We came across the following 1989 Brooklyn Law Review article where the author, Stephen Dobkin, responds to a previous article (Epstein, Rent Control and the Theory of Efficient Regulation 1988) published in the same journal. We do not have a copy of that previous article. The author places appropriate blame on the "illusion" of effective rent regulations squarely on the shoulders of the Rockefeller "reforms" of the late 1960's and early 1970's. To respond to Professor Epstein's theoretical criticism, there was no need to go further. In 1989, when this article was written, there was still a glimmer of hope that Governor Cuomo's administration would straighten out the "mess" at DHCR (Division of Housing and Community Development) which since 1984 had mismanaged the NYC/NYS rent regulatory system (see, "Bleak House" archived on TenantNet). In hindsight, it is the opinion of many that the Cuomo administration never had any intention of making the system work; both landlords and the Cuomo administration benefited by the continuing disaster at DHCR. Likewise, many entrenched Democrats in the NYS legislature stood by and watched vital tenant protections slip into oblivion. Although the current Republican Pataki administration is doing its best to destroy what little is left of the shell of rent regulation, much of the blame in the last fifteen years rests squarely with former Governor Cuomo who precisely followed the game plan of Rockefeller's lieutenants: promise the public they will be protected, create an unmanageable and uncaring bureaucracy, and then sit back and collect the PAC money. P.S. Read the footnotes. =============================================================== BROOKLYN LAW REVIEW Vol. 54 *** Winter 1989 *** No. 4 CONFISCATING REALITY: THE ILLUSION OF CONTROLS IN THE BIG APPLE Stephen Dobkin* * Senior Attorney, South Brooklyn Legal Services; Adjunct Professor of Law, New York Law School; and Member of the New York City Rent Guidelines Board. City College of the City University of New York, B.A., 1968; New York University School of Law, J.D., 1971. IN THE BEGINNING High rents and housing shortages are at least as old as the New Testament. Joseph and Mary couldn't find a room in Bethlehem, and today in cities throughout this country millions of men, women, and children meet the same fate. Professor Epstein points his periscope toward a far-off city and sees a hermetically sealed marketplace where everyone can afford a place to live and the natural laws of supply and demand guarantee adequate housing for all. Here in the Big Apple, anyway, things have never been like that. The bitter realities of greed, exploitation, and poverty keep getting in the way. Rent controls are necessary to protect people who through no fault of their own would otherwise be priced out of decent housing. Serious controls have never been needed more than now at the dawn of the post-Reagan era. A majority of tenants are already paying an unhealthy share of their income for rent(1) even as a new generation of real estate barons enter the ranks of billionaires.(2) Despite that need, by virtue of a series of rent "reforms" engineered by Nelson Rockefeller twenty years ago, New York tenants are left now with only the illusion of controls. Professor Epstein has missed the whole point of controls and has been blind to their systematic elimination. The "free" market itself, not controls, is responsible for present housing conditions.(3) I. BIG APPLE HISTORY AND THE MYTH OF THE "FREE MARKET" Professor Epstein's brief law school foray into the Morningside Heights rental market, prior to his resort to his parents' connections, is apparently all the history he needs to underscore the soundness of his anti-rent control thesis. Historical events never infect the pristine logic of his ivory tower conclusions. A brief walk down memory lane quickly reveals that the "free market" has been tried and found wanting. The history of New York from early colonial times is itself a story of prolonged political struggle against unreasonable rents. As long ago as 1766 an army of upstate tenants took up arms against the colonial government to protest oppressive rent increases(4) and the frequent loss of thriving family farms at the lease's end: [I]nsecurity of tenure hung like a spectre over their farms, blighting any ambitious projects. For what did it help a farmer to improve his farm only to be faced at the end of his term by the alternative of paying more rent or of leaving the farm and its improvements to the landlord?(5) The Rebellion of 1766 failed when the tenants were placed on trial before colonial juries comprised exclusively of landlords.(6) Nevertheless, dissatisfaction with the oppressive terms of early nineteenth century leaseholds continued to fuel resentment. By the mid-nineteenth century, attempts by the heirs of Stephen Van Rennsalaer to collect huge sums of unpaid rent from tenants living on the vast family estate (720,000 acres comprising numerous townships covering the present day counties of Albany, Rennsalaer, Columbia, Greene, and Delaware) led to armed resistance by the radical Antirent movement.(7) By the turn of this century, an uncontrolled "free market" in rental housing had created a nightmare for New York City's working poor. In "How the Other Half Lives," the great reformer Jacob Riis described the outcome of a century of free market housing on New York's Lower East Side, "It was 'soon perceived by estate owners and agents of property that a greater percentage of profits could be realized by the conversion of houses and blocks into barracks, and dividing the space into smaller proportions capable of containing human life within four walls."(8) As a result, the tenement house population "came to harbor half a million souls" by 1855.(9) The east side "was packed at a rate of 290,000 to the square mile," a state of affairs wholly unexampled by the "utmost cupidity of other lands and other days."(10) Riis described a cholera epidemic "that scarcely touched the clean wards" in which the tenants of a tenement block known as Gotham Court died at the rate of one hundred and ninety five to the thousand of population, driving up the city's mortality rates.(11) The death of a child in a tenement was registered at the Bureau of Vital Statistics as "plainly due to suffocation in the foul air of an unventilated apartment," and the Senators, who had come down from Albany to see what was wrong with New York, reported that "there are annually cut off from the population by disease and death enough human beings to people a city, and enough human labor to sustain it."(12) Nevertheless, experts testified that compared with uptown, rents were from 25 to 30 per cent higher in the worst slums of the lower wards.(13) Not only were the rents higher in the slums than uptown, but the conditions were far worse. Examples of these conditions were such accommodations as were enjoyed, for instance, by a "family with boarders" in Cedar Street, who fed hogs in the cellar that contained eight or ten loads of manure; or "one room 12x12 with five families living in it, comprising twenty persons of both sexes and all ages, with only two beds, without partition, screen, chair or table." The rate of rent has been successfully maintained to the present day, though the hog at least has been eliminated.(14) New York's strategic position as a world market and financial center produced a new flood of workers during World War I, but the "free market" responded only with shortage and overcrowding. Rent controls were first imposed in Washington, D.C. and New York City when patriotism alone proved insufficient to forestall the shameless spectacle of rampant wartime profiteering. Professor Epstein counts on the forgetfulness of the public. The recurring theme that rent controls cause shortages simply puts the cart before the horse. Recurring shortage is a proven fact of life under a "free market" economy. This is not the fault of controls but rather the reason for their existence. How else does Professor Epstein explain the great waves of homelessness in the 1930B, when there were no rent controls? How does his law of supply and demand apply when huge numbers of unemployed workers don't have enough income to pay for a cup of coffee, let alone an apartment? There were vacancies in the "free market" thirties, but the army of unemployed couldn't take advantage of them. The ravages of the depression years led the enlightened voters of New York State to adopt a new constitution that recognized that "the aid, care and support of the needy are public concerns and shall be provided by the state and . . . its subdivisions."(15) The new constitution authorized state agencies to build and finance housing for the millions excluded from decent apartments by the ruthless dictates of the "free market."(16) Current controls trace their roots to the end of World War II, when Congress once again found it necessary to protect war industry employees and their families from the widespread profiteering that seems to go hand in glove with the scarcity of rental housing. After the war, Congress adopted a national goal of providing a decent home for every American family.(17) At the same time the New York State legislature enacted a program of strict rent controls that covered all rental housing, including stores.(18) Ironically, the same neoconservatives who wax nostalgically for the mythical free market look back with great fondness to the 1950s as a period of decent, secure, and stable rental housing when abandonment was unknown and homelessness was confined to the Bowery. Yet it was in that decade that rent controls were most stringent, with only exceptional increases granted upon a proper showing of hardship. Only Lyndon LaRouche would suggest that socialist thinking dominated the administrations of President Eisenhower or Mayor Wagner when tough rent controls were the rule. At that point in our history a thriving economy and a powerful labor movement produced a willingness among owners to share some benefits with the public. The lean years since then have put an end to that kind of largesse on the part of the real estate industry. II. THE ILLUSION OF CONTROLS For twenty years the sad truth for Big Apple tenants has been the disappearance of all but the illusion of controls. Since 1969 the potency of New York City's rent laws has been diluted by a stream of decontrol ordinances, permissible rent increases, ineffective administration, and judicial disdain. In the late sixties the great Rockefeller rent "reforms" - rent stabilization, maximum base rent (MBR), and vacancy decontrol--set the stage for the inevitable destruction of the entire rent regulatory system. These subversive measures eventually resulted in automatic rent increases without reference to an owner's profits or ability to pay for repairs. The bureaucratic morass was turned against tenants. Rent stabilization, the "less onerous form of rent regulation,"(19) was at first viewed as a thoughtful response to rent gouging in the postwar apartment buildings exempt from traditional controls. An industry-wide association of owners would design and fund the system, which would then be administered by quasi-public bodies with enforcement and rent- setting responsibilities.(20) Anyone familiar with the fable of the fox guarding the chicken coop could have predicted the effectiveness of this new brand of controls. In twenty years stabilization has replaced controls as the city's basic system of rent regulation. Since 1971 controls have been lifted from a million apartments leaving less than one hundred fifty thousand still protected. Stabilization, the weaker brand of protections, now extends to a million households. Under the governing code, stabilized rents are initially determined by the "free market" and then subjected to a variety of "adjustments"(21) that guarantee that tenants will pay many times over for any possible increase in a landlord's costs. In addition to regular lease renewal adjustments, the code provides for a generous array of vacancy adjustments,(22) supplemental adjustments,(23) renovation adjustments,(24) and the biggest boondoggle of them all, the so-called major capital improvement adjustments.(25) Rent stabilization is intended to "prevent exactions of unjust, unreasonable and oppressive rents and rental agreements and to forestall profiteering."(26) Despite that sobering mandate, the city's rent guidelines board has never once examined owner profits or the effects of its endless increases on the city's struggling tenants. Each year the price index is used to rationalize hefty giveaways to the same stabilized owners who contribute generously to the mayor's campaign fund.(27) By conservative estimates, a stabilized tenant paying $200.00 a month in 1969 would now pay $550.12.(28) Assume one or more vacancies in the last twenty years and that figure could be up in the stratosphere somewhere. Pick up today's New York Times and check the real estate section if you think that is an exaggeration.(29) A. Maximum Base Rents (MBR) The MBR system was designed to infuse controlled apartments with some desperately needed cash for operation and maintenance. Under the system, artificially low rents would gradually be raised to a fair rent to be determined for every rent-controlled apartment by the local rent office. The local office would provide a profile of the reasonable expenditures attributable to each unit based on a sampling of miscellaneous data.(30) Anyone who reads the MBR law can only conclude that here is a law that was designed to self-destruct. There is no way that mission control at Cape Canaveral, much less the civil servants at the New York City Office of Rent Control, could begin to fathom the Einsteinian complexities of this law.(31) The law's mandate that an individual MBR be calculated for every rent controlled apartment proved an impossible task for an already overburdened rent office even after the assignment of every available worker to do nothing but process MBR applications.(32) To everyones' relief but the tenants, the courts soon responded to a barrage of real estate industry initiated lawsuits by ordering the agency to issue MBR orders without regard to the calculations required by the law.(33) From then to the present, the MBR system has meant guaranteed yearly increases of 7-1/2 percent for practically all remaining rent controlled apartments. To qualify, a landlord need only certify that last year's violations were substantially corrected and essential services are maintained. The real estate industry loves to disseminate horror stories about tenants still paying $60.00 a month for a spacious rent controlled apartment. But any rent controlled tenant paying $100 a month in 1971 should now be paying at least $341.90 under the MBR system, and this doesn't include the annual fuel cost pass- alongs and other increases permitted under controls.(34) B. Vacancy Decontrol The centerpiece and coup de grace of the Rockefeller reforms was vacancy decontrol. After June 30,1971, any vacated, controlled, or stabilized apartment would go on the "free market." Consistent with the spirit of efficient regulations, the theory was that no one would be hurt and the landlord would actually benefit. In addition, the rent increases would redound to the credit of all tenants through better maintenance and repairs. Unfortunately, the only thing generated by vacancy decontrol was mass displacement as four hundred thousand controlled apartments were emptied during a three-year reign of terror.(35) Every conceivable technical lease violation rose to the magnitude of a "substantial breach" as owners bombarded the landlord-tenant court with baseless holdover proceedings. A hiccough became a nuisance. During this period of undiluted vacancy decontrols, I represented an elderly couple accused of throwing wild parties at all hours and a family accused of using too much toilet paper. Tens of thousands of spurious eviction proceedings were settled in court by unrepresented tenants agreeing to vacate their apartments. A typical landlord-tenant court settlement scenario would involve the civil court judge turning to the tenant with a plea that went something like this: Look, I don't know who's telling the truth here. Frankly it's hard to believe that a nice lady like you would destroy your own ceiling. But you have to understand that if I find for the landlord I can only give you a short time to get out. Wouldn't it make more sense to come to an agreement and take your time moving out and not even have to pay rent for a few months? I know you've been living there thirty years, but, after all, it is the landlord's building. The average civil court judge of that period would have no problem with the Epstein dicta that any kind of paper ownership takes precedence over a tenancy, no matter how long its duration. When the state legislature finally called a halt to this madness with the enactment of the Emergency Tenant Protection Act of 1974,(36) which ultimately had the effect of returning vacancy decontrolled apartments in larger buildings to stabilization regulations, a final structural flaw was built into the system. Since that time rent controlled and rent stabilized tenants have coexisted in the same buildings. These tenants have wildly disparate rents subject to different regulatory systems depending on the date a tenant moved in. A greater nightmare for tenant organizers could not have been devised. Those who worked with Rockefeller to concoct this monstrous illusion of controls did an expert job. III. THE LAW OF SHORT SUPPLY AND GREAT DEMAND I'm no economist, but it seems to me that Epstein's calculations miss the whole point of rent controls--to protect the millions of people who through no fault of their own simply cannot compete in an overheated rental market.(37) The following piece of fortune cookie wisdom typifies the flaw in Epstein's argument: "The nonrenewal of a lease should not be regarded as a bad social event because someone else with a greater willingness to pay now enjoys the unit."(38) "Willingness" is an appropriate term in the Epsteinian universe. In the real world the operative word is "ability." You don't have to be a Marxist to understand that the free market is an ideal rather than an actuality, light years removed from the operation of any real twentieth century city. The lease of a residential apartment in today's Big Apple is not a bargained-for exchange but rather a contract of adhesion, a one- sided "agreement" for a necessity of life offered on a take it or leave it basis by the party who drafted it. The standard form residential lease is an encyclopedia of concessions wrung out of tenants who have no choice but to sign or look elsewhere. Most apartment hunters are so thrilled to find a place they don't even bother reading the lease. For over a hundred years, long before the first rent controls, New York's rental market has been governed by the law of short supply and great demand. The city's position as a world cultural and financial center guarantees a demand for housing from around the globe. New Yorkers must compete for scarce available rental units with investors from Hong Kong and yuppies from Cincinnati. With no restraints on surging rents, half of our current population could be squeezed out of their homes. Where will they move? Outside of Epstein's ivory tower, where are the more "efficient" units to which lower-income people can relocate? The battle of Yonkers is symptomatic of the continuing suburban hostility to subsidized housing. "Least-cost" housing, a la Mount Laurel,(39) is hardly a popular or satisfactory alternative, and so far only New Jersey has recognized a constitutional mandate for its construction. Does Professor Epstein seriously believe that the market will provide affordable housing? In the past the market has tolerated armies of homeless. Why not now? IV. SOVEREIGNTY AND PROPERTY RIGHTS Across the street from Brooklyn's housing court an enormous sign shouts the credo of the American Property Rights Association: PROPERTY RIGHTS IS THE FOUNDATION OF ALL HUMAN RIGHTS(40) Now even the Rehnquist court can be judged a traitor to the cause as Professor Epstein argues for a return to the absolutist conceptions of private property, once thought dead and buried with the pre-Roosevelt era. Fifty years ago, the great New York City College philosophy professor Morris Raphael Cohen did a marvelous job of debunking attempts to read absolute values into constitutional property rights. In his classic "Property and Sovereignty," Professor Cohen traced the evolution of the term property to the relative willingness of a particular society to recognize private ownership as a form of sovereignty, the "essence of which is always the right to exclude others."(41) According to Professor Cohen, "The issue before thoughtful people is therefore not the maintenance or abolition of private property, but the determination of the precise lines along which private enterprise must be given free scope and where it must be restricted in the interests of the common good."(42) Professor Cohen cited Holdsworth's remarks to effect that "at no time can the State be wholly indifferent to the use which owners make of their property."(43) Accordingly, "Our students of property law need . . . to be reminded that not only has the whole law since the Industrial Revolution shown a steady growth in ever new restrictions under use of private property, but that the ideal of absolute laissez faire has never in fact been completely operative."(44) Professor Cohen analyzed the four principal justifications for the protection of private property in a commercial monetary society. Two such justifications are the labor theory, holding that property owners have earned the right to enjoy the fruits of their labor, and the occupation theory, which is based on the "assumed right of the original discoverer and occupant to dispose of that which thus became his."(45) These two justifications would hardly apply to today's real estate market. Rather, inherited wealth, often initially "acquired by the labor of many, by conquest, by business manipulation,"(46) is used to flip heavily leveraged buildings from one owner to another, in and out of corporate shells. A third justification was derived from "the individual's right to act as a free personality. To be free one must have a sphere of self-assertion in the external world. One's property provides such an opportunity."(47) To this justification, Professor Cohen answered: [T]he primary effect of property on a large scale is to limit freedom, since the one thing that private property law does not do is to guarantee a minimum of subsistence or the necessary tools of freedom to everyone. So far as a regime of private property fails to do the latter it rather compels people to part with their freedom.(48) The final justification for the rights of private property is the economic theory that maximum productivity is promoted by "recognizing the successful businessman as the best director of economic activities.(49) The trouble with this rationale is that Donald Trump, Harry Helmsley, and the other leaders of the Big Apple real estate industry are currently hoarding forty thousand apartments while an even larger number of families live in the streets. Nothing in the rent laws force a landlord to rent a vacant apartment. Most of the vacant apartments could bring market rents. Epstein's theory of efficient regulation focuses on the wastes promoted by controls, and no doubt there are some, although exactly where and when the absence of waste became a constitutional prerogative I'll never know. But the wastes cited by Epstein are hardly in the same league as "the inherent sources of waste in a regime of private enterprise and free competition."(50) If the biologic analogy of the struggle for existence was taken seriously, we should see that the natural survival of the economically fittest is attended, as in the biologic field, with frightful wastefulness. The elimination of the unsuccessful competitor may be a gain to the survivor but all business failures are losses to the community.(51) In the final analysis, a regime of private ownership is "too apt to sacrifice social interests to immediate gain," a tendency come to full flower at the dawn of the post-Reagan era.(52) V. CONFISCATION AND CLOSED BOOKS Epstein's theory boils down to this: The Constitution requires that all branches of government must pay landlords for the privilege of regulating profiteering and rent gouging. All rent controls are per se unconstitutional as prima facie takings without consideration of the actual law involved or the question of whether or not the landlord may actually be making a killing. The government is free to subsidize private real estate transactions, but never to regulate. At first blush this appears to be quite a departure from traditional principles of confiscation. Almost a hundred years ago the New York Court of Appeals denied an owner's plea that his property had been confiscated by a new health code provision requiring the installation of running water in tenement buildings. The court stated, "Anyone in a crowded city who desires to erect a building is subject at every turn almost to the exactions of the law with regard to provisions for health, for safety from fire and for other purposes."(53) Authority for such measures is derived from no less authority than "the sovereign duty of each state to maintain decent standards of living."(54) Ordinarily, to prove confiscation an owner must show that an otherwise valid regulation has left the property without any economically viable use.(55) Here is the real genius of Epstein's theory. Landlords can leave their books and records at home. Losses will be presumed under any system of controls. Actual profits and expenditures are irrelevant. Unless owners are fully reimbursed, rent controls add up to confiscation any way you hold the calculator. The remarkable irony is that even under the theory of efficient regulation, New York City's current web of rent regulations should still pass constitutional muster! In New York City, basic increases for both controlled and stabilized apartments are routinely granted without reference to an owner's profits or expenses, let alone hardship to the tenant. The MBR system governing annual increases for controlled apartments assumes a standard monthly maintenance and operating expenditure.(56) The annual Price Index of Operating Costs, relied upon by the New York City Rent Guidelines Board for setting yearly stabilized increases, assumes that landlords are providing a "basket" of goods and services.(57) Owners benefit from these regular increases whether or not they fill their baskets or their fuel tanks. All supposed increases, including attorney's fees and real estate taxes,(58) are more than amply compensated by the annual guidelines adjustments. Under the current system of regulations tenants are made to pay perpetual rent increases for every penny the industry pretends to lay out. How can a system which begins at market and then makes tenants pay through the nose for every imaginable expense deprive a landlord of just compensation? VI. No SHORTAGE OF FAULTY ASSUMPTIONS In the post-Orwellian wisdom of the real estate industry, higher and higher rents will lead the way to more affordable housing. The kindest thing a landlord can do is raise the rents. Tenants everywhere should rejoice! Controls discourage the construction and rehabilitation of housing and the turnover of underutilized apartments, thereby causing the very shortage they were intended to ameliorate. Indeed, this is a very compelling postulate but for the fact that it has no relation whatsoever to the actual workings of the Big Apple real estate market. To illustrate my point allow me to ask a few questions. How can rent controls discourage the construction of affordable housing when the coat of land and construction already precludes its development? Anyone who drives up East River Drive knows that the only housing being developed today is designated "luxury." Outrageous land values, completely out of whack with existing rent rolls, are the rule in Manhattan, the outer boroughs, and other areas around New York City. There is presently a huge demand for affordable housing but the market is ignoring it. How would the elimination of controls change that circumstance? Rent controls never apply to housing yet to be constructed, only to existing rentals where the market sets the first rent.(59) Even if all controls were abolished tomorrow how could the city convince a developer that controls would not be reinstituted at some future moment of political turmoil? As long as market forces provide a demand for [usury accommodations and a profit in speculation via warehousing, what is there to prevent rents in the turned over apartments from remaining above the levels that an average family can afford to pay? Indeed, "[t]oo often today an empty building is economically more advantageous to its owners."(60) The overriding flaw in the assumption that controls cause shortages is the refusal to recognize that the "opportunities" created by the elimination of controls will not be available to most of the families who now live here. In the theory of efficient regulation, poverty is an unknown concept. A FINAL PERSPECTIVE "No community can view with indifference the exploitation of the needy by commercial greed."(61) Twenty years ago the city's housing czar Roger Starr proposed a master plan involving "planned shrinkage" of low-income neighborhoods.(62) Looking back we can see that even though the terminology proved embarrassing, the plan itself went forward on all fronts. An enormous and multifaceted giveaway to the real estate industry became the basic tenet of municipal housing policy. Huge incentives and tax abatements were granted for the development of [usury housing. Code enforcement became a "voluntary" system.(63) Restrictions on co-op and condominium conversions were loosened. In the ensuing years, the city's rental stock was placed out of the reach of the average family. Hindsight now makes clear that our current rent regulations were designed as a part of that same master plan. At their best controls are designed as a stopgap measure intended to protect tenants in possession. They will not help to create new affordable housing, nor does the evidence indicate that they deter the construction of new housing or lead to the abandonment of existing housing.(64) Twenty years after the Rockefeller "reforms" subverted the entire system of rent regulations, we have witnessed the disappearance of all but the illusion of controls. For all their angry invective, the real estate industry is probably better off with the current system then with no controls at all. The current system provides a convenient scapegoat, the bureaucracy, and a powerful ally, the government, to endow the most outrageous rent increases with an official stamp of approval. Under the circumstances, it hardly seems sporting of Professor Epstein to be shouting "Confiscation!" -------------------------------------- 1 Nearly half (46.7 percent) of all rent stabilized households pay more than 30 percent of their income for rent. 32.3 percent pay more than 40 percent and 24.3 percent (nearly a quarter of all households) saw more than half their income go to the landlord. BUREAU OF THE CENSUS, HOUSING DIVISION, 1987, NEW YORK CITY HOUSING AND VACANCY SURVEY 77 (available at the United States Department of Commerce, Bureau of the Census, Regional Office, New York City). 2 New York City's real estate industry spends a lot of time and money promoting the notion that most apartment owners are "small" owners with less than twenty-five apartments. See, e.g., The Owners of New York's Rental Housing: A Profile Submitted in May 1985 to the Rent Guidelines Board by the Rent Stabilization Association of New York City, Inc. However, this is misleading as it is also true that most apartments are owned by the big owners. "The small 12 percent of landlords who own 71 percent of the stabilized apartments own on the average 238 apartments each." New York State Tenant and Neighborhood Coalition submission to the board (June 19, 1987). 3 At a May, 1987 meeting of the New York City Rent Guidelines Board, one of the public members, a banker, expressed curiosity about the fact that the median stabilized rent of $377.24 was only slightly lower than the median decontrolled market rent of $398.17. The obvious answer --- that stabilization offers illusory protections --- did not appeal to her. Note that the "average" rent for stabilized units has now risen to $423 a month (Figures taken from a June 13,1988 report to the board prepared by the Executive Director, Eric Weinstock, based upon statistics in the 1987 HOUSING AND VACANCY SURVEY n.1.). 4 In those days, agrarian leases provided not only for cash payments but also for personal service to the landlord, as witnesses the following clause in a 1766 lease: It is well understood that the lessee is holder, over and above the aforesaid rent, during the winter season, to cut in the Forest for the Patroon ten pieces of oak or fir wood, which shall be pointed out to him, and bring the same to the shore; also, every year, to give three days service with his wagon and horses, to the Patroon or his guardians; also, each year two fathoms of hickory or other firewood; further, to deliver yearly to the Director as quit-rent, one half mud (two bushels) of wheat, five and twenty pounds of butter, two pairs of fowls. Lease between the guardians and tutors of Jean Van Rennsalaer, Patroon of the colonie called Rennsalaerwick and Arent Van Curler dated the first of May, One Thousand Six Hundred Eight and Forty (photostat facsimile available in the files of Brooklyn Law Review). Contrasted with the onerous terms of the tenant-farmer leases, the "lords of manors, no less than great patentees, paid extremely low quit-rents." I. MARK, AGRARIAN CONFLICTS IN COLONIAL New YORK 1711-1775 60 (1940). Thus, Van Cortlandt's 86,000 acres called for 40 shillings per annum, Philipse's 156,000 acres, £ 4, 12 shillings; Livingston's 150,000 acres, 28 shillings; Rensselaerswyck's 1,000,000 acres, 50 bushels of wheat; Scarsdale, £ 5; Pelham, 20 shillings; Morrisania, 6 shillings; Fordham, 20 bushels of peas; Lloyd's Neck, 4 bushels of wheat. Nor were these token payments always made. The disparity between the consideration paid and the value received led to the charge of fraud. What, then, would the man who ran a plow over these very lands think of the exactions of the Livingstons, the Philipses, the Van Cortlandts, and the Van Rennselaers made upon him? ID. 5 Id. at 65. 6 Nowadays tenants are the ones who generally demand jury trials, so not many people remember that article I section 2 of the New York State Constitution, which guarantees the right to a jury trial in an eviction proceeding, owes its existence to a period in history when a tenant could not vote or sit on a jury. In modern times the judiciary has blocked attempts by tenants to exercise this constitutional right by uniformly upholding the legality of standard form jury waivers. See Avenue Assoc. v. Buxbaum, 83 Misc. 2d 719, 373 N.Y.S.2d 814 (Sup. Ct. App. T. 1st Dep't 1975), summarily reversing the well-reasoned decision of Judge Leonard Cohen, Ave Assoc. v. Buxbaum, 83 Misc. 2d 134, 371 N.Y.S.2d 736 (N.Y. Civ. Ct. N.Y. Cty. 1975). 7 4 J. SULLIVAN, NEW YORK STATE---A HISTORY 1523-1927 1688-90 (1927). 8 J. Riis, How The Other Half Lives 9 (1890 & photo. reprint 1970). 9 Id. at 7. 10 Id. at 10. 11 Id. 12 Id. 13 Id. at 11. 14 Id. 15 N.Y. CONST. art XVII, sec. 1. 16 Id. art. XVIII. 17 See 42 U.S.C. sec. 1441 (1982). 18 N.Y. UNCONSOL. LAW sec. 8581-97 (McKinney 1987 & Supp. 1988). 19 Sullivan v. Brevard Assoc., 66 N.Y.2d 489, 494, 488 N.E.2d 1208, 1211, d98 N.Y.S.2d 96, 99 (1985). 20 The mayor would appoint the members of the conciliation and appeals board (CAB), the administrative arm of the system, and the rent guidelines board (RGB), the rent-settling body and the only part of the original system still in operation. Presently three of the RGB's five "public" members, including the chairman, are investment bankers for large brokerage houses. The present New York City administration should expand its myopic concept of who can serve the public interest. 21 Read "increase." The code's drafters had a gift for euphemism. 22 N.Y. UNCONSOL LAW sec. 2522.5(a) (McKinney 1987 & Supp. 1988). Last year the ROB's three banking members joined forces with the two owner representatives to approve consecutive yearly vacancy increases. Vacancies in both 1987 and 1988 will generate a substantial vacancy allowance for some lucky owners. 23 Id. sec. 2522.4(a)(2). The supplemental low-rent increases imposed by the board for the past four years have pretty much eliminated affordable housing for low-income people in the city. Tenants have dubbed the supplemental increase a "poor tax" since it falls most heavily on low income tenants. 24 Id. at (1). It always amazes me how the same owners who complain that they can't afford to make basic repairs are able to completely renovate an apartment after the tenant vacates. In addition to the tax benefits, contained in section J51-2.5 and recodified as section 11-243 of the administrative code, the code permits an owner to pass on 1/40th of the cost as a perpetual monthly rent increase. N.Y. UNCONSOL. LAW sec. 2522.4(a)(4). 25 Id. sec. 2422.4(a)(2). The incredible profit to be reaped through the installation of new windows, a boiler, or any such "improvement" was underscored by an article entitled, How to Beat 8 Common Tenant Challenges to MCI Rent Hikes, N.Y. Apartment Law Insider, Jan., 1988, at 1. The piece cited authority for the proposition that it made no difference that the major capital improvement (MCI) enhanced the buildings resale value; that it gives the owner tax benefits; that it is not wed by nor benefits the tenant; that it was unneeded; or that it was made by a prior owner. Only recently, thanks to a campaign spearheaded by the Association of Neighborhood Housing and Development, have the New York State Division of Housing and Community Renewal and the courts begun to attack the most outrageous aspects of the MCI bonus. The new code limits yearly MCI increases to 6 percent consistent with Bryant Ave. Tenants Ass'n v. Koch, 71 N.Y.2d 856, 522 N.E.2d 1041, 527 N.Y.S.2d 743 (1988). Senior citizens are now protected from exorbitant MCI increases. See NEW YORK, N Y., ADMIN. CODE ch. 4, sec. 26- 601 (1986 & Supp. 1988). Most recently, a Manhattan Supreme Court judge ruled that the policy of perpetual increases violates the intent of the law. See Ansonia Residents Ass'n Inc. v. New York State Div. of How. & Community Renewal, 533 N.Y.S.2d. 175, 179 (N.Y. Sup. Ct. N.Y. Cty. 1983) (Glen, J.). 26 Stein v. Rent Guidelines Board, 127 A.D.2d 189, 514 N.Y.S.2d 222, 223, 24 (1st Dept 1987) (Citing Administrative Code section YY 51-1.0) (current version at N.Y. UNCONSOL. LAWS: 6-501 (McKinney 1987)). 27 In 1988 Brooklyn Borough President Howard Golden strenuously objected to the mayor's tactics in bypassing normal Board of Estimate approval for funds for the annual price index. In 1987, after the Board of Estimate had refused to pay for the price index, which presents only the owner's side of the story, the mayor somehow persuaded Urban Systems Research and Engineering, which had conducted prior studies, to perform this one gratis. In 1988, the city administration ignored requests by the Guidelines Board for a broader research agenda, including studies of owner profits and property values, and instead somehow managed to get the City University Research Center to fund a study eventually conducted by a Cambridge firm. See note 57 infra for comments on the 1988 Price Index. 28 See Explanatory Statement and Findings of the Rent Guidelines Board in Relation to 1988-1989 Lease Increase Allowances For Apartments Under the Jurisdiction of the Rent Stabilization Law, table 14-Calculation of Operating and Maintenance Cost Ratio for Rent Stabilized Buildings in 1972 to 1985. 29 Consider the following typical listing for an unfurnished apartment in Manhattan: "Lg 1 BB, 1 bth, lg bay wndw, steal (sic) at $2400 mo." N.Y. Times, Feb. 7,1989, at Bl2, col. 6. 30 NEW YORK UNCONSOL LAW sec.sec. 26-401-15 (McKinney 1987); id. sec.sec. 2201.4-.6. 31 Try reading the following snippet from the MBR law stooped over, with cigar in your mouth, wiggling your eyebrows a la Groucho's "The party of the first part": The room index values assigned to each housing accommodation shall be adjusted for floor location. In a building without an elevator, the value computed in accordance with paragraph (1) of his subdivision shall be reduced by two percent for each floor above the middle floor, and increased by two percent for each floor below the middle floor. In a building with one or more elevators, the value shall be increased by one percent for each floor above the middle floor and reduced by one percent for each floor below the middle floor. As used in this paragraph, the "middle floor" is, in a building with an odd number of floors, the floor midway between the top and bottom floors, and in a building with an even numbers of floors, the midpoint between two floors so located that it has an equal number of floors above and below it. Id. sec. 2201.4(e)(3). 32 Interview with Edward Dobkin, my father, who worked as an attorney presiding over certificate of eviction hearings for the Bronx Office of Rent Control (Jan. 19, 1989). 33 See In re 89 Christopher Inc. v. Joy, 35 N.Y.2d 213, 318 N.E.2d 776, 360 N.Y.S.2d 612 (1974); In re Benson Realty Corp. v. Walsh, 71 Misc. 2d 339, 335, N.Y.S.2d 962 (N.Y. Sup. Ct. N.Y. Cty. 1972). 34 See, e.g., N.Y. UNCONSOL LAW sec. 2202.4 (increased services or facilities, substantial rehabilitation, major capital or other improvements); id. sec. 2202.5 (voluntary written agreements); id. sec. 2202.6 (increase in subtenants or occupants); id. sec. 2202.7 (unique or peculiar circumstances); id. sec. 2202.8 (return on capital value); id. sec. 2202.9 (unavoidable increases in operating costs in small structures; id. sec. 2202.10 (unavoidable increases in operating costs in "other specified" (big) structures); id. sec. 2202.11 (labor costs in excess of maximum base rent allowance); id. sec. 2202.12 (rehabilitation or improvement under government financed program or other approved program); id. sec. 2202.12 (fuel cost adjustments). 35 See Keating, Landlord Self-Regulation: New York City's Rent Stabilization System 1969-1985, 31 J. Urb. & Contemp. L. 77, 93 (1987) (citing N.Y. UNCONSOL LAW sec. YY51-3.0(a)(1) (McKinney 1987 & SUPP. 1989)). 36 N.Y. UNCONSOL. LAW sec. 8621-34 (McKinney Supp. 1987). 37 As to idea of efficiency being the sole criteria for judging regulations -- Mussolini is said to have made the trains run on time, but fortunately his ideas for governing were rejected by the Allied armies and the Italian partisans. When push comes to shove, is it really efficient for the city to spend billions of dollars to create affordable housing at the same time it eliminates the same precious commodity by pressing for exorbitant rent hikes? How are the interest of taxpayers factored in to the theory of efficient use? 38 Epstein, Rent Control and the Theory of Efficient Regulation, 54 BROOKLYN L. Rev. 741, 762 (1988). 39 See Southern Burlington Cty. N.A.A.C.P. v. Township of Mount Laurel (Mount Laurel II), 82 NJ. 158, 456 A.2d 390 (1983). 40 Sic 41 Cohen, Property and Sovereignty, 13 Cornell L.Q. 8,12 (1927). 42 Id. at 21. 43 Id. at 23 (quoting 8 W. Holdsworth, History of English Law 100 (1926)). 44 Id. at 22. 45 Id. at 15. 46 Id. 47 Id. at 18. 48 Id. at 18, 19. 49 Id. at 19. 50 Id. at 20. 51 Id. 52 Id. 53 Health Dep't v. Rector, 145 N.Y. 32, 39 N.E. 833 (1895). 54 Cohen, supra note 41, at 10. 55 See Sadowsky v. City of New York, 732 F.2d 312 (2d Cir.), aff'g, 578 F. Supp. 1577 (S.D.N.Y. 1984) ("Neither the fact that appellants might have to sell their property because of financial hardship under the statute, unable to recoup their costs required a finding that a taking had occurred."). 56 N.Y. UNCONSOL. LAW sec. 2201.4(3)(c)(2). 57 The legitimacy of the yearly price index even as a measure of owners' rising costs is highly questionable. No audit to verify the results has ever been attempted. The relative weights accorded to each price component have not been reevaluated in many years, leading the New York City Rent Guideline Board's last chairman to conclude in 1987 that "these weights may now be obsolete." Last year, after criticizing the prior years' supplier sample as unreliably small, the research institute commissioned to do the study came in which an even smaller sample. New methodology required them to discard much of the sampled information as unreliable. In a separate study of prices of hotels, the firm apparently relied on verified information obtained from only five hotels. 58 Under Real Property Law section 234, a landlord may be required to pay the tenant's attorneys fees if the landlord loses an eviction proceeding. By including attorneys fees as one of the compensable administrative expenses to be passed along by the price index, landlords are free to commence spurious eviction proceedings and make their tenants pay for them. See N.Y. Real Prop. Law sec. 234 (McKinney 1968 & Supp. 1988). 59 Rent controls will apply to new construction if the owner has received a substantial government subsidy or tax abatement. Professor Epstein apparently has no problem with the constitutionality of using public funds to subsidize private real estate development -- the basic housing policy of the dawn of the post-Reagan era. 60 Miller v. Notre Dame, N.Y.L.J., Dec. 17, 1980, at 11, col 4 (N.Y. Civ. Ct. N.Y. Cty. Housing Part) (George, J.). 61 Cohen, supra note 41, at 23. 62 See generally R. Starr, America's Housing Challenge: What It Is And How To Meet It (1974). 63 Testimony of Assistant Commissioner Harold Schultz before the Manhattan Rent Guidelines Board (June 8, 1988) (available at the office of the New York City Rent Guidelines Board, 51 Chambers St., Manhattan). 64 Professor Peter Marcuse analyzed a 1978 abandonment survey of 133 cities surveyed by the United States Comptroller General. He concluded that "abandonment takes place, and as severely, in cities without rent control as in cities with it." Marcuse, "Housing Abandonment, Does Rent Control Make a Difference?" ii (June 1981) (public policy report prepared for the Conference on Alternative State and Local Policies) (available in the files of Brooklyn Law Review). The many complex factors leading to abandonment are beyond the scope of this paper.