Confiscation Reality:
The Illusion of Controls in the Big Apple


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.