CTRC Fact Sheet Index
TenantNet note: These Fact Sheets were published by CTRC in the mid-1990's. Some information
will be out-of-date. As far as we know, there have been no updates to these fact sheets. While much of the information may
still be valid, the reader should exercise caution.
RENT REGULATION IN NEW YORK CITY -- Background
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The Community Training Resource Center (CTRC) is a city-wide not-
for-profit organization that champions the rights of modest and
low-income tenants and promotes the preservation, improvement,
and expansion of affordable housing. CTRC provides training and
technical assistance for neighborhood housing groups, community
based organizations, legislative staffs and social service
providers.
CTRC produces fact sheets on tenants' rights, develops and
publishes research reports, and provides a written guide to New
York City government processes. CTRC advocates on budget policies
that affect housing and related services in low-income
neighborhoods. CTRC has led the campaign for the improvement and
expansion of the city's Housing Maintenance Code inspection and
enforcement services.
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RENT REGULATION IN NEW YORK CITY
by Stanley Panesoff and Kevin Ryan
May 1995
BACKGROUND
New York City has a long history of troubled housing. As far back
as the early 1800's the average resident in the city found the
available housing to be unsafe, unsanitary, overcrowded, and
overpriced. The New York City rents far exceeded the levels that
prevailed in other cities in the northeast. The reason for this
may partly be explained by the rapid commercial growth of the
city, attracting large numbers seeking ready employment. New York
was soon to be the busiest port in the world, while still
basically concentrated at the tip of Manhattan.
When the city fathers sought to expand public transportation
northward opening up more of Manhattan for development, prominent
landowners opposed the suggested expansion believing it would
dilute the value and exclusivity of their real estate. Planned
scarcity was the tactic used, unaffordable rents were the
results.
The landowners had nothing to fear. In the ten years between 1870
and 1880 more than 22,000 shoddy, airless tenements were built,
37,316 such structures in lower Manhattan housing an impacted
population of 1,093,791. The district became the most densely
populated area on the planet, with inhabitants packed in at more
than 290,000 to the square mile. In his book, "How the Other Half
Lives," first published in 1890, Jacob Riis pointed out a common
situation: "In a room not thirteen feet either way slept twelve
men and women, two or three in bunks set in a sort of alcove, the
rest on the floor." Three fourths of the citizens of New York
lived in similar slum conditions, contributing to a level of
disease, crime, and human misery difficult to imagine.
These poorly constructed tenements, built to accommodate the
arrival of successive waves of new immigrants, and considered
"temporary housing" at the time, still stand. One hundred fifteen
years later they bear witness to this city's chronic inability to
meet the housing needs of its population. In fact, more than 40%
of New York City tenants currently live in either "old law" or
"new law" tenements constructed before 1929.
Once again, New York has become an immigrant city with more than
one third of its inhabitants born outside the US. And again,
living space not quite fit for human habitation has been
"constructed" to house the newcomers. In various densely
populated ethnic neighborhoods, one family apartments have been
illegally subdivided to house five or more families with up to
thirty individuals. Warehouse buildings, factory lofts, and
commercial spaces have been cut up into 6 ft. x 9 ft. plywood
cubicles, resembling primitive jail cells, and comprise illegal
housing for thousands of individuals, in violation of all
existing building, zoning, health and fire codes. Successive city
administrations seem to have closed their eyes to these horrors.
RENT REGULATION
New York City, today, has a population approaching eight million
people. Most of this population rents its living space, in
contrast to the rest of the country where the majority own their
own homes. New York is overwhelmingly a city of renters. The
Housing and Vacancy Survey of 1993 reported that out of a total
of 2,965,527 residential units, 2,047,016 or 71.2% were rental
units. Over half or 1,080,824 of these units were rent regulated,
either rent controlled or rent stabilized, housing over 2.5
million tenants.
Rent Regulation in New York State is premised on a legislative
finding that a housing emergency exists. A declaration of such
emergency may be made by a local legislative body (city, town or
village) if the vacancy rate for any or all classes of
residential housing is five percent or less. The Legislature has
expressed its purpose in passing these laws; they are to prevent,
in its own words, "speculative, unwarranted, and abnormal
increases in rent" or " unjust, unreasonable, and oppressive
rents and rental agreements" so as to forestall " profiteering,
speculation, and other disruptive practices tending to produce
serious threats to the public health, safety and general
welfare."
In New York City, rent regulation has become an essential
municipal service that promotes the public good. The regulatory
laws effectively accomplish the following vital objectives:
o moderate rents while providing a fair return on owner
investment
o protect tenants from arbitrary and unfair evictions
o promote the preservation of existing housing stock by
setting guidelines and aiding enforcement of housing
maintenance and repairs
Rent regulation is not a subsidy program and does not provide
economic protection for one group at the expense of another. The
laws represent a partial attempt to moderate the serious effects
of a chronic and complex housing problem. In blaming rent
regulation for failure to correct a problem not of its making,
the real estate industry and other "free market" critics are
being less than honest.
TENANTS
If New York is a city of renters, it is also a city of poor
people. The median income for all households in 1991 was $27,000
and it was even less for renter households. Tenants in rent
stabilized apartments had a median income of $24,000 while the
median income for rent controlled tenants, mostly senior
citizens, was $12,000. Approximately 25% of rent regulated
tenants were reported as living at or below the official poverty
level.
Even with rent regulation, rents have consistently outpaced the
national rate of inflation and the Consumer Price Index. A rent
stabilized apartment that rented for $200 per month in 1972 would
now command $497, an increase of 250% not including vacancy
allowances, Major Capital Improvement Rent Increases (MCI's) or
rent hikes resulting from renovations or new equipment
installations. A rent controlled apartment renting for that same
$200 in 1972 would now rent for $674 or an increase of 337% based
on MBR raises alone.
Although tenant income has risen, rents have risen twice as fast
so that tenants have seen, in the past fifteen years, a 31.7%
decrease in their purchasing power as consumers. More than 55% of
regulated tenants were paying more than 30% of their income for
rent. For very low income tenants rents often account for 60--75%
of income.
Preliminary data from the not yet released Federal Bureau of the
Census' 1993 Housing and Vacancy Survey (HVS) indicate that these
trends have not changed:
o Rental housing continues to become more expensive
o Apartments for low-income New Yorkers are almost non-
existent
o One third of tenant households now spend more than 40%
of their income on rent
o Almost a third of all tenants have incomes below the
poverty line
o Overcrowding has become widespread and chronic
OPPOSITION TO RENT REGULATION
Despite overwhelming evidence that rent regulation has provided
some degree of economic sanity and moderation over the years, its
critics have never let up their campaign to plant in the public
mind a picture of it as an evil and destructive system. What are
some of the arguments they have offered and what are the facts?
Argument: Rent Regulation Leads to Abandonment
Of 113 cities reporting significant housing abandonment to the
U.S. General Accounting Office only six had any rent regulation
laws. Abandonment occurs almost exclusively in low-income
neighborhoods where poverty and the inability to pay any rent at
all are the real culprits. Other important factors in housing
abandonment include: population loss because of job loss, racial
and ethnic tensions, bank redlining, and speculators who milk
buildings for fast profits and then walk away.
Argument: Rent Regulation Prevents Owners from Maintaining Their
Buildings
Rent increases generated by the MBR system and the Rent
Guidelines Board have provided generous allowances for the costs
of building operation and maintenance. Additionally there are
lucrative rewards for owners who invest in major capital
improvements: permanent rent increases that pay many times over
the cost of the improvement and liberal tax abatement programs
offered by the city. In fact, HVS figures have revealed that,
typically, there is an inverse relationship between higher rents
and building maintenance expenditures. This further corroborates
an earlier and little known finding: during the period of vacancy
decontrol, 1971-1974, the Temporary State Commission on Living
Costs and the Economy, reported that while rents increased by
52%, funds expended for maintenance, in absolute terms, decreased
by 30%.
Historically, rent regulation has been an important factor in
housing preservation. Rent regulated tenants, whose tenancy is
protected by statute and need not fear asserting their right to a
safe, habitable premises, have played a central role in assuring
that owners maintain their buildings.
Argument: Rent Regulation Freezes Rents or Keeps them
Artificially Low
Contrary to the misleading claims fed to the general public,
regulated rents have not only outpaced national inflation rates,
but are significantly higher than rents in other cities without
rent regulation. In the New York City housing market, with an
overall vacancy rate of 3.44% and a less than 1% vacancy rate for
low-income affordable apartments, there is no normal "market
rent." When people who are desperate for a place to live are
forced to pay oppressive rents, it is unconscionable to call
those rents "market rents". Historically, most societies have
refused to tolerate the economic damage that invariably results
from acute shortages of essential goods and services and have
acted to protect the public welfare through regulatory
intervention. The New York State and City rent regulation laws
are an appropriate, necessary legislative response to a long
standing housing shortage caused by market failure.
Argument: Rent Regulation Benefits only a Few Wealthy White
People in Manhattan
The census studies have shown that rent regulated households have
a median income of $24,000; hardly a definition of "wealthy."
Seventy six percent of all stabilized tenant households and 82.5%
of rent controlled tenant households have incomes of less than
$40,000. Manhattan has 35.5 % of the rent stabilized units
registered in NYC. The other four boroughs account for 64.5% of
rent stabilized units. Finally, the HVS census reports that 61.7%
of regulated tenants in NYC are officially categorized as members
of racial or ethnic minority groups.
Argument: Small Landlords are Being Destroyed by Rent Regulation
Rental housing in NYC is dominated by affluent, well connected
landlords. Over 77% of all rental units are owned by less than
12% of landlords. The current real estate industry campaign to
identify the typical landlord as a neighborhood small property
owner is inaccurate and simply a public relations maneuver. Most
small owners, with just a few properties, in fact, own buildings
with less than six apartments and are not subject to any rent
regulation at all.
Legitimate factors contributing to the problems of small owners
are:
o disproportional city property taxes
o a meteoric rise in water and sewer rates
o lack of skills necessary for efficient property
management
o failure of banks, credit unions and secondary mortgage
lenders to train new owners in rent regulation and
maintenance requirements
o neighborhoods that cannot sustain higher rent levels
o inflated purchase prices paid by unsophisticated buyers
resulting in unsustainable debt, tax arrears and/or
foreclosure
Argument: Rent Regulation Prevents the Construction of New
Housing
New residential housing has not been subject to any form of rent
regulation in New York City or State since 1974. There has been a
free, unregulated, market for residential housing for nearly
twenty two years. Nothing prevents any new construction except
pure market factors, which when analyzed as favorable by
builders, usually results in sporadic bursts of luxury housing
construction. No housing affordable to the typical American
family of low-to-modest-income has been constructed by the
private sector anywhere in the country, where, generally, there
are no rent regulation laws.
Argument: The NYC Tax Base is Eroded by Rent Regulation
In recent years, the real estate industry has repeatedly claimed
that if rents, kept artificially low by the regulatory laws, were
allowed to rise to market levels, New York City's tax base, at a
time of record budget deficits, would gain by over one hundred
million dollars.
The more plausible scenario is that the transfer of wealth (over
six hundred million dollars) necessary to realize the tax gain
would cause severe economic dislocation and a negative impact on
the overall city economy resulting in a net revenue loss.
On a national level, we have already witnessed the effects of a
large transfer of wealth from middle class and working Americans
to the wealthy. As a result of President Reagan's tax "reforms"
in 1982, when a huge transfer was effected, the great majority of
Americans have seen their standard of living fall steadily. Only
twenty percent of Americans have not lost ground or enjoyed
economic gains. We need not repeat these grim statistics on a
municipal level.
IS THERE A VALID ARGUMENT FOR DEREGULATION?
Aside from the obvious motivation of those owners of residential
property who would stand to reap a financial windfall, advocates
of deregulation generally are deeply convinced believers in the
ability of the "free market" economy to solve all of our social
and economic ills. In fact, their thinking attributes most
economic distortions and shortfalls to government intervention in
the private marketplace, which, if left on its own, would provide
the necessary goods and services our society requires.
These advocates argue that should market forces prevail,
deregulation would lead to lots of new construction and with
increased supply, cheaper, more affordable housing. Strangely,
this argument seems to ignore the fact that deregulation already
exists; the marketplace for new residential housing is not
regulated. Yet, contrary to their claims, free market forces have
produced no new affordable housing in twenty two years.
The reasons for this are relatively straightforward but rarely
discussed; affordable housing is unprofitable. The costs of land
purchase, construction, and financing are too high to allow
developers to build moderate-income and/or low-income housing and
make a profit. If federal or state estimates of the cost of
construction of a new apartment unit are accurate ($80,000-
$100,000), then the rent necessary to cover mortgage debt
service, maintenance, and return on investment for that unit
would range from $1200 to $1500 per month. This rent would
require that the occupants have a minimum annual household income
of $48,000 or at least twice the median income of NYC renter
households.
Rent regulation is a consequence of the inability of market
forces to provide adequate, affordable housing, not its cause!
CONCLUSION
Since the acute shortages of World War II, rent regulation has
played a central role in the stability of low-to-moderate-income
neighborhoods by preserving and improving affordable housing for
the people who live there.
The legislature has recognized this important role and has
consistently modified and renewed the regulatory laws with a view
to fairness for both landlord and tenant. Although regulated
rents have risen dramatically, tenants have not had to fear
losing their homes arbitrarily nor suffer reprisals or eviction
for exercising their right to decent living conditions.
Yet the regulatory laws have always been under attack. Over the
years, the opponents of rent regulation have engaged in an
ongoing campaign to weaken its effectiveness. Currently, on all
three levels of government, federal, state, and city, political
administrations hostile to any governmental regulation of the
private sector have taken aim at New York's rent regulatory
system.
On the state level, the "Gubernatorial Transition Housing and
Community Development Committee," appointed by Governor Pataki,
has issued a report highly critical of rent regulation. In its
conclusions, the committee declared that "the administration's
goal must be to dismantle a system that does not work." Both the
committee and a member of the New York City Council have
suggested the immediate deregulation of all apartments in
buildings of six to twenty units. These buildings, mostly pre-
1929 walk-up tenements, house over 300,000 of our poorest tenant
households.
What, in fact, would be the effect of deregulation in this city?
The results are already known to us. In 1971, the New York State
Legislature enacted vacancy decontrol, allowing landlords to set
market rents upon vacancy. Between July 1 of that year, when the
law went into affect, and December 30, 1973, almost 300,000 rent
controlled units were decontrolled and approximately 88,000
stabilized units were de-stabilized.
Tenants were unmercifully harassed and driven from their homes.
The New York City Courts were backlogged with "holdover
proceedings" by landlords anxious to evict their tenants and
create lucrative vacancies. With rents spiraling out of control,
Governor Rockefeller, who had pushed vacancy decontrol through
the legislature, now appointed the "Temporary State Commission on
Living Costs and the Economy" to investigate.
The Commission reported that "rent increases in NYC decontrolled
units averaged 52% above controlled levels in 1972". It went on
to report that "lower priced rental accommodations experienced
the greatest percentage increases under vacancy decontrol,
averaging 60.6% city wide and 74% in both the Bronx and
Brooklyn". At the same time, it reported that operating expenses
had only gone up by 7.9%, while expenditures for service, repairs
and building maintenance, as previously mentioned, decreased by
30% The Commission, in its own words, made the following major
findings of fact: "Vacancy decontrol has neither stimulated new
building construction, stopped abandonment, spurred renovation
nor has it brought substantial new money into the City's housing
stock. It has led to tenant insecurity over tenure and
harassment. Vacancy decontrol has placed an extreme hardship on
the tenants of this state, particularly on the elderly and the
poor....the policy of returning vacant apartments to the free
market has failed because the free market does not exist in the
Metropolitan area".
The state legislature moved to prevent further damage to New York
housing and to stop the disruption and chaos that had descended
on the life of its citizens. The Emergency Tenant Protection Act
(ETPA) enacted in 1974 placed under re- regulation apartments in
buildings of six or more units, thereby returning the housing
market to some degree of order and stability.
Today, New York City suffers from a housing emergency more acute
than ever. It is a city struggling with a swollen population,
dangerous overcrowding, chronically high unemployment, increased
poverty, a declining standard of living and the virtual
extinction of living space affordable to the majority of its
residents. The abuses brought about by vacancy decontrol in the
early seventies offer proof that the city cannot sustain
deregulation. The repercussions of yet another attempt would,
unquestionably, constitute a serious threat to the health, safety
and welfare of its citizens.
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you require legal advice, you should consult with a legal
practitioner licensed to practice in your jurisdiction.
Community Training Resource Center (212)964-7200
47 Ann Street
New York, NY 10038
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