At The Intersection of Supply and Demand
By John Tierney
New York Times Magazine, May 4, 1997
IF YOU WANT TO KNOW WHY YOU CAN'T FIND A DECENT APARTMENT IN NEW YORK CITY, A GOOD place to start is at East Second Street and Avenue B. But it's important not to be deceived by appearances, because at first glance this intersection seems to be an advertisement for the supposed renaissance of New York. It can lure you into thinking that the Lower East Side, built and rebuilt by generations of immigrants, is being revived once again.
During the 1980's, this intersection was one of the most notorious drug markets on the East Coast. As dealers' armed sentries looked down from surrounding roofs, hundreds of customers bargained in the street and retired to shooting galleries in the abandoned gas station and burned-out tenements.
"Every day I'd clean up the syringes on the sidewalk and hose down the blood and vomit," recalls Mary Spink, the superintendent of the building on the southwest corner. "I tried to be cool when I found junkies shooting up on the stoop. I'd say, 'Hey, could you do your thing somewhere else?' But one Sunday morning, when six of them were lying on the stoop and wouldn't move, I finally snapped." Spink went inside and returned with a baseball bat imbedded with razor blades.
"I stood on the sidewalk swinging the bat in a circle over my head, and I made an announcement: 'Men, women and children, the blood shed today wi]l be the last blood shed on this sloop.' that got them to move. It helped me for a while afterward because the junkies were never sure if I was crazy or not."
Today Mary Spink has a lot more allies. The tenements next door have been renovated, and the factory across the street has been turned into lofts. A six-story apartment building is rising on the site of the old gas station, and a trattoria has moved in next to it. Old-timers complain that the intersection has become a too fashionable destination. Japanese designers, Pakistani Web- site managers, British writers, Chilean artists—a new generation of immigrants is eager to move into the neighborhood created last century by impoverished Irish, Germans, Poles, Ukranians and Russians.
But there's a problem. Most of these new immigrants have no hope of finding a place to live, certainly nothing in which they could hope to raise a family. Rents are about $1,200 for the few one- bedroom apartments on the open market; the lofts go for $2,800. There are plenty of cheap subsidized and rent-regulated apartments around, but these rarely become available, and to get one you generally have to know someone or spend years on a waiting list.
A building rehabilitated with money from the city has $600-a- month one-bedroom apartments set aside for artists. A subsidized two bedroom apartment rents for $44 a month. A $93-a-month one- bedroom rent-controlled apartment has been empty in recent months because its tenant has been at his Florida home, but he's not about to give up the lease.
New York used to be like other cities, a place where tenants moved frequently and landlords competed to rent empty apartments to newcomers, but today the motto may as well be: No Immigrants Need Apply. While immigrants are crowded into bunks in illegal boarding houses in the slums, upper-middle-class locals pay low rents to live in good neighborhoods, often in large apartments they no longer need after their children move out. Half a century of rent regulation has created a permanent shortage of decent homes by keeping apartments off the market and encouraging landlords to neglect their buildings. The shortage isn't being eased by new apartments, because developers have been frightened away by the rent regulations and stifled by a host of other restrictions.
"We're building less today than during the Depression," says Peter Salins, who analyzed the city's housing shortage in a recent report for the Manhattan Institute. "New York has the nation's most pervasive rent-regulatory system, the most complex zoning ordinance and environmental regulations and the most costly building code. Each of these intrusions would be quite enough to thwart a vital housing market. In combination they're fatal."
Rent regulation, ardently denounced by liberal as well as conservative economists, housing experts and editorial writers, is just as ardently defended by the city's politicians. But this year an upstate Republican, Senator Joseph Bruno, the majority leader of the state Senate, is threatening to dismantle the programs that control prices and guarantee tenure and other rights to tenants occupying a third of the city's dwellings, chiefly the one million apartments in the rent-stabilization program ("The Case for Rent Regulation," page 43). Another 70,000 apartments with long-term residents are part of an older rent- control system, but most of these will still be regulated if Bruno fulfills his pledge to extend protections for the elderly, the disabled and the poor. The rent regulations, which have always been justified as "emergency" measures, will expire June 15 unless they're renewed by the Legislature. Tenants are furiously protesting -- Bruno has received death threats -- and Governor Pataki is expected to have to broker a last-minute compromise, possibly one that would remove protectsons from some affluent tenants and then gradually deregulate other apartments as tenants die or move.
Although rent regulation is often defended as essential protection for the poor throughout the city, it disproportionately benefits the middle and upper classes in Manhattan. In other boroughs, the median rent of stabilized apartments is only about $100 less than the median rent for unregulated apartments, and regulated apartments tend to be smaller and more run-down.
Two-thirds of the citywide benefits of rent regulation go to Manhattanites living below 96th Street, according to Henry O. Pollakowski, an economist at the Massachusetts Institute of Technology Center for Real Estate. The results of his new peer- reviewed study, which was financed by the Rent Stabilization Association, a group of landlords, are similar to those of a 1991 study for the Citizens Budget Commission by Elizabeth Roistacher, an economist at Queens College. In comparing the benefits received by rent-regulated tenants, she found that upper income households receive greater subsidies on average than low-income households and that the average white household saves almost three times as much as the average black household.
Most of the good deals go to people with above-average incomes in Manhattan's best neighborhoods. Pollakowski has found that the greatest beneficiaries of rent regulation live on the Upper West Side, where the median household income in typical rent- stabilized apartments -- one-bedrooms -- is $50,000 a year, which is $30,000 more than the median household income in rentals citywide. The median household income is higher still, $61,000, in unregulated one-bedrooms on the Upper West Side, but that's partly because more of them are shared by two people. Per person, rent-stabilized tenants' income is only about $2,500 less than their unregulated neighbors'. The big difference is that because their median rent is $420 lower, they spend only 18 percent of their income on rent. The unregulated tenants spend 23 percent and still typically need a roommate.
Deregulation would force today's rent-stabilized tenants on the Upper West Side to spend more, but not as much as they fear, because market prices would fall the most in the neighborhoods where they're highest today. Pollakowski estimates that the market price of apartments on the Upper West Side would decline by 30 percent. Other economists have come up with different figures, but there's general agreement that market prices can only go down. “New Yorkers don't believe prices will fall, but it's a standard economic principle," says Pollakowski, who is the editor of the Journal of Housing Economics. '`Today's prices of unregulated apartments have been artificially pushed up because there are so few on the market. Renters looking for apartments that aren't rent-stabilized on the Upper West Side today are bidding against one another for only 4,000 one-bedrooms. If you suddenly flooded the market with the 25,000 rent-stabilized one- bedrooms in the neighborhood, the price would fall even if no one left the neighborhood."
Any reduction in today's inflated prices would help immigrants, but even outright elimination of rent regulation wouldn't be enough to solve the city's long-term housing shortage. New York will stagnate unless something is done about another problem that you see around Second and B.
ACTUALLY, THE PROBLEM IS WHAT YOU don't see. The neighborhood abounds with vacant lots where tenements used to stand. The properties have been empty so long that people have started using them as junkyards, parking lots and community gardens. Some have been planted with rows of corn. In the middle of America's most densely populated city, during a severe housing shortage, prime residential real estate has been converted to ... farmland.
Those cornstalks, not the Empire State Building, are the symbol of modern New York, the city that no longer builds. The city is losing homes three times faster than it's getting new ones. During the 1990's, only about 6,000 housing units per year have been added to the city. To keep up with population growth and to replace homes deteriorated beyond repair, Peter Salins estimates that the city needs at least 20,000, preferably 40,000, new homes a year.
Local politicians like to blame the shrinking supply of housing on the city's fiscal problems and cutbacks in Federal aid, because it's assumed that housing development here must be subsidized for all but the affluent. To recoup the cost of a small new apartment a developer would have to charge at least $900 to $1,200 a month in rent -- half the median income of New York tenants. The conventional wisdom is that New York's housing shortage is really an "income problem."
The conventional wisdom makes sense unless you look at the empty lots near Second and B and ask a simple question: Who paid for the tenements and middle-class apartments that used to stand there?
At the end of the last century, when the Lower East Side was being developed, the average monthly per-capita income in America was equivalent to about $250 in today's dollars, less than what a welfare recipient now gets. Yet over the course of a few decades developers created splendid neighborhoods all over the city: working-class apartments in Alphabet City, brownstones on Strivers' Row in Harlem and solid middle-class apartments on the Grand Concourse in the Bronx, along Eastern Parkway in Brooklyn and in Jackson Heights, Queens.
New York's developers managed to house all social classes without government subsidies. At the turn of the century the Lower East Side was much more densely populated than it is today, but developers could afford to buy land, put up apartments, pay property taxes and still make a profit by charging reasonable rents. Immigrant workers in sweatshops had to spend only a quarter of their income to rent a one-bedroom or two-bedroom apartment.
Today a blue-collar immigrant can't afford a new apartment even when the developer gets the land free. To make housing affordable, government agencies routinely donate the site, pay for the construction or rehabilitation of apartments, exempt the building from property taxes and then provide still more subsidies.
Developers today are not stupider or greedier than those a century ago. The reason they don't build anymore is that it has essentially been outlawed. "We all want affordable housing, but we've made it impossible through the phenomenal steady increase in development costs," says Louis Wmnick, a scholar of New York housing and vice chairman of the Institute of Public Administration. "When the first model tenement was built by a philanthropist last century, it took 11 months to design and build from the time the land was acquired. Today you couldn't get your first building permit in 11 months. Probably the single most expensive factor is union labor -- with the work rules and $55-an- hour workers, you can't build an affordable but -- but the problem isn't any one thing. It's the combination of all the little rules that makes even non-union projects prohibitively expensive."
Ever since Jacob Riis described the Lower East Side tenements in "How the Other Half Lives" a century ago, New York has been home to the country's most dedicated housing reformers. It has passed more laws, built more homes and spent far more money on housing than any other city. The reformers meant well and did some admirable things, but their legacy is a housing shortage and a system that discriminates against the young, the poor, the non- white and above all against the new.
"New York has the oldest-living housing shortage because it has a terrible fear of change," says George Sternlieb, a housing consultant and former director of the Center for Urban Policy Research at Rutgers University. "Today, New Yorkers would rather cling to a sinking ship than swim to a better one." Tenants are understandably worried about any change in the system, because no one wants to look for an apartment in the current market. It's been distorted so long that most New Yorkers can't imagine what the city could be: a place with better homes and better neighborhoods, a place where you could find a new home in an afternoon instead of being stuck in an apartment for life. It could even be a place where most tenants and landlords got along, incredible as that may sound.
Today it seems perfectly natural that the Broadway production acclaimed as the most realistic portrayal of modern New York is a passionate opera about a landlord-tenant dispute. "Rent" faithfully depicts the popular mood, although the plot does include one glaring implausibility. To retaliate against his tenants, who haven't paid rent in a year for their loft on Avenue B, the landlord summarily locks them out. That could never happen on the real Avenue B, as Mendel Wolf discovered at great expense.
IN 1986, WHEN HE WAS LIVING IN THE OLD factory building on the southeast corner of Second and B, Mendel Wolf naively thought that buying it would be a simple way to get himself a home and an artist's studio. Wolf was an Israeli immigrant who had come to New York to be an artist and ended up supporting himself as a contractor. With the help of partners, he paid $725,000 for the building and planned to renovate it himself to meet residential specifications. The only other occupants of the building, which had a 1,600-square-foot loft on each floor, were an investment banker and a photographer who shared one floor. Wolf agreed to abide by the loft law, one of the city's various rent-regulation programs. "I thought I was promising them the right to stay there at their current rent, $1,000 a month," he says.
The tenants, however, soon had a different rent in mind: $0. The photographer, Ben Buchanan, says thee Wolf made an oral promise that they could live rent-free. '`There were so many problems with the building -- there'd often be no heat and hot water -- that we agreed we wouldn't have to pay rent until he finished bringing it up to code," Buchanan says. The investment banker, John Levin, declines to discuss the situation except to say, "The loft law gave extraordinary righes to tenants and assured employment for lawyers."
When Wolf took them to Housing Court, a judge ruled that he couldn't sue for nonpayment of rent because he hadn't demonstrated that the building complied with the standards of the loft law. "It was like being forced to live with a guest who empties your refrigerator and never pays for anything," Wolf says. He considered them squatters, and he was still enough of an out-of-towner to be astonished at their legal protection.
But in one sense much of New York has become a city of squatters: unwanted tenants occupying the property of landlords who would like to get rid of them. The situation brings out the worse in both sides. In a normal housing market both the landlord and the tenant have incentives to be responsible because they know the other has the power to retaliate. Before rent regulation and the permanent housing shortage, New York tenants played landlords off against one another. Jacob Riis wrote about how tenement dwellers got rent decreases by threatening to move, and how one landlord lured away another's tenants by sprucing up his building. In 1916, when the vacancy rate in the city was nearly 6 percent, landlords were stuck with tens of thousands of empty tenements whose occupants had found better homes. In the 1930's, when the vacancy rate remained above 10 percent, landlords on the Lower East Side routinely offered a month's free rent to attract tenants.
Today's tenants and landlords are helplessly stuck with one another. Rent-regulated tenants can't move because they'll never find such cheap apartments on the open market, and landlords can't throw them out because tenants and sometimes their heirs have legal rights to remain in perpetuity. New York has created a peculiar version of landed gentry, a rentocracy that has included much of the city's establishment. Some of the more famous rentocrats -- like Mia Farrow, who was paying less than $2,300 a month for the 11-room apartment overlooking Central Park that was featured in the film "Hannah and Her Sisters" -- have lost their deals because of the "luxury decontrol" reform three years ago championed by Senator Bruno, which affects some tenants making more than $250,000 a year. But Alistair Cooke still has his eight- room $2,078-a-month apartment on Fifth Avenue with a park view, and Manfred Ohrenstein, who protected rent regulation when he was minority leader of the State Assembly, pays $2,924 for 11 rooms on Central Park West. By law, rentrocrats are supposed to live in their apartments, but many don't. Nat Sherman, the owner of the tobacco store on Fifth Avenue, explained two decades ago to the journalist Ken Aulecta why he didn't feel guilty about paying $400 for six rooms on Central Park South: "I use the apartment so little that I think it's fair."
The most privileged rentocrats cling to their family manses with Scarlett O'Hara's tenacity -- in fact, with even more tenacity, because their war never ends. Their enemy is in charge of maintaining the place. Some landlords have emptied apartments by setting fires or inviting drug dealers into a building; others have hired thugs to terrorize tenants. Even the best landlords purposely discriminate against rent regulated tenants.
Arthur Zabarkes, until recently the director of the Real Estate Institute at New York University, recalls establishing a caste system in the Manhattan buildings he once managed: "At unregulated apartments we'd do most things that the tenants requested. But on the rent regulated units, we did absolutely only what the law required. It was sad. There were people with 15- amp fuses from 1947 that couldn't handle an air conditioner, but we weren't legally required to replace them, so we didn't. We had a perverse incentive to make those tenants unhappy. With regulated apartments, the ultimate objective is to get people out of the building."
Since New York's tenants have lost their economic leverage against landlords, they must rely on the most complex tenant- protection laws in America. Wolf has a carton with thousands of pages of documents from his eight-year battle. After he lost his attempt to collect rent, the tenants filed complaints that he was skimping on service, threatening them and calling them "creeps and thieves." The tenants accused him of not providing heat; Wolf said he had been denied heat in his apartment because the tenants had broken the boiler by setting the thermostat at 90 degrees. There was long testimony about minor disputes. "Once we put up a doorbell for ourselves," Buchanan recalls, "and he pulled it out, so we pulled out the wires to his doorbell." Wolf accused them of filing false complaints and obstructing his efforts to renovate their apartment so that they could go on living rent-free. In 1992, five years after Wolf bought the building, a change in the loft law finally gave him the right to collect rent, but it took more court battles to actually collect the money.
In 1994, Wolf went to court accusing Buchanan, the only remaining tenant on the lease, of illegally subletting the loft to "roommates" while living in Los Angeles. Wolf had hired private detectives in New York and Los Angeles and subpoenaed Buchanan's bank records to determine where he was withdrawing money from automatic-teller machines. A judge ruled that Buchanan was using the apartment as "a 'pit stop' motel financed by the roommates who actually lived there," and Wolf was allowed to evict him. "In all, it cost me $100,000 in legal fees and hundreds of hours in court to get back my property," Wolf says. "And during the eight years I was maintaining that apartment, I didn't collect more than $10,000 in rent." Buchanan now lives in Los Angeles, where he has found a two-bedroom unregulated apartment near the beach for $1,000. "It doesn't make my heart sing like Manhattan," he says, "but at least I can afford a place here." He has noticed a difference between the cities: "I don't know anybody here who has a problem with his landlord."
Wolf has finished renovating all the lofts and rented them to tenants not protected by rent regulation, yet somehow everyone is getting along without the aid of lawyers. "It's a great relationship," says Tika Buchanan (no relation to the former tenant), a graphics designer living in one of the lofts. "He basically gives us whatever we want, and he doesn't even charge for extras like the closet he built for us."
Wolf still marvels at the thought of a landlord at peace with tenants. "My tenants have nice lofts, I can pay the bills and we all get along. They walk my dog, I feed their birds. We water each other's plants. It's so wonderful -- all without the intenention of any agency."
NEW YORK'S HOUSING policy has evolved in three stages, from capitalism to socialism to insiderism, and you can find examples of each near the southeast corner of Second and B. Mary Spink's building on the corner, erected in 1899, is a remnant of the days when capitalists built for the poor and working classes. The population rose from two million to seven million between 1880 and 1930, but developers more than kept up. Tenements on the Lower East Side emptied as immigrants found new homes. The Irish and Germans moved uptown; Eastern European Jews settled on the Grand Concourse in the Bronx; blacks went to Harlem. An "improvement organization" of white Harlem residents tried to keep out blacks, but the neighborhood's landlords had so many empty apartments that they couldn't refuse anyone.
The socialist era began in 1934 with Mayor Fiorello La Guardia, who vowed to "take the profit out of the slums." He put the government into the real-estate business with the nation's first public housing project a few blocks from Second and B. Over the next half century the city, state and Federal governments built or helped finance 500,000 apartments for the poor and middle class, which were never enough to meet the demand. Since politicians couldn't afford to provide cheap housing for everyone, they ordered landlords to pick up some of the tab. In 1947, when the wartime emergency rent controls were extended, officials said that it was just a temporary measure for existing tenants and that it wouldn't apply to new apartments. But they repeatedly extended price controls and included new buildings and new classes of tenants—a "double-cross strategy," as economists call it, that has discouraged developers from putting up new buildings for fear they'll eventually be placed under rent regulation.
Economists argue passionately about most issues, but not about rent regulation. When the American Economic Association polled its members in 1992 on a variety of topics, the proposition that elicited the greatest consensus -- 93 percent agreement -- was that "a ceiling on rents reduces the quality and quantity of housing." The most quotable summary of the research comes from a Swedish economist, Assar Lindbeck, the former chairman of the Nobel Prize committee for economics: "Next to bombing, rent control seems in many cases to be the most efficient technique so far known for destroying cities, as the housing situation m New York City demonstrates."
A few economists argue that rent regulations are essential in New York because the housing market is so volatile. "Take the case of a taxi triver who maves into a $700 apartment just before a neighborhood gets hot," says Frank Braconi, executive director of the Citizens Housing and Planning Council of New York, a research and advocacy group. "He settles in, puts his kids in school and then a lot of yuppies are suddenly willing to pay $1,500 a month for that apartment. It's not socially or politically acceptable to just throw out the cabdriver and his family." Braconi advocates a modified system in which an apartment rises to the market price whenever it's vacated, and then the new rent is regulated again for the next tenant.
It's true that rent regulation can help some poor tenants, but it ultimately leaves the poor worse off "The best way to help the poor is for society as a whole to provide aid directly and insure more housing is built," says Anthony Downs, an economist at the Brookings Institution who has published surveys of rent- regulation research and is a prominent advocate of more low- income housing. "Rent control is basically immoral and unjustified because it imposes a social burden on landlords without providing much help for most of the poor. It provides short-term benefits to the few, many of whom are not poor at all, while creating immense long-term problems." Because they're at the bottom of the housing ladder, the poor suffer the most when rent regulation produces a shortage. Downs notes that after rent regulations ostensibly designed to help the poor were adopted in Cambridge, Mass., and Santa Monica and Berkeley, Calif., the communities were inhabited by more affluent people as rental markets tightened.
As in other cities with stringent rent regulations, the regulated housing stock has deteriorated in New York. Rent regulation wasn't the only reason that tens of thousands of buildings were abandoned in New York during the 1970's -- abandonment also occurred in poor neighborhoods in cities without rent regulation -- but it played a role. On Mary Spink's block more than half the buildings were abandoned or torched during the 1970's and early 1980's.
The building at the corner of Second and B was illegally divided into cubicles for addicts and prostitutes, whose presence drove out many rent-regulated tenants, and then a fire forced everyone to move out. A private developer, the Kestral Company, paid $635,000 for the empty building in 1985. To turn a profit, the developer had to renovate it quickly and inexpensively while making the building attractive enough for tenants paying market rents starting at $1,000. The job was done in less than a year. The apartments were a tough sell at first because of the neighborhood, but with the determined Spink as superintendent the building was eventually filled, and it has been fully occupied for years.
Other buildings on the block fell into the city's hands, with less happy results. When the city becomes a landlord, it excuses itself from paying taxes or sewer and water charges, yet it still loses $200 a month on the average apartment. And it is still a terrible landlord. The only building on Spink's block with a code violation on the front door -- a hole where the window is supposed to be -- is the one operated by the city Department of Housing Preservation and Development. It's a remnant of the socialist era of housing, which waned in the 1980's when city officials realized that they couldn't afford to manage or rebuild the thousands of properties seized from private landlords. But instead of auctioning off its tax-foreclosed properties to private developers, as other cities do, New York offered them to nonprofit groups.
The five buildings next to Spink's corner building were awarded in 1985 to a group of local residents, the Lower East Side Mutual Housing Association. Financed by government grants, the project took seven years and the cost per unit was more than three times what the private developer next door spent.
The tenants for these subsidized units, with rents ranging from $44 to $1,000 a month, were supposed to be chosen impartially from a waiting list of low-income applicants. A quiet scandal ensued after 5 of the 48 apartments were occupied by an association official and his relatives. Eventually the association ran out of money and merged with another local nonprofit group, the People's Mutual Housing Association. It hired Spink, who as director of property management runs the nonprofit buildings the same way she runs the for profit building next door.
So what did taxpayers get for the millions in grants and tax abatements they have provided to the nonprofit group? Well, the project did provide some subsidized apartments for low-income tenants. But the city could have helped more poor people by giving them the money directly and letting them rent from taxpaying developers, who are generally more efficient landlords than nonprofit groups. During the city's recent $4 billion program to renovate 40,000 housing units, the nonprofit developers spent 50 percent more per unit than the small private builders in the program. Nonprofit groups with motivated volunteers can do a good job providing social services once people are in a building, but they're not the solution to the housing shortage. They're often part of the problem: the transformation of housing from a private enterprise run for profit to a public enterprise run for insiders.
"The typical landlord on the Lower East Side used to be a bottom- rung entrepreneur who used sweat equity to buy the building he lived in," says William Tucker, author of "The Excluded Americans," a history of housing in New York. "Today's system rewards people with political connections and professionals with skills at manipulating regulations. We've transferred property from the working class to the paperworking class."
In theory, it sounds appealing for the public to decide how land is developed and neighborhoods are preserved. In practice, it means that new people don't get homes. The construction project at the northwest corner of Second and B is a rarity today. A building with 66 apartments is going up on the site, formerly an abandoned gas station and supermarket, because of a fortunate combination of circumstances. A relatively large piece of land in private hands was empty in a neighborhood that was becoming fashionable. The developer didn't need to get a zoning variance or bribe any rent regulated tenants to move. And for some reason nobody tried using New York's zoning and environmental laws to file a lawsuit against the project. Another developer's attempt to build on an empty lot on the Lower East Side was stopped by a successful lawsuit from a community group arguing that the luxury building could potentially "alter the character of the community." In other words, there was a danger that the neighborhood would improve.
Zoning laws keep homes out of the most logical new places for development -- the old industrial areas of the West Side and Brooklyn. The tenure provision of rent-regulation laws has prevented developers from replacing crumbling tenements on a block with one big new building. A single rent-regulated tenant who refuses to move, no matter how much money and how many comparable apartments he's offered elsewhere, can stop the entire project.
"If the city let us, we could build again for the middle class and even the working poor, but every project becomes an expensive ordeal," says Donald Capoccia, who has renovated seven buildings near Second and B over the past decade. Capoccia has been forced to spend most of his time not on building but on working the system: applying for tax abatements and subsidies, negotiating with squatters and tenants, hiring "expediters" to navigate paperwork through the city bureaucracy, forming alliances with nonprofit groups to get hold of city property. One of his city subsidized projects on Second Street, a partnership with the Kenkeleba House, a group of African-American artists, involved 23 grant proposals over 10 years. At the end of it the nonprofit group had gained a lovely new art gallery at below-market rent and two dozen favored tenants — they had to prove to the city that they were artists -- had one-bedroom apartments renting for about $600 a month. Because of the bureaucratic delays, Capoccia figures he lost $500,000.
Nevertheless, he thinks that he has gained at least one perverse benefit from the city's housing mess. "If New York simplified its regulations," he says, "I'd have a lot more competition. When developers from out of town see the housing shortage here they want to rush in, but they usually give up after one project. They come in thinking you can just go in and fix up an old building or put up a new one. They think you can make a profit by creating value and making the neighborhood better. That's the reality in other cities. In New York it's mostly a fantasy."
IF JUNE 15 TURNS OUT TO be a historic occasion, the beginning of the end of rent regulation, a few consequences can be safely predicted. Some landlords will start fixing up their buildings and making repairs they've put off for years. Some developers might reconsider their aversion to building rental housing in New York (although many will remain skeptical). Apartment brokers and Housing Court lawyers will reconsider their long-term career options.
A sudden deregulation of all rent-stabilized apartments, which no one expects, would be a huge disruption for some tenants and lead to an overall increase in the amount that today's rent-stabilized tenants pay in rent. But once once the dust settled, the average increase citywide would be no more than 15 percent, according to separate projections by Pollakowski; Elizabeth Roistacher, the economist at Queens College; and Charles de Seve, president of the American Economics Group, a consulting firm in Washington. (The de Seve study was financed by the landlords' Rent Stabilization Association.) In poorer areas the projected increase would be relatively small -- the median rent for the whole Lower East Side would rise less than 10 percent, possibly not even at all.
The largest increases would be in Greenwich Village, the Upper East Side and the Upper West Side. For the worst-case scenario, on the Upper West Side, Pollakowski projects that the median increase for rent-stabilized tenants would be 12 percent and that the typical tenant would still be paying less than 21 percent of income for rent. Roistacher and de Seve expect larger increases, in part because they assume that tenants would be willing to pay more for apartments as landlords fixed them up. It's possible, for instance, that the median rent for a one-bedroom on the Upper West Side would initially be $100 more than what rent-stabilized tenants pay today -- as Pollakowski projects -- and then gradually go up another $200 to $300 as landlords renovated apartments. So the Upper West Side would end up with more good apartments, probably at cheaper market prices than today, but some people now in the neighborhood couldn't afford these improvements. Obviously, moving would be a hardship. But de Seve projects that no more than 6 percent of New Yorkers would be forced to move out of their neighborhoods, and at least they would have better options than today elsewhere in the city.
Would Manhattan become less heterogenous? Some parts of it probably would be, although the biggest change might not be in social class -- the rent-stabilized tenants already have income levels fairly similar to their unregulated neighbors -- but in age. Neighborhoods with lots of small rental apartments would presumably be occupied by more young people, as in the rest of America, and older people would be more likely to own bigger apartments and homes because they wouldn't be hanging onto their heirloom leases. Manhattan, contrary to popular fears, would not become an island of the rich. If every person in a household with an income over $100,000 in the greater New York metropolitan area moved into Manhattan, they couldn't fill all the homes on the island.
The best way to maintain the city's diversity would be to build more homes for everyone. Today this sounds quixotic -- getting rid of rent regulation is easy by comparison -- because the impediments to building are so complicated. But if rent regulation is phased out, maybe other changes will take place.
Affluent rentocrats facing the prospect of apartment shopping might think twice about financing the lawsuits of their neighborhood preservation coalitions. Politicians and judges who can no longer arrange insider deals for their children might reconsider the need for the city's morass of regulations. Elected officials might change zoning and building rules to create more affordable homes -- middle class apartments as well as improved versions of the tenements, boarding houses and single-room- occupancy hotels that once housed the poor. The extra tax revenues from new construction and from deregulated apartments could make hundreds of millions of dollars a year available for direct aid to the poor. As the middle class moved into new homes, there would be more apartments for poorer immigrants to inherit.
Some white-collar immigrants could end up living in modest apartment buildings on the cornfields now around Second and B. In a deregulated city with more new homes, the upper-middle-class professionals now driving up rents in Alphabet City would probably settle in more convenient and upscale neighborhoods, so rents at Second and B might be relatively low for Manhattan. The small apartments would be occupied by middle-class workers and young people, many of whom would stay a couple years and then move on to bigger places. It wouldn't be the kind of static neighborhood with lifetime residents that so many New Yorkers today find appealing.
It would be more like the neighborhood that immigrants used to find when they got off the boat. Each wave of immigrants on the Lower East Side made room for the next because it was still possible to find better homes in better neighborhoods. They came here to escape aristocratic societies where homes and privileges were awarded on a seniority system, and New York surpassed the old capitals of Europe because it welcomed these new people. The fearful rentrocrats now rallying to preserve their homes deserve sympathy, and the most vulnerable of them deserve protection. But as June 15 approaches, it is worth remembering that theirs is not the spirit that built New York.
John Tierney is a staff writer for The New York Times Magazine. He pays $1,658 a monthfor a rent-stabilized two-bedroom apartment. A similar unregulated apartment in the same neighborhood costs about $2,600 today.
SIDEBAR The Case for Rent Regulation By Sam Roberts
Here's where Bill Eimicke comes out on rent regulation:
"Fundamentally, I have a problem with it, and I can understand anyone who believes in the United States system of capitalism would have a problem." Still, he's for keeping some version of rent regulation -- doing away with it would be even worse. "There's more to risk than there is to gain."
Eimicke has earned the right to be heard on the subject. He is an unabashed liberal and Columbia University professor (and Columbia tenant) who as State Housing Commissioner during the Cuomo years administered the tangle of regulations that govern rents on more than 1 in 3 New York City dwellings.
Nobody defends the rent regulation bureaucracy. But given some important conditions, knowledgeable people like Eimicke think the system remains defensible. Here's how they defend it:
Only 70,000 ofthe city's 1.1 million regulated apartments are suject to the strictest controls.
Rent control governs apartments built before 1947 and occupied by the same tenant since 1971. About a million more apartments (those with more than six units and built between 1947 and 1974) are rent stabilized -- governed by somewhat looser regulations but with rent increases still subject to official guidelines. Nearly 600,000 other rental apartments are unregulated.
Arguably, rent regulation is a predictable middle-class subsidy, like lower property taxes on one- and two-family homes.
Regulation is also about guaranteeing at least minimal building maintenance and services. Regulation -- and the threat of mandated rent reductions -- offers great leverage over aggressively greedy landlords, managing agents and even co-op boards that might otherwise find means to force tenants out.
Rent regulation applies citywide, but the debate about prices largely concerns Manhattan.
Among apartments renting for less thar $600 a month, three out of four are governed by rent regulation. But in poorer neighborhoods the market is already determined by what tenants can afford: market rents are below nominal regulated rents. In Jamaica, Queens, for example, according to the real-estate industry's estimates, market prices are about 25 percent less than the regulated rate. On the Upper West Side, though, unregulated rents are now about 36 percent higher than regulated ones. In the face of rapid decontrol, where would tenants on fixed incomes, the poor, the elderly and struggling artists go?
Rent regulation would lapse if more than 5 percent of apartments were available. But has regulation really deterred developers from building more?
Somewhat. But to build more, swaths of manufacturing and commercial districts would have to be rezoned for housing. Also, so-called affordable housing is hard to build without subsidies or tax abatements. Plenty of higher-priced apartments are being built anyway -- and landlords may charge the first tenants whatever the market will bear. But developers know that what the Legislature taketh away it can bring back.
What about all those celebrities who pay peanuts?
Generally, vacated apartments become deregulated if they can be rented for $2,000 a month or more. Even occupied apartments can legally be deregulated if the rent reaches $2,000 and the household income surpasses $250,000 for two consecutive years. Maybe those thresholds are too high. Still, a tenant who earns even $100,000 but has a family to support might be hard pressed to pay 25 percent of his income on rent.
Not all economists condemn rent regulation -- even if the theoretical goal is to redistribute income.
Writing a few years ago in the Journal of Economic Perspectives, Richard Arnott of Boston College concluded that "it is possible to design a set of rent regulations that result in an improvement in efficiency over the unrestricted market equilibrium."
Yes, but the truth is that the defenders of rent regulation aren't moved by economics, only politics.
Cynics say that in repeatedly renewing rent regulation, the Legislature has been guided largely by one equation: Tenants outnumber landlords. To which Eimicke replies: "If you're arguing that it's because the people want it, excuse me. This is a democracy."
Sam Roberts is deputy editor of the Week in Review section of The New York Times.