead subsidizes the rich); Kill This Subsidy, NEWSDAY, Mar. 15, 1994, at 36 (recognizing that rent regulations subsidize the wealthy).

108. N Y. UNCONSOL. LAW §§ 26-401, 26-501 (McKinney 1987).

109. See supra note 33.

110. This standard, first articulated in Armstrong v. United States, is rooted in Lochner era decisions. Armstrong, 364 U.S. 40, 49 (1960); see Lochner v. New York, 198 U.S. 45, 64 (1905) (striking a state law that limited the number of hours an employee could work); see, e.g, Adkins v. Children's Hosp., 261 U.S. 525, 557-59 (1923) (stating that the public and not just employers should bear the burden of a minimum wage because employers are not obligated to pay more than what employee services are worth); Monongahela Navigation Co. v. United States, 148 U.S. 312, 325 (1893) (holding that when private land is taken by the government to benefit the public, the owners must be fully compensated because it is not fair for the private owner to bear more of the public's burdens than other individuals). Law and economics scholars, some of whom argue that all rent regulations are unconstitutional, have also employed this standard. See, e.g., Epstein, supra note 90, at 755 (asserting that "[r]ent control always involves at least an implicit subsidy of some tenants by some landlords" and that "[i]f the state wants this program, it can use tax dollars to condemn buildings outright or build anew").

111. Agins v. City of Tiburon, 447 U.S. 255, 260 (1980); see, e.g., R.S. Radford, Regulatory Takings Law in the l990's: The Death of Rent Control?, 21 Sw. U. L. REV. 1019, 1041-49 (1992) (arguing that rent control is ineffective because it fails to fulfill the legitimate government interest of wealth redistribution). This standard was first applied in early zoning cases and reappeared in Agins. See Agins, 447 U.S. at 260 (finding that the zoning districts did not serve the substantial legitimate government interest of protecting the public welfare). Euclid v. Ambler Realty Company, one of the early zoning cases to apply this standard, held that the zoning ordinances restricting land use have "no substantial relation to the public health, safety, morals, or general welfare." 272 U.S. 365, 395 (1926).

112. See supra note 108.

113. 1 REPORT OF THE NEW YORK STATE TEMPORARY COMMISSION ON RENTAL HOUSING I-46 (1980) [hereinafter NEW YORK STATE REPORT].

114 Id.

115. Id. (citing REPORT OF THE JOINT LEGISLATIVE COMMITTEE TO RECODIFY THE MULTIPLE DWELLING LAW (1946)).

116. NEW YORK CITY HOUS. AND DEV. ADMIN. AND DEP'T OF CONSUMER AFFAIRS, REPORT TO THE MAYOR ON AN INVESTIGATION INTO RENTAL INCREASES IN THE NON-CONTROLLED HOUSING MARKET 2 (1969) [hereinafter NEW YORK CITY HOUS. ADMIN.].

117. NEW YORK STATE REPORT, supra note 113, at I-76.

118. At the time that the city officials were considering extending regulations to address the consequences of the housing shortage, they noted that '[t]he one area of residential construction which has been rising is the area of publicly-assisted housing." NEW YORK CITY HOUS. ADMIN., supra note 116, at 4.

119. Id. Some analysts have suggested that rent regulation causes or worsens housing scarcity. R.S. Radford claims that "[t]he disastrous consequences of traditional rent control in reducing the quantity and quality of the preexisting housing stock are too well known to be disputed." Radford, supra note 111, at 1034-35. In fact, there is no consensus among housing experts on this issue. See, e.g., Anthony Downs & Peter Marcuse, Rent Control at 50, Still Stirs Controversy, N.Y. TIMES, March 21, 1993, § 10, at 5 (presenting arguments for and against rent control). Perhaps the most thorough empirical review of the effects of rent regulation on housing abandonment was conducted by Columbia Professor Peter Marcuse in 1981. His report concluded as follows: "The substantial evidence available from national as well as local studies ... suggests that there is no correlation between rent control and abandonment. Rent control is neither a necessity nor a sufficient explanation of abandonment. Abandonment takes place, and as severely, in cities without rent control as in cities with it." PETER MARCUSE, HOUSING ABANDONMENT: DOES RENT CONTROL MAKE A DIFFERENCE? iii (1981). The effect of rent regulation on new construction is also a matter of serious dispute. See Michael J. Mandel, Does Rent Control Hurt Tenants?: A Reply to Epstein, 54 BROOK. L. REV. 1267, 1273 (1989) (arguing that rent control does not discourage new construction). As contested issues, these matters are best left to legislative investigation and judgment.

120. N.Y. UNCONSOL. LAW §§ 26-414, 8623(b) (McKinney 1987) (rent control and rent stabilization, respectively).

121. This was a real possibility in the early 1990s given the rise in overcrowding (defined as occupancy by more than one person per room) from 7.7% in 1984 to 10.4% in 1991, and the concomitant rise in vacancy rates from 2.0% to 3.8% over the same period. MICHAEL A. STEGMAN, HOUSING AND VACANCY REPORT: NEW YORK CITY, 1991 126, 266 (1993) (prepared for the City of New York Department of Housing Preservation and Development).

122. See N.Y. UNCONSOL. LAW §§ 26-414, 8623(b) (McKinney 1987) (requiring only proof of a five percent vacancy rate to discontinue rent regulations).

123. Id. § 26-501.

124. Id.; see Emergency Price Control Act of 1942, ch. 26, 56 Stat. 24 (1942) (citing, inter alia, the need to "protect persons with relatively fixed and limited incomes ... from undue impairment of their standard of living").

125. N.Y. UNCONSOL. LAW § 26-501 (McKinney 1987).

126. See Deborah A. Ballam, The Evolution of the Government-Business Relationship in the United States: Colonial Times to Present, 31 AM. Bus. L.J. 553, 630-31 (1994) (describing the rise of affluence in the United States in the post-war era); Edward H. Rabin, The Revolution in Residential Landlord-Tenant Law: Causes and Consequences, 69 CORNELL L. REV. 517,553-54 (1984) (citing exceptionally positive economic trends during the 1950s and 1960s).

127. For non-payment and eviction trends, see NEW YORK CITY RENT GUIDELINES BOARD, RENT STABILIZED HOUSING IN NEW YORK CITY: A SUMMARY OF RENT GUIDELINES BOARD RESEARCH 83-84 (1994).

128. GEORGE STERNLIEB, HOUSING AND PEOPLE IN NEW YORK CITY 110 (1973) (prepared for the City of New York Housing and Development Administration, Department of Rent and Housing Maintenance).

129. BUREAU OF THE CENSUS, HOUSING, NEW YORK CITY 285 (1993).

130. For recent examples of profiteering activities following hurricanes, along with state and local measures to prevent such abuses, see Peter Applebome, Hurricane's Fringe Near Texas Coast; Evacuations Rise, N.Y. TIMES, Sept. 16, 1988, at A1, A10 (noting that, following Hurricane Gilbert, "[t]he city government passed an emergency measure against price-gouging ... after entrepreneurs began raising prices as high as 300 percent for things like plywood and bottled water"); Ronald Smothers, Heavy Rains Delay the Vast Cleanup in the South, N.Y. TIMES, Sept. 26, 1989, at A1, B8 (noting that state imposition of fines for price gouging following Hurricane Hugo kept profiteering by merchants and gas station owners at a minimum); Joseph B. Treaster, Rising Complaints of Price Gouging, N.Y. TIMES, Aug. 30, 1992, at 1, 25 (discussing Florida's response to price gouging following Hurricane Andrew).

131. See, e.g., United States v. Commodities Trading Corp., 339 U.S. 121, 125 (1950) (upholding legislation aimed at the prevention of wartime inflation and profiteering); Lichter v. United States, 334 U.S. 742, 792 (1948) (same); Yakus v. United States, 321 U.S. 414, 426 (1944) (same).

132. See, e.g, FCC v. Florida Power Corp., 480 U.S. 245, 253 (1987) (upholding the regulation of rates charged to cable companies for access to telephone poles); Federal Power Comm'n v. Texaco Inc., 417 U.S. 380, 397-98, 400-01 (1974) (upholding the regulation of the natural gas market in response to the threat of monopolistic pricing).

133. See, e.g., Nebbia v. New York, 291 U.S. 502,539 (1934) (affirming that the establishment of minimum milk prices to protect farmers from the effects of periodic production surpluses does not violate the Due Process Clause of the Fourteenth Amendment).

134. 63 N.E.2d 177, 180 (N.Y 1945)

135. Id. at 179.

136. The Emergency Commercial Space Rent Control provisions remained in effect from 1945 through 1963. See N.Y. UNCONSOL. LAW §§ 8521-8538 (McKinney 1979) (expired on Dec. 31, 1963). For a recent example of anti-profiteering legislation designed to protect commercial as well as private interests, see Act of Aug. 11, 1977, ch. 912, 1977 N.Y. Laws 1904 (protecting hotel and motel lodgers against rate gouging during the 1980 Winter Olympic Games). In Tirolerland, Inc. v. Lake Placid 1980 Olympic Games, this law was challenged as an unconstitutional taking. 592 F. Supp. 304, 309 (N.D.N.Y. 1984) In dismissing the claim, the court noted:

Plaintiffs' distinction between the constitutionality of "residential" rent control as opposed to "commercial" rent control, is unpersuasive at best. The aim of the present regulations was to protect the renting public. The Court attaches no particular significance to the fact that plaintiffs' motels happened to have been rented to corporate entities.

Id. at 312.

137. See N.Y. UNCONSOL. LAW §§ 8521-8538 (McKinney 1979) (expired on Dec. 31, 1963).

138. See Kevin Sack, A Test of Wills, N.Y. TIMES, June 17, 1993, at B1 (characterizing the conflict surrounding the rent stabilization law's 1993 expiration as a "fight over one of the most sensitive laws on the books of New York").

139. See N.Y. UNCONSOL. LAW §§ 26-501 to 26-511 (McKinney 1987) (enacted on May 6, 1969); Sack, supra note 138 (describing the conflict over the rent stabilization law as "the most determined attack in nearly two decades").

140. See Sack, supra note 138. Several months after the extension bill passed it was disclosed that a single landlord's group had given

$90,000 ... to a campaign fund for the Senate Republicans who spearheaded a drive to limit rent-control laws ....

...[A]fter several days of questioning by New York Newsday, Senate Majority Leader Ralph Marino ... ordered the Republican Senate Campaign Committee to return $27,500 to the Rent Stabilization Association PAC to avoid the appearance of impropriety. John Riley, Rent Control Gifts Flowed, NEWSDAY, Nov. 10, 1993, at 5. According to a news account that appeared just before the final vote:

The Real-Estate Board PAC, the Rent Stabilization Association PAC and the Neighborhood Preservation Political Action Fund contributed a total of $401,605 to legislative incumbents and campaign committees in 1992, according to a study by New York State Common Cause and the New York Public Interest Research Group. Of that amount, $355,585 went to Republicans ....

Sack, supra note 138.

141. Sack, supra note 138, at B3.

142. See Jacques Steinberg, Questions About Wealthy at Heart of Rent Debate, N.Y. TIMES, June 20, 1993, at 32 (discussing the issue of whether the rich should continue to benefit from rent regulation).

143. See, e.g., The Courage to Reform Rent Controls, N.Y. TIMES, June 22, 1993, at A22 (editorializing that "[m]any wealthy New Yorkers enjoy artificially depressed rents"); Time to Make Sense on Rent Control, N.Y. TIMES, June 14, 1993, at A14 (writing that "rent controls ... masquerade as boons to the city's poor and middle class ... [but in actuality] wealthy New Yorkers profit[ ] from artificially depressed rents").

144. Act of July 7, 1993, ch. 253, 1993 N.Y. Laws 672 (codified at N.Y. UNCONSOL. LAWS § 8582 (McKinney 1987 & Supp. 1996)). In order to qualify, apartments had to be renting at $2,000 per month at some time between July 7, 1993 and October 1, 1993. Id. This restriction was removed in New York City when the local Rent Stabilization Law was renewed in the spring of 1994 under Local Law 4. Local Law 4, Local Laws of the City of New York, sec. 1 (1994) (amending NEW YORK CITY ADMIN. CODE § 26-403 (Lenz & Riecker 1996)).

145. By August of 1994, approximately 186 units had been removed from regulation because their occupants acknowledged having incomes over $250,000, while occupants of 1,900 other households were also required to provide income verification. Alan S. Oser, State Queries Some Renters About Income, N.Y. TIMES, Aug. 4, 1994, at B9.

146. James Dao, Compromise is Reached on Rent Rules, N.Y. TIMES, July 4, 1993, at 21, 29.

l47. Lois Weiss, Owners Facing Four More Years of Rent Controls, REAL EST. WKLY., July 14, 1993, at 1, 20.

148. Id

149. Sherwin Belkin, New Perspective on Rent Regulation, REAL EST. WKLY., July 21, 1993 (Legal Rev., Supp.), at 7.

150. As a Newsday editorial opined in response to the new law: "Is this tiny spasm of sanity a big deal? It could be. The law seems to acknowledge-—for the first time-—that rent regulations are a subsidy. And it has established-—however modestly-—a means test for that subsidy." Spasm of Sanity; Albany Finally Curbs Rent-Reg Perk, NEWSDAY, July 9, 1993, at 48.

l5l. Act of July 7, 1993, ch. 253, 1993 N.Y. Laws 672 (codified as amended at N.Y. UNCONSOL. LAWS § 8582 (McKinney 1987 & Supp. 1996)).

152. See STEGMAN, supra note 121, at 132. This report utilizes data from the Bureau of the Census to determine if citywide vacancy rates remain within emergency levels. The New York City Administrative Code mandates the survey, and its findings are widely circulated among state and local legislators. See NEW YORK CITY ADMIN. CODE § 26-415 (Lenz & Riecker 1996).

153. The U.S. Supreme Court denied certiorari in Manocherian v. Lenox Hill Hospital. 115 S. Ct. 1962 ( 1995).

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