Posted by TenantNet on March 25, 1997 at 09:58:42:
In Reply to: How does rent regulation provide landlords a guaranteed return? posted by Mike Wolffs on March 25, 1997 at 00:19:41:
: To Tenant Net
: In your replies to several postings, you have stated that rent regulation, as
: it currently exists, provides landlords with a guaranteed return. I would appreciate
: it if you could explain the mechanism for this.
Gladly. This question often brings out the wolves and starts circular
flame wars on Usenet. We won't allow things to degenerate like that here,
but it is an honest question and deserves an honest answer.
: It is my observation that rent regulation is a lose/lose proposition for landlords.
: In strong markets, it limits landlords upside return.
That's true. The cost of housing should not flow with the wind, and too
often, especially in New York, real estate values can double or half
overnight based on sheer speculation or expectations. That's one of
several purposes of regulation. It "tempers" the rate of increase of
rents (it does not stop increases).
: In weak markets, it provides
: no protection against falling rents (admittedly a fairly rare occurrence).
When's the last time you saw a rent stabilized unit go down - at least in
Manhattan? I suppose it could happen if the owner chooses to charge less
than the "legal regulated rent", but there needs to be a combination of forces
at work that don't come together too often. No matter the condition of the
speculative market, there exists, at this time, a housing shortage and a
vacancy rate below 5% and that is considered to be an "emergency". As long
as there's demand, few owners will lower their costs even in a bad market
(like the early 1990's). And because regulation encourages long tenancies,
owners are also less likely to encounter massive vacancies in a building.
Regulation does not provide a 100% shield from market forces, but tempers
them just like a baffle.
: I have
: experienced both of these situation in my dealings with the NYC rental market. I rented
: my current apartment at the height (depth?) of the recession. The apartment was sitting
: empty, and the landlord had to cut the rent by over $100/month from the previous tenant in
: order to rent it. Currently, based on my knowledge of rents of similar apartments in my
: building, my apartment is at least $300/month below the current market rent.
But was that a stabilized unit? The stabilized legal regulated rent does not
change based on a bad (or good) market -- at least not in theory. In those
instances where it does happen, then it's operating on free market forces.
In some low-income areas, that does happen -- which is why a) some ethnic
populations and politicians don't place such a high importance on rent
regulation, and b) the "abandonment" touted by idiots as the result of
rent regulation is actually caused by an interplay of many other factors.
: The only mechanism I can see as providing a guaranteed return to landlords would be that the
: regulations discourages vacancies, preventing large numbers existing apartments from
: coming onto the market simultaneously and driving down market rents. In addition, it
: prevents older, smaller building from being emptied, demolished, and replaced with larger buildings,
: having more units. This also prevents apartments from coming onto the market. This helps tenants
: who already have apartments that they want to keep. But it presents a huge barrier to people
: looking to rent apartments, by keeping supply tight and market rents high.
It is true that rent regulation tends to keep tenants in place. THAT IS THE
INTENT of the system. It stabilizes communities where people will put down
roots, open businesses, pay taxes, support schools, etc. Rent regulation
(contrary to some of the other tenant advocates) IS NOT ABOUT low rents
for poor people. It's a way to keep the BROAD middle class in the city.
Some cities that never took those steps (i.e., Detroit never had rent
regs) are nothing but burned out shells. Of course not all cities have
this dynamic. But NY, Boston and other older urban areas needed something
like this. Washington has the fed govt. which keeps the city alive.
Rent Regulation does this:
a. it allows a guranteed increase either through the Rent Guidelines Board
annual increases on renewals or vacancies. The level of those increase
vary year by year on many factors, but they have never gone down and have
outstripped inflation by a large factor.
b. Rent Control units get a guaranteed 7-1/2% increase every single year
until that rent (the Maximum Collectible Rent) hits a ceiling (the
Maximum Base Rent) which is adjusted upwards every two years. The MBR
is base on a complex formula.
c. Owners can get MCI increases building-wide for improving the building
(an incentive) and can get individual unit increases of 1/40th the
cost of the improvement. Many see this as a windfall as the increases
stay on forever.
d. Above all, if an onwer is not getting a 8-1/2% return, he can apply
for a "hardship" increase that will give him such a return. All he has
to do is prove he's not making enough.
You seem to imply that there is an undercurrent
of support from the rent regulation from the real estate lobby.
That's not what we said or implied, although a smart owner who
is not Donald Trump and who can be affected by the highs and lows
of a volatile market might actually wish for a force to temper those
ups and downs. To many in business, the value of "certainty" cannot
be underestimated. That's why many investors choose conservative
mutual funds -- they're safe and not high risk.
Any hints at cooperation
from the landlords are likely to be just part of a PR campaign to
provide both political cover and confusion as the clock ticks down
The rush to find cover is from the democratic politicians who give
many good speeches, but do little to fix the system.
: I also feel that the need of people looking to change apartments are not being addressed
: at all by the current regulatory scheme. At some point in the near future, I would like to
: find a new apartment, and current market situation is a major problem in that regard.
Blame that on many factors, but not rent regulation. Although as I state
above, the intent of rent regulation is to stabilize neighborhoods and to
keep tenants in place, it should not be an impediment to mobility. First, it's
a false notion that you can't find a new unit. Of course you can. But second,
the shortage is due to the lack of new housing and any new contruction (since
1974) is not under rent regulation. The impediments to new housing is not
rent regulation, but complex other factors -- including profitability, financing
: Your thought would be appreciated
To an extent I question the very basis of your question. Although it appears
to be sincere, you (and others) tend to buy into the notion that this
debate is about finding relief for owners. That's hogwash. Owners have
had a free ride for many years (at least since 1984 when Cuomo gave them
DHCR). The system was gutted and there's no enforcement. It's in essence
turned into a voluntary system. Second, although I've tried to answer
your question, such questions put tenant advocates in the corner where we
find it necessary to defend the current system. I resent that. The current
system is a give away to owners and the politicans know that. But that's
fodder for another day.
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