by William Tucker
Rent Control is Your Issue
NY Press April 30, 1997
WHEN PEOPLE MOVE TO NEW YORK, IT usually takes them a couple years before they run into rent control. Take for example this young woman who wrote the following letter to the Daily News: "I recently moved to New York and I pay almost $1200 a month for a nice little apartment on the Lower East Side. The landlords have been reasonable and the building is clean. Still, when I found out at a tenants' meeting that 30 of the building's 34 apartments rent for below $300 and that most of the tenants in those cheap apartments make more money than I do, I was a bit outraged. I understand protecting the old people, but protecting fellow yuppies with bargains?" In Texas, $450 will pay rent on a two-bedroom apartment with air conditioning, washer/dryer, swimming pool, fireplace and garage. The vacancy rate is over 10 percent. There are no rent controls and the tenants hold all the cards. And landlords are not a hated breed. If New Yorkers are so smart, why can't they see that what exists now is more than unfair? It's stupid. New York has had rent control for 50 years, and rent stabilization for 25 years. (You're becoming a real New Yorker when you start to learn the difference.) Rent controls were originally imposed on the whole country during World War II as an emergency wartime measure. The idea was to cut domestic consumption. All the bricks, mortar and labor were being diverted into war production, so you impose price controls to create shortages. Those shortages are then evenly distributed by wartime rationing. After the war price controls are lifted and things go back to normal. It didn't happen in New York. There was a big Marxist contingent in the city and everybody figured this was our chance to emulate the Soviet Union. Besides, there's always the illusion that people can live cheap from rent control and not suffer any consequences. (There are people in New York who argue this even today.) So New York City made wartime rent controls permanent in 1947. Ever since, New York has been experiencing a "housing crisis." You have to realize that once upon a time people loved New York City precisely because it was such an easy place to find an apartment. In the 1920s and 30s, New York was often called the "City of Nomads" because people moved so frequently. You could be kicked out of your apartment for getting drunk on Saturday night and have another apartment Sunday morning. One big incentive was a law that required a landlord to give every new tenant a fresh paint job. I had a great aunt in Brooklyn who used to move every six months just because she loved the smell of fresh paint. People used to put their furniture in summer storage and then rent another apartment when they returned from summer vacation. In August, the papers always carried stories of landlords sprucing up their buildings for the "Fall renting season." All this created a paradise for adventurous young people pursuing their careers in the city. I remember Diane Di Prima, in Memoirs of a Beatnik, talking about her "love affair with New York City" in the early 1950s. She crashed with friends, even slept in doorways a few times, but there was always a cold-water flat somewhere where you could put up for a few months. It was the one place in the country, she said, where you could pursue a life of poetry while living on next to nothing. Today, anyone moving to New York has to be prepared to pay $1000 for a studio apartment, $1500 for a one-bedroom (or $2000 for a three-way share). For the first year or two, your whole life may be consumed with finding a place to live. People become devious. A number of years ago, in an article entitled "How to Find an Apartment (Seriously)," New York recommended "joining a church or synagogue" as a good strategy for meeting people who might be able to provide leads on a good deal somewhere. I often tell people you can fly to Chicago -- a city without rent control -- and find a decent apartment at a price you can afford within 24 hours. They never see any relevance. "That's Chicago, this is New York," they say -- as if the laws of supply and demand stopped at the Hudson River. Now State Senate Republican Majority Leader Joe Bruno has set about to change all this. Since December, Bruno has been warning that he intends to "end rent regulations as we know it" A businessman and a free marketeer, Bruno has one simple perspective on New York City's perpetual housing problems. Rent controls are the cause of the crisis, not the solution. Bruno has said he'll settle for a two-to-four-year phase-out, but as far as he's concerned the game's over. Bruno's words have set off a firestorm among New York's two million regulated tenants, who are predicting thousands will be thrown into the streets. Democratic Assembly leader Sheldon Silver has vowed rent regulations will remain in place and wants to make them permanent. Governor George Pataki is straddling the fence, philosophically opposed to rent controls but cautious about tackling the issue before his re-election. Mayor Giuliani, facing voters this year, is running to the head of every parade of tenants. The editorial pages of the four major dailies all oppose rent controls, but reporters -- particularly at the Daily News -- have been running a scorched-earth campaign against Bruno. With seven weeks to go in the debate -- and no rational discussion yet in sight -- it might be worth stepping back for a minute to review the situation. About half the city's two million apartments are now regulated. The old "rent control" applied only to apartments built before 1947. There are only about 70,000 of them left Everything built after 1947 was supposed to remain deregulated. In 1969, however, tenants in new buildings hit a critical mass and demanded their apartments be regulated as well. Mayor John Lindsay invented "rent stabilization," which was supposed to be more lenient, allowing annual rent increases. New construction was again exempted, but it only took until 1974 to renege on that promise again. Since then developers have assumed that anything built in New York will eventually be regulated. Consequently, they put up only about 4000 5000 new apartments a year -- whereas in unregulated cities such as Phoenix, Dallas and Houston, developers build 20,000 units a year. As a result, vacancy rates in these cities often exceed 10 percent -- whereas vacancies haven't been over five percent in New York since World War II. True rent-controlled apartments as you may have noticed -- are as rare as Old Masters. Most of them are in the hands of people who have been in continuous residence since 1969. (The Lindsay law said that when rent controlled apartments were vacated, they would bounce up into rent stabilization.) The average income of a rent-controlled tenant is $12,408 -- but that's more an indication of longevity than poverty. The median age of a rent controlled tenant is 70. This sometimes creates the impression that rent control was designed to protect the elderly, but in fact only means that most tenants have grown old in their apartments. My cousin was a census taker on the Upper West Side in 1990 and said he encountered whole buildings of elderly tenants living in huge, old apartments -- sometimes closing off several of the rooms for lack of use. All of them paid minuscule rents. Other rent- controlled apartments have simply been handed down as family heirlooms. Until recently, New York's most famous rent- controlled resident was Mia Farrow, who rented an 11-room apartment overlooking Central Park for under $2500. Most people believe Farrow got the apartment by being a famous movie star. In fact, she inherited it from her parents, who were Old New Yorkers. Rent-stabilized tenants as a group are much more typical. According to the city's 1996 Housing and Vacancy Survey, the median tenant had an income of $20,000, while the median stabilized tenant had an income of $21,600. Tenants in pre- 1947 stabilized apartments (once rent controlled) had a median income of $20,000, but tenants in postwar buildings had a median of $30,000 -- the highest of any tenant group. Renters in the private, non-regulated sector (about half the market) had a median income of $28,000. Tenants in public housing have the lowest income -- $12,600. One thing that has become embarrassingly clear since Bruno kicked off the discussion is that rent regulations do virtually nothing for the poor. In March, the Rent Stabilization Association (the landlords' group) issued a study by the American Economics Group predicting the results of deregulation. The study projected a 13.2 percent citywide increase over the next five years, mainly the result of upgrades by landlords who have long neglected their buildings. (An earlier study by MIT, released in February, predicted an immediate increase of only four percent -- about $17 per apartment.) The increases would be distributed very unevenly. Most severely affected would be the affluent areas of Manhattan -- the Upper West Side, the Upper East Side, Greenwich Village and the Financial District. In the most heavily regulated area -- the Upper West Side rent would rise 50.9 percent. Taking this figure and waving it in people's faces, the Daily News ran a screaming frontpage headline, "Landlord study shows that if controls are scrapped, rents will go SKY HIGH!" Reporters interviewed tenants on the street, telling them their rent was about to rise 50 percent. Naturally, most of them said they'd soon be headed for New Jersey. What the News forgot to ask was whether the interviewees were regulated. Since their average rent was $1100, it appeared they were not. Lost in the hysteria were the anticipated rent increases in a few other city neighborhoods: Central Harlem, East Harlem, Morningside Heights: 5.3 percent; Bedford-Stuyvesant, Bushwick, East New York, Starrett City, Ocean Hill/Brownsville, 1.8 percent; Crown Heights, East Flatbush, Prospect Heights, 0.0 percent; Morrisania, Hunts Point, Parkchester, Highbridge, South Concourse: 5.3 percent. The Times put the whole matter a little more discreetly: "Studies Suggest Tenants Would Be Hit the Hardest In Upscale Neighborhoods." So nobody is really talking poor anymore. Instead, the focus has shifted to the middle class. Deregulation, as Assembly Speaker Silver puts it, will cause a "middle class exodus" to the suburbs. "Another potential consequence of decontrol is financial loss to the city and state caused by families like mine who will move to New Jersey or Connecticut in the event of a 50 percent or greater increase in our rents," proclaimed one correspondent to the Times. "We raised two children in New York and contribute to many charitable, social and community organizations. Rent control made it possible to do this." Another writer commented the same day: "[M]any desirable people live here because they are protected by rent control and rent stabilization." Basically the argument has come down to this. There is an old- time middle class in New York -- people who have been here at least a decade that has become very adjusted to their cheap rents. As one bank executive told Crain's New York Business: I expected to live in rent stabilized apartments forever. I've built my whole life around it. I bought a home in the country, the whole bit." End rent regulations and this middle class will depart for the suburbs, leaving the city much poorer. Is this argument valid? Let's take a look. The premise is that if rents are deregulated, landlords will raise their rents so high that middle-class people will be forced out. Having evicted these people, landlords will then rent these same apartments to -- the poor? Of course not. The real antagonist of New York's protected middle class is not landlords or the poor but other middle- class people who are willing to pay more in rents. If you're renting a two-bedroom rent-stabilized apartment on the Upper West Side for $584.17, your rival is not your landlord or someone from East Harlem. It's another middle-class person who is willing to pay $1000 for the same apartment but is prevented from bidding by rent control. Because their interest is less focused, these people often have more difficulty in identifying themselves. However, they are beginning to realize their predicament. In last week's Times, one woman finally wrote: "Where are the voices of all those who do not share the benefits of rent control but who actually suffer from it? For the past seven years my husband and I have been killing ourselves to pay our exorbitant market rent for a small one- bedroom apartment in order to stay in this city... By all means, let's protect the truly deserving -- the poor and elderly. But I know too many people who live in rent- controlled apartments who also own country homes. One person (whose apartment we tried to rent at the legal rate) moved to Florida and now rents out his apartment, illegally, at the market price, subsidizing his new life style. If ending rent control would mean a fairer, less insane market, then it is a just cause. If the housing situation does not improve, it will be the new generation of middleclass New Yorkers who will be forced to leave the city we love." A couple weeks ago, I decided to take a look at the market these people are facing. I bought some out-of-town papers and compared apartment listings in different cities. Keep in mind now, the median rent in New York, according to 1996 U.S. Census figures, is $630, just about the same as it is in most other cities. In Chicago, it's $590, in Los Angeles $690, in San Francisco $650, in Dallas, Houston, and Atlanta between $520 to $550. The apartments advertised in other cities reflect this. In the Chicago Tribune, the median rent advertised was $650. In The Los Angeles Times, it was $720 (this included a healthy market for rented single-family homes). In Philadelphia, it was only $525, in Atlanta, Dallas and Houston, around $575. Moreover, in city after city, the advertised rents followed a distinctive pattern. They were all clustered right around the median, with a long tail stretching toward the more expensive end. So how about New York? Are you ready for this? The median rent of the 2200 apartments advertised in The New York Times on April 13 was $1700 -- almost three times the median. The most commonly quoted rent was $2000 -- more than triple the citywide median. What's going on? It's fairly simple. The one million apartments that are now regulated never come on the market. They are hoarded like family jewels, passed on to relatives or friends, even left empty by people who have left town but want to keep a pied-a-terre. (I knew one free-market economist who moved to Las Vegas but kept his rent-controlled West Side apartment because, as he said, he liked to attend the opera.) As a result, anyone looking for an apartment today gets funneled into the unregulated sector -- newer buildings, buildings with fewer than five units, the rented condos where they will pay prices that are two and three times above their real market value. In the end, even people with regulated apartments end up prisoners of rent control. As Tama Janowitz put it, they become slaves of New York because, once they finally get their great deal, they know they can never move again. The ultimate victim, though, is the city itself. In 1965, 250 of the Fortune 500 had their national headquarters in New York. Today the figure is 45 and still falling. Outside Wall Street and Silicon Alley, the city's economy is dead in the water. One major reason businesses flee New York is that they can never find housing for new employees. Anyone moving to New York has to start at the $2000 end of the market and work their way back. What the city needs is a four-year phase-out of rent regulations with special provisions to subsidize the poor and elderly who would be displaced by the transition. The city could dismantle its half-billion-a-year housing bureaucracy and concentrate on a few well-placed subsidies instead. The city would once again become a vital, energizing place where people could concentrate on their careers instead of worrying about a place to live. Would a few Old New Yorkers have to leave in the process? Undoubtedly, yes. When Mia Farrow got caught in luxury decontrol a few years ago, she decamped for her second home in Connecticut, rather than pay the additional $6000-a-month rent. But is her apartment vacant today? Is it occupied by some one less "desirable?" If they're paying their own way, they're certainly a lot more desirable by me. Was it New York that betrayed Mia Farrow? Or was it Mia Farrow who betrayed New York?