In Albany, Discreet Efforts at Compromise on Rent

The New York Times, May 17, 1997

ALBANY, N.Y. -- While it is far from clear that state lawmakers will be able to reach a deal on rent regulations before the current laws expire June 16, they are privately discussing ways out of the impasse, including an end to protections for wealthy tenants, a limited system of deregulation and a major construction program to ease the housing shortage.

For months, as rent regulation has overshadowed state government, top lawmakers have publicly painted one another as extremists rather than hold any real negotiations on the issue. After all, Democrats and Republicans were so far apart that there seemed to be little worth talking about.

But in the last week, while the invective has continued, hot as ever, lawmakers and their aides in both parties have quietly begun to assemble what may be the pieces of a compromise.

Aides to Gov. George Pataki and the leaders of the Legislature are expected to hold their first negotiations on the rent laws within a few days. Much of the talk has been about ways to soften the impact of vacancy decontrol, a system that preserves rent protections for people as long as they remain in their apartments but deregulates the units as soon as they become vacant. One modified version of vacancy decontrol being discussed is used in Los Angeles.

But so far, most Democrats insist that any form of the system goes too far, while most Republicans say that if it is watered down it does not go far enough.

Pataki, a Republican, supports vacancy decontrol. Senate majority leader Joseph Bruno, also a Republican, has called for a quick end to the regulations, but appears ready to accept the governor's proposal.

The Assembly, controlled by Democrats, has passed a bill that would keep the current rules more or less intact, and Assembly Speaker Sheldon Silver says that remains his aim.

If the current laws are allowed to expire after midnight June 15, the owners of more than 1 million apartments, most of them in New York City, will then be able to raise rents to whatever the market will bear.

With the deadline looming, it appears that the Democrats may agree, at least in part, to Republican demands to remove rent controls for some rich tenants and to require renters to deposit their rents in escrow accounts while disputes with landlords are resolved in Housing Court.

One area of potential agreement -- one that Democrats say would have to be a part of any deal -- is a major new housing construction program to increase the supply of apartments, which would presumably lower their price.

The current system is descended from price controls imposed on a wide range of commodities, including rents, during World War II, when New York City began to experience a housing shortage. Over the last half century, a complex web of city and state rent laws have taken effect, and the assumption of rent controls has become a sacrosanct part of the city's political and economic culture.

While Democrats point to the continued housing shortage as evidence of the continued need for rent regulation, Republicans say rent regulation has inhibited new construction, perpetuating the shortage.

The rent laws state that if the vacancy rate for apartments in New York City rises above 5 percent -- it was about 4 percent in the most recent survey -- there will no longer be a shortage in the city, and the controls for most apartments will end. That means, according to several lawmakers, Democrat and Republican, that housing construction could be a way out of the impasse.

Silver has proposed tax abatements and other measures to make it easier for builders to erect new buildings and renovate dilapidated ones. Last December, Bruno suggested much the same thing.

Assemblyman Vito J. Lopez, chairman of the Housing Committee, has proposed a more direct approach, having the state spend $150 million a year for four years on construction of new, affordable housing. He says that would produce about 80,000 new units, equal to about 4 percent of the current supply.

"You increase the housing supply for the people who need it the most, that helps push rents down, and the laws expire all by themselves, and you don't have to keep fighting this fight every few years," he said. And some parts of the city, he said, would have to be rezoned from manufacturing to residential.

Lopez's ideas are attractive to some of the downstate Republican senators who have been made uncomfortable by Bruno's hard line, though it may not appeal to Bruno and Pataki.

"The big question is whether you can reach an agreement on what order to do things," said one senator, speaking on condition of anonymity. "One side says, build first, deregulate later. The other says, deregulate first and build later. It's not immediately obvious where the compromise is."

Independent experts and legislators say that to spur new construction, the city must change laws that discourage building. Current rules, they say, make it difficult to raze small buildings, combine lots and build something larger, or to force a tenant out of a building that a landlord wants to demolish, even if replacement housing is provided.

"You can't increase the housing supply with laws like that," Michael H. Schill, director of the New York University School of Law's Center for Real Estate and Urban Policy.

Some lawmakers are also looking at ways to soften the impact of vacancy decontrol.

One way would be to adopt the system used in Los Angeles, which allows landlords to charge whatever they can get when an apartment is vacant, but caps the annual increases once a tenant is in a unit. Democrats and their tenant allies are generally hostile to that approach, because it begins with vacancy decontrol.

Another method would be for the city, which sets the allowable rent increases each year, to set two: one for continuing tenants and a somewhat higher one for vacant units.

Take, for example, a 3 percent increase each year for continuing occupants and a 5 percent vacancy increase each year. For a tenant who stayed in an apartment for five years, the rent would rise 15.9 percent with compounding. But if the unit became vacant, the allowable rent would rise 27.6 percent over the same time period.

Such a system would let vacancy rates eventually rise to market levels, albeit more slowly than outright vacancy decontrol, making it an attractive alternative to some Democrats, but not to Bruno or to landlords, who have already complained that vacancy decontrol would change things too slowly.

"That could work very well because it would move you along incrementally," said Elliott D. Sclar, a professor of urban planning at Columbia University. "The current system is a mess, but big, sudden changes almost always have disastrous unintended consequences."

Copyright 1997 The New York Times