As Rents Go Up, So Does Urgency to Do Something About It

Rents are up 30 or 40 percent from 1993, and according to the Feathered Nest rental agency, they're at all-time highs, averaging $1,830 for one bedrooms, $3001 for two bedrooms and $4,523 for three-bedrooms.

Why are rents to high? It's a good question. After all, the economy in New York is pretty nearly as bad as it was three year' ago - the media have been full of stories about how nobody's getting pay increases. So what's going on?

The answer is that the playing field was drastically changed about three years ago, by an amendment to the rent laws. The amendment wasn't well understood at the time - all the attention went to a provision that destabilized existing leases over $2,000 a month if the tenant earned more than $250,000 a year. I can understand why that got attention, since it was the first time that rent regulation included a "means test" for tenants. But the really radical provision was a clause that removed rent regulation from any new lease if the rent was more than $2,000 a month.

Two thousand dollars a month seemed like a sky-high rent at the time. But this clause has revolutionized the rental market. All a landlord has to do is renovate a vacant apartment sufficiently to legally raise the rent up to that magic two grand, and from there he's free to speculate, free to charge whatever the market will bear. The result is that it's getting hard to find a one-bedroom for less than $2,000 in a middle-class neighborhood on the West Side. All these new high prices are dragging lesser apartments and cheaper neighborhoods with them. so even stabilized rents are climbing fast.

Landlords insist rent regulation fails in three important areas: the argument goes that rent regulation creates a barrier to new tenants because leaseholders have good deals they are loath to unload, that it discourages new construction and that it encourgages housing abandonment by landlords because regulation supposedly keeps rents below break-even levels.

Decontrol: People Stay Put

Two thousand dollar decontrol doesn't solve any of these problems. First, if anything, $2,000 decontrol increases the incentive for rent-regulated tenants to stay where they are. Second, it radically increases barriers to entry for people who want to come to live in New York, by spurring the higher rents. And third, will the higher rents encourage new construction? Time will tell. As for the break-even rent problem, obviously $2,000 decontrol doesn't make a bit of difference for the low end of the market, so it doesn't help those landlords at all. We could try de-regulating rents at other price levels. What would happen if rents above say, $1,600 a month, were de-regulated? I think that the result would simply be that all new tenancies would become de-regulated, and rise skyhigh. The situation would be even worse if rent regulation were abolished, because rent regulation creates a lot of social stability.

Or we could try decontrolling at a higher price point, let's say $4,000 a month. That would leave some family-size apartments for regular dual-career families to choose from, but would allow the gilt-edged properties to seek their own level among the really upper income folk who've always taken those places anyway. I think that would make some sense.

Let's consider re-imposing unrestricted rent stabilization. Under rent stabilization, a landlord can increase rents by renovating an apartment. There's no limit to how high the landlord can raise the rent that way, so owners aren't prevented from getting a high return. But under rent stabilization, rent increases after renovation are kept under reasonable control via the Rent Guidelines Board. That entity can be pretty generous to landlords -- this year, for instance. the board approved 7 percent increases for two-year leases, even though there's little inflation and almost no salary increases going on. On the other hand, tenants are protected from doubling and tripling of rents, and would have the security of a legal right to a renewel lease as long as they're good tenants.

How About the Free Market?

Now, I know that free-market advocates must be thinking, "Why shouldn't landlords earn what the market will bear? Why should we worry if only the truly upper-class can afford to live or raise a family in Manhattan?"

What's wrong with this picture is this: the upper-class, with incomes of $200,000 a year or more, are more mobile than ever before. They may went a place in Manhattan today, but tomorrow they may get a job somewhere else, or decide that life in Manhattan's not worth the trouble, pack up and go. As any head-hunter can tell you, people in this income group tend to put down shallow roots.

Let's not forget that most of the creativity the city is famous for has come from not-overly-expensive parts of Manhattan -- at various times, the Village, Soho, the Upper West Side, the East Village. If Manhattan goes all-ritz, those creative communities will be wiped out. Maybe they'll reconstitute themselves in the outer boroughs, but creative people and the middle class are crucial to the city's future, and we're gambling with these groups just for the sake of enriching property owners.

A regular contributor on urban history and civic affairs for The Westsider and Chelsea Clinton News, Warren Shaw recently discussed the politics of rent control in New York with Brian Lehrer of WYNC's "On the Line."