RENT REGULATION IN NEW YORK CITY: A Briefing Book =============================================================== Chapter One THE PURPOSES, ACCOMPLISHMENTS, & LIMITS OF RENT REGULATION Rent regulation helps to make housing more affordable and New York City more livable. The system is not an artifact of the city's past but a key policy for our collective future. It is aimed at minimizing distortional market effects -- such as profiteering, lack of affordability, and the erosion of tenant rights -- that are created by a housing shortage. Rent regulation is, in fact, an essential municipal service that continues to promote the public good despite problems of implementation and a generally negative public image. To this end, rent regulation seeks to fulfill three objectives: (1) moderating rents to promote tenant affordability while ensuring a fair return for owners; (2) providing eviction controls; and (3) setting guidelines for maintenance of services that affect housing conditions. Listed below are brief analyses of these purposes and the extent to which they are currently being achieved. Moderation of Rents The primary goal of rent regulation is to keep rent levels "reasonable." But reasonableness is subject to interpretation; thus the large controversy surrounding the rent-setting aspect of the system. Rent regulation takes a system-wide or market approach to achieving affordability. Unlike programs such as public or Section 8 housing, which target needy households, rent regulation creates ground rules for all players -- not exclusively for the most needy. It protects all persons (renters) who must rely on other persons (owners) to fulfill their basic human need for shelter. It attempts to minimize market failure so that more households do not fall into a need for subsidy. Efforts by the real estate lobby to describe rent regulation as a "subsidy" (with attendant debate about who should get that subsidy) are therefore misplaced. The rent regulation system serves to stabilize rental prices in a market plagued by shortage. It is not the sole solution to the housing crisis, but it is a vital strategy designed to keep housing, a basic human need, within renters' financial reach. Since moderating rent levels involves balancing the interests of tenants and owners, regulation has promoted affordability only to a limited extent. However, the system has made New York City's rental housing more affordable than it would be in the absence of regulation. Though somewhat dated, information prepared by the Rent Stabilization Association illustrates that New York's tenants, when compared to tenants in other cities, are being protected by regulation [Table 1]. The data also indicate that the rent-to-income ratio for low- income renters is high - and that tenants with the lowest incomes have the highest rent burden. But the ratio is somewhat lower for New Yorkers living in rent-regulated units. This comparison indicates that regulation makes rents more affordable. ----------------------------------------------------------------- Table 1 Percent of Income Paid for Rent Renters in Other Unregulated Regulated Income High-Cost NYC NYC Level Cities Renters Renters $ 5,000- 9,999 78% 64% 57% $10,000-14,999 49% 44% 39% $15,000-19,999 38% 35% 29% $20,000-24,999 31% 28% 26% $25,000-29,999 26% 25% 22% $30,000-34,999 25% 20% 18% $35,000-39,999 23% 19% 17% $40,000-44,999 19% 18% 16% $45,000-49,999 18% 17% 16% $50,000-59,999 18% 15% 14% $60,000-74,999 15% 13% 12% $75,000-99,999 11% 12% 10% $100,000 and up 09% 12% 10% Source: Rent Stabilization Association. May 1992. Viability of the Rental Industry and the Future of New York: With Recommendations for Action. A submission to the NYC Rent Guidelines Board relative to Order No. 24., pg. 24. This table was based on the 1987 NYC HVS and the 1987 American Housing Survey. ----------------------------------------------------------------- Despite this measure of protection, a contrary trend with regard to housing affordability has taken place. The actual median income of renters has dropped when compared to the income needed to pay median rents. Thus, the purchase power of tenants has eroded dramatically, falling by 31.6 percent over the past 13 years [Table 2]. As incomes decline, New York City's tenants need the protection of regulations more than ever to promote affordability. Though rarely considered in the debate, eviction protection and maintenance guarantees are also crucial. Eviction Controls Another aspect of seeking equilibrium between landlords and tenants in a market plagued by shortage is to provide a level of security for renters. Under rent regulation, tenants can only be evicted for "good cause" such as failure to pay rent or creating a nuisance. Without protection against eviction, rent regulation would be rendered useless. In the absence of eviction controls, the affordability objectives of rent regulation may be undermined by property owners who use evictions as a means to raise rents. Such controls are also important on their own merits, in that tenants have a right to a modicum of security. Eviction controls protect tenants who assert the rights afforded them by the rent regulation laws and other statutes. In simple terms, if housing is affordable but a tenant may be evicted upon a landlord's whim, then the effectiveness of the rent regulation system is diminished to the point of uselessness. Thus, rent regulation should be more accurately described as rent and eviction regulation. ----------------------------------------------------------------- Table 2 Index of Renter Affordability New York City, 1978-1991 Current Dollars 1978 1981 1984 1987 1991 Median Asking Rent for Vacant Available Apts. $ 185 $ 240 $ 315 $ 450 $ 600 Household Income Needed to Afford Median Vacant Apt. at 30% of income 7,400 9,600 12,600 18,000 24,000 Median Renter Household Income 8,500 10,500 12,600 16,000 20,000 Index of Renter Housing Affordability 114.9% 109.4% 100.0% 88.9% 83.3% Source: Worlds Apart: Housing Race/Ethnicity and Income in New York City 1978-1987, pg. 54., and NYC HVS 1991, Series IA, Table 9 and Series IIA. Table 31 ----------------------------------------------------------------- Maintenance of Services An integral part of rent regulation is a guarantee of services: insurance against maintenance reductions aimed at recouping profits "lost" through regulation. These provisions attempt to insure that the level of housing quality does not decline after regulation is adopted. Kenneth Barr explains: In addition to regulating rents, another important purpose of rent control is to require adequate maintenance. As one New Jersey court noted: "Rent control would be self-defeating were landlords permitted to reduce maintenance expenditures and allow buildings to deteriorate because their profits have been regulated downward."(1) If reductions in services and maintenance are not accompanied by rent decreases, an increase in the price of remaining services has been effectuated.(2) Rent regulated tenants are entitled to a particular service if that service was provided on the legal "base date" - the date the apartment first became subject to regulation. Any repair needed to correct a violation of a local housing code is also considered a service.(3) In New York City and the suburban counties, a landlord's failure to provide services can result in a rent reduction and a rent freeze until the service is restored.(4) These service provisions within the rent regulation statutes help to provide a reasonable quality of housing for tenants. The purposes of rent and eviction regulation laws are to moderate rent levels, insure housing quality through maintenance standards, and protect tenants from arbitrary or retaliatory eviction. Chapter 3 analyzes the effectiveness of rent regulation in New York City in meeting these goals. The Limits of Rent Regulation While the purposes described above are worthy and vital, there are limits to what rent regulation can achieve. These include the following: o Rent Regulation Does Not Increase the Housing Supply. Rent regulation cannot address a key housing supply issue: production. Regulation does not produce a single unit of much- needed housing. Rather, it sets ground rules for the landlord- tenant relationship in existing housing. It can work in concert with housing production programs but should not be a substitute for the rehabilitation or new construction of rental units. o Rent Regulation Does Not Assure Affordability. Because rent regulation allows regular rent increases, it does not assure affordability. In the words of Peter Marcuse, rent regulation "can hold the price of housing down to some extent, and prevent some of the grossest distortions: it can smooth out the housing market."(5) But it does not ensure that the rent burden of any given household is within its means. Rent regulation generally does nothing to hold rents down to affordable levels, nor to increase tenant incomes to meet the burden of increasing rents. o Rent Regulations Are Not a Complete Housing Strategy. Rent regulation may compliment other policy initiatives but is not a substitute for other housing strategies. For example, tenants with Section 8 rent subsidies may locate housing within their price limits more easily in a regulated market than in an unregulated one. Regulation should not replace such initiatives but instead should work in concert with them. As Peter Marcuse has put it: "[Rent regulation] functions best as part of an overall and coordinated attack on the housing problem, not as a substitute for such an attack."(6) In summary, rent regulation can promote market-wide affordability, protect tenants against unfair eviction, and assure the provision of necessary housing services. However, rent regulation cannot create more housing, cannot address the income and affordability needs of individual households, and cannot substitute for a comprehensive housing strategy -- although it is a crucial component of such a strategy. Notes to Chapter 1 1. Orange Taxpayers Council, Inc. v. City of Orange, 169 N.J. Super. 288,303,404 A.2d 1186, 1193 (App. Div. 1979, aff'd, 83 N.J. 246, 416 A. 2d 353 (1980). From Baar. 2. Baar, Kenneth K, "Guidelines for Drafting Rent Control Laws: Lessons of a Decade," Rutgers Law Review, Vol. 35, No. 4, Summer 1983, pg. 830. 3. In 1975, a landmark New York State law, Section 235-b of the Real Property Law, established a nexus between the quality of housing provided by the landlord and the tenant's obligation to pay rent. Under the "warranty of habitability," all residential rental agreements, whether written or oral (not only rent regulated ones) guarantee that the landlord is responsible for maintaining apartments and public areas of apartment buildings in a habitable state and for maintaining agreed-upon services. Now, regardless of rent regulation status, tenants are eligible to seek repairs and rent abatements for violation of this warranty. However, rent regulated tenants are given a greater ability to enforce habitability requirements through the rent regulation system. 4. Community Training and Resource Center Fact Sheet, "Rent Reduction for Lack of Services," 1991. 5. Marcuse, Peter, 1986. The Uses and Limits of Rent Regulation, pg. 153. Commissioned by the New York State Division of Housing and Community Renewal, which suppressed the report. Community Training and Resource Center obtained a copy from the author and published it. 6. Ibid, pg. 153.