Upscale Areas' Tenants Would Be Hit Hardest, Studies Say

New York Times, April 6, 1997

NEW YORK -- Half a century after it was introduced and two months before it could pass into extinction, rent regulation in New York remains a thoroughly contested policy. Landlords and tenants disagree in fiercely emotional and often surprisingly personal terms not only about the system's philosophical merits, but also about how it actually works and what would happen if it expired.

Underlying their bitter differences, however, there are some some basic realities.

Landlords have suggested that the effects of deregulation on rents would be modest. Yet for many tenants, even a 10 percent rent increase could be significant. And a recent study of deregulation sponsored by a landlord association put the average increase for a rent-stabilized apartment at more than 13 percent.

Tenant groups have, for obvious political reasons, tried to portray the battle over the rent laws as one that affects residents of all neighborhoods of New York City, where most of the state's rent-regulated apartments are located. But the effects of lifting the rules that regulate 1.1 million apartments would clearly be felt disproportionately in different parts of the city.

In some of the city's poorest neighborhoods, rents might hardly be affected at all, while in the most fashionable areas, huge increases are a virtual certainty.

The same landlord-sponsored study predicts that rents would rise by almost 30 percent in Greenwich Village and by more than 50 percent on Manhattan's Upper West Side.

Both sides acknowledge that rent regulation encourages tenants to stay put, even as they disagree sharply about whether this is a good thing. Landlords argue that many rent-regulated tenants hold onto apartments longer than they need to, which in turn causes shortages and forces other tenants to pay higher prices. Tenants argue that the lack of turnover promotes stability and preserves the complex texture of many New York neighborhoods.

Without rent regulation, "you would lose any kind of economic integration," Michael McKee, the rent law campaign manager for the New York State Tenants and Neighbors Coalition, said.

There have been battles over rent regulation in New York in the past, but few have been as fierce or as anxious as the current one.

For the first time in recent memory, one of the state's legislative leaders, state Senate majority leader Joseph Bruno, a Republican from Troy, has declared his opposition to renewing the regulations. And Gov. George Pataki, whose position on the issue has often seemed purposefully ambiguous, has said he is willing to allow the rent laws to lapse when they expire or "sunset" June 15.

Almost without exception, economists side with those who oppose rent regulation; artificially holding down the price of housing, they contend, inevitably also limits the supply for everyone. Even liberal-leaning economists who favor some sort of housing subsidies see rent regulation as wrongheaded because it does not benefit those who need it most.

"Economists who don't think of themselves as conservative would still say this is a very inefficient way to redistribute income," Alan Auerbach, an economist at the University of California at Berkeley, said.

At the same time, even many opponents of regulation acknowledge that lifting the rent laws alone will not solve New York's chronic housing shortage. Already, new buildings that have not received special tax breaks are not subject to rent regulation. Yet even in relatively good economic times, residential construction in New York has lagged behind that in other cities.

Perhaps just as significantly, economic principles and astute politics do not always go hand in hand, as Mayor Rudolph Giuliani demonstrated last week when he vowed to march with tenants in Albany. While there are many New Yorkers outside the system who might benefit from ending rent regulation, those inside the system care more about the issue and are better organized.

"The people who are harmed don't even know they're being harmed," Peter Salins, an urban economist who is provost of the State University of New York and an outspoken critic of rent regulation, said. "So they can't act as an interest group."

Although New York's rent laws are frequently lumped together under the term "rent control," the laws are actually a patchwork of state and city regulations of which rent control is only one piece. All told, the regulations cover roughly half of the city's rental apartments and 2.5 million tenants.

The city's rent laws cover two types of apartments. The first group, rent-controlled housing, covers apartments built before 1947 where the tenant has been in continuous occupancy since 1971; the definition of the word "continuous" is a flexible one. Many people in rent-controlled apartments pass them on -- both legally and illegally -- to relatives, people that tenants say are relatives, and even friends.

According to the latest city housing survey, there are slightly more than 70,000 rent-controlled apartments left. Of all the regulated housing, these apartments tend to have the lowest rents.

The city's second category, rent-stabilized housing, covers apartments built between 1947 and 1968 as well as some more recent apartments for which landlords have sought special tax benefits. There are roughly 290,000 of these, and their rent increases are set each year by the Rent Guidelines Board. Last year, the board allowed increases of 5 percent for one-year leases and 7 percent for two-year leases.

It is the state, rather than the city, that regulates the largest group of apartments. These are apartments that were built before 1947 but no longer fall under rent control because the tenant has not been in continuous occupancy. There are roughly 760,000 such apartments in New York City, and another 60,000 in Nassau, Westchester and Rockland counties. These are also known as rent-stabilized apartments, and in New York City their rent increases are also determined by the Rent Guidelines Board.

Together the city and state have taken a few thousand apartments out of regulation under so-called "luxury decontrol," which went into effect in 1993. These are apartments with rents above $2,000 a month and tenants with annual incomes of more than $250,000.

Luxury decontrol has proved difficult to administer, and it is estimated that many apartments eligible for decontrol are still, in fact, under rent regulation.

Just last week, Giuliani, with great flourish, signed a bill extending the city's rent regulations for three more years. At this point it is unclear how the city's regulations would be affected if state rent regulations were allowed to expire.

Mary Sibak, 60, has lived with her husband in a one-bedroom apartment in Hell's Kitchen for 36 years. Her rent is $171 a month. She does not work, and her husband, who is employed in a warehouse, brings home less than $400 a week, she said.

Standing outside her building, on 44th Street between 9th and 10th Avenues, Mrs. Sibak said she had heard about the debate up in Albany and was deeply distressed. "The day they raise the rent is going to be just terrible," she said. "People are going to be on the streets."

Rent regulation is often debated on an anecdotal level. But for every anecdote about a Hollywood star who keeps a rent-controlled pied-a-terre, there is a string of stories about people like Mrs. Sibak, who have held onto their apartments simply because they cannot afford to leave.

"Where are you going to move?" Mrs. Sibak asked.

That ending rent regulation would have a significant impact on a neighborhood like Hell's Kitchen, and indeed throughout midtown and lower Manhattan, is beyond question. The reasons are to a certain extent obvious: the more desirable the location, the more pressure on rents.

The city's own research shows rent regulation has held down rents in Manhattan more than anywhere else. According to the city's most recent housing survey, the median unregulated rent in Manhattan in 1993 was $1,030 a month. By comparison, the median was $400 a month for a rent-controlled apartment and $620 a month for a rent-stabilized apartment. In the Bronx, the median unregulated rent was $600 a month, while the median rent-controlled rent was $349, and the median rent-stabilized rent was $450.

Manhattan also has a disproportionately large number of rent-regulated apartments; roughly a third of all stabilized units are in Manhattan.

But how the effects of ending rent regulation, or phasing it out through so-called vacancy decontrol, would play out through the rest of the city is more difficult to gauge.

This difficulty is perhaps best illustrated by the very different results predicted by two recent studies. Both were sponsored by the Rent Stabilization Association, the city's largest landlord association.

The first study predicts that, under deregulation, the typical stabilized rent in midtown and lower Manhattan would increase by 6 percent, or $43 a month.

Throughout the city, in all five boroughs, the typical stabilized rent would rise by only 2 percent, or $7 a month, this report argues.

The second study assumes that deregulation would compel landlords to spend significantly to upgrade apartments, and it reaches a dramatically different conclusion about the impact on rents.

That study predicts that in the first several years following deregulation, the average rent of a former rent-stabilized apartment in Manhattan would rise by $175 a month, or 22 percent. Meanwhile, it forecasts that the average stabilized rent city-wide would increase by 13 percent, or $90 a month.

Tenant groups argue that both studies probably understate the impact of deregulation. And they further contend that what matters is not only the size of the increases but also the income of the tenants affected.

"Yes, there's a bigger spread in Manhattan," McKee, of the Tenants and Neighbors Coalition, said. "But that doesn't mean there's no difference outside of Manhattan. And for the people who are living in those neighborhoods, it's a very significant difference."

New York is one of the few remaining cities in the country to still have rent regulation; most municipalities got rid of their systems after World War II. Boston, another long holdout, lifted its controls in 1994.

But at least in theory, even in New York rent regulation has always been considered temporary, as the continual "sunsetting" of the rent laws attests.

In 1971, New York briefly experimented with ending rent regulation; under a measure passed by the state Legislature that year, all apartments under rent regulation were to be deregulated as soon as the existing tenants moved out. The experiment, however, was short-lived; in 1974, the Legislature passed the Emergency Tenant Protection Act, which placed formerly rent-controlled apartments under state rent stabilization.

As with practically every other aspect of rent regulation, the effects of this experiment are hotly contested.

The experiment took place during a time of increasing inflation and rising fuel prices, and many argue that it was too short to draw any reliable conclusions from it. Nonetheless, the experiment has had -- and continues to have -- a significant impact on the debate.

A 1974 report by a commission headed by then-Assemblyman Andrew Stein argued that the experiment was a failure. Decontrol, the report maintained, had caused rents to shoot up, but had "neither stimulated new building construction" nor "spurred renovation." Tenant groups continue to cite this report as evidence that deregulation would lead to price-gouging but little improvement in the city's housing.

Landlords, however, maintain that the Stein Commission misrepresented its own findings. They continue to point to a rise in new construction in 1972 as a sure sign that housing in New York would improve as a result of decontrol.

The Stein Commission, according to the Rent Stabilization Association, "reached conclusions based on a political agenda, and not on the facts."

Copyright 1997 The New York Times Company