Rent Stabilization is the Savior of NYC Landlords!

yes, Curbed has discussions in the comments section. The place used to be nothing more than a boxing match between renters and owners insulting each other all day long with childish insults, but now that they got rid of anonymous commenting, it is a thousand times better.

as far as discussion boards, Street Easy seems to be the only one. All the rest are blogs, which I don't like since you can't start your own threads. The only alternative I can think of is City Data. Just go to the forums section and choose NYC.

This whole discussion is a moo point. Most of these apartments are in bad estate type condition and would need serious renovation before they could be market rate. Right now there is little capital among landlords to be doing upgrades in hopes that there will be a flood of market rate tenants. Keep the rent stabilize tenants because they are likely the only ones who'll pay the landlords anything.

Here is an article that Curbed reprinted from The Daily News that shows rent stabilization laws in action.

http://www.nydailynews.com/ny_local/queens/2009/07/02/2009-07-02_queens_tenants_say_new_contract_will_run_over_the_terms_of_their_lease.html

A battle brews in Rego Park, Queens, exactly the type of middle class neighborhood filled with rent stabilized tenants who kept their community stable while other cities were allegedly burning down because their residents don't have cheap apartments for life. But what good is a cheap apartment in the city if you can't afford to keep a car on hand for those weekend getaways that you can afford with all that money you're saving by not paying market rent? Not only do the tenants in this Rego Park rent subsidized building get cheap rent for life, but rates for ample sized parking spaces (big enough to fit a limo for one tenant) in the garage also fall under the Rent Guidelines Board. The company just contracted to manage the garage started a brouhaha by demanding proof of rent subsidized status, car registration, and asserted the right to switch around tenants' spots. Well the aggrieved tenants are not having their parking rights trampled on. The fight is being led by an attorney who has lived in his discount digs for 37 years (I'll lay odds at -500 that he owns another home outside the city), with a resident 66 year old livery company owner indignant at the thought that he won't get a choice spot for his limo (I wonder if it's registered in the same name that's on the lease). A 79 year old resident motorist thought it was preposterous that he could possibly lose his parking spot. This important case is pending in Housing Court. Let's all hope that the judge is empathetic to the arguments put forth by rent stabilization proponents and rules accordingly. It must be affirmed once again that rent stabilization laws are there to help young families, the elderly who have no where else to go, and to alleviate the housing shortage so that New York will always be a place for diversity and the "creative types" that all make up the fabric of New York as a result of rent regulations.

Yeah, would be better that we teach all of these people a lesson and throw them out or jack up their rent 100% so that the building owners can participate in this frenzied real estate bubble and make housing more and more expensive for everyone across the city. I think we should make housing in NYC more expensive for everyone just for the benefit of the landlords, after all, it's only fair to them.

"This whole discussion is a moo point. Most of these apartments are in bad estate type condition and would need serious renovation before they could be market rate. Right now there is little capital among landlords to be doing upgrades in hopes that there will be a flood of market rate tenants. Keep the rent stabilize tenants because they are likely the only ones who'll pay the landlords anything."

You can't be serious?

Emrolover, you should go looking at market rate rentals and see thier condition. Many of them are total dumps. These rent stabilized units could get market rents as-is.

What makes me unserious?

and ChasingWamus, that doesn't speak well to the health of the market rent market and kind of makes you wonder about why people would want to change things.

Emrolover - I think rent stabilization makes the housing stock worse. It so drastically limits the supply of apartments that landlords can neglect them and still find a desperate tennant.

At least with rent stabilization the tenants can't be priced out. The worst thing about market rate rentals, especially over the last half dozen years, was the high increases that basically forced people out. Imagine having to move every couple years. At least rent stabilization works to raise families and have kids in school.

"The worst thing about market rate rentals, especially over the last half dozen years, was the high increases that basically forced people out."

What people? NYC's apartment vacancy rate has been consistently near zero! There literally aren't enough apartments to keep up with demand!

i never thought i could dislike matt even more.

holy crap! welcome back AR... how wasz the trip? Missed you on the board.... only had CC to keep me company.... (and everyone else of course).... l like the dude with one T...

Not back, in the Luberon, and then off to Paris next week. Waiting for a couple of teens to wake up and then off to Avignon.

Be back the 19th. trip has been great. can recommend an apartment in Nice if anyone's interested, as well as a place in Bonnieux. both extremely reasonable.

who's the dude with one T? am i missing something? pigface/wonderbread has/have been rather irritating, but i'm feeling far too mellow to enter those threads. matt's comment just cried out to me, and not in a positive way. au revoir.

To recap some of the arguments here:

(1): The argument from envy/communism for the rich. The claim is that people who have good real estate deals drive up costs for other people, because if they were expropriated their assets could be redistributed to the others. This is of course true -- if we seized the coops and condos of everyone who bought before the peak of the bubble and put them up for sale or rent all at once, clearly prices would drop. For some reason, however, the advocates of this position apply it to people whose rights are based on the RS law but not people whose rights are based in the other parts of the real property code. So they advocate expropriating rent stabilized tenants in order to give their rights to people who they think deserve them more, presumably because they are wealthier.

The macro problem with this argument is well-known to all students of the forced-redistribution of wealth tradition from which it comes: it assumes that wealth is a fixed quantity and that if one person has more someone else must have less. While that is generally true in the short run, in the long run the more important issue is how to encourage sound economic growth that can make everyone better off. Expropriating the middle class almost always has detrimental effects on economic growth; the advocates of expropriating RS tenants may not care if working people have their rights destroyed, their wealth eliminated and their homes taken away, but the rest of us should.

(2) The welfare Cadillac argument. Rich people are abusing RS to squat in 3 BR apartments while living in the Hamptons. This happens a good deal -- but the apartments in question are coops and condos. The NYT has even done stories about how depressing it is to actually live in an upscale condo where most of the apartments sit vacant most of the year.

In contrast, the RS law destabilizes any apartment occupied by a tenant with more than $200,000 income (earned or unearned) when the rent goes over $2000, and it allows rent increases every year and increases for capital improvements. Any landlord with a 3BR RS apt in Manhattan renting for under $2000 is simply incompetent. Possibly there are lots of rich people with incomes of under $200,000 choosing to live in unmaintained 3 BR apts with RS rents of under $2000. If so, I suppose the reason we don't see them in the surveys much is that they're all hanging out with Ronald Reagan's welfare Cadillac queen in the Hamptons and that's why we don't see them much.

(3) The landlords are irrational argument (I). RS reduces investment and maintenance. Actually, the problem is the reverse. The RS law gives landlords the right to increase rents by a percentage of any money they claim to have spent on capital improvements. The percentage is higher than normal market returns to improvements and higher still for the many landlords who lie about their expenses. RS thus encourages, if anything, OVER-investment in capital improvements (and there clearly is something of a problem of landlords spending money on "improvements" that are not worthwhile from the perspective of current tenants, in order to get rent increases when tenants, apparently, would prefer to pay less and skip the replacement fixtures).

Unfortunately, the real estate bubble has led to similar dynamics in the unstabilized part of the market. Loose credit and myths of eternally rising markets led to enormous overinvestment in real estate and we will suffer reduced economic growth in the future as a result. In the unstabilized market, the regulatory response probably should be stricter underwriting standards; in the stabilized market, greater transparency about landlord's claimed renovations might reduce some of their welfare fraud.

(4) The landlords are irrational argument (II). RS forces landlords to run at a loss. Actually, the RS law leaves landlords completely free to sell; they aren't forced to do anything. Moreover, it gives landlords the right to rent increases if they are not earning a normal return (and the return specified in the law is quite a bit higher than the returns anyone has earned on holding-for-rent in the unregulated NYC economy for a least the last decade). The real economic problem is not that it forces landlords to run at a loss but that it encourages them to overpay in the first place: when a buyer overpays for a building, its expenses are higher and, at least sometimes, that can be a basis for further rent increases. This communism-for-the-rich aspect of the RS laws has cried out for reform for years.

(5) The Trickle-Up Economics argument. RS reduces supply and increases the cost of market-rate housing. This claim requires some explication.

Normal market theory contends that when prices go up, the market responds by increasing supply, i.e., by building. So, the normal story would be: To the extent that RS increases the cost of market-rate housing in the short run (which seems to be quite small, since most RS apartments rent for roughly market rent most of the time), builders will respond by building more housing. At equilibrium, the cost of market-rate housing will equal the cost of building, renovating, converting or evicting RS tenants, which ever is cheapest.

The more RS keeps RS rents below market, the more profit there will be in building market rate housing and the lower market rents will be. The major effect of RS happens during bubbles, when markets rise irrationally and RS follows only slowly. So RS may tend to reduce housing bubbles (or at least the number of people they impact), increase construction, and keep market rate prices close to where they would be at market equilibrium, namely replacement costs. This is the theory underlying the current version of the RS statutes.

The contention of the RS opponents, apparently, is that for some unspecified reason, the market is incapable of reaching equilibrium. Instead, market-rate landlords are able to charge rents higher than the cost of creating new apartments without the market creating (enough?) new apartments to force rents down (in conventional economics, these are called "monopoly rents"). Eliminating RS would give a one-time increase in supply as middle class tenants are driven out of the market, and thus reduce market rents. Of course, that would have no effect on the underlying market failure postulated by these RS opponents, so market rents presumably would quickly revert to their current heights. In the end, we'd all pay monopoly rents, much to the enrichment of incumbent landlords and the impoverishment of anyone who wants to buy or rent, including all newcomers and young people.

This is, thus, another communism-for-the-rich argument. The goal is to forcibly expropriate RS tenants, transferring the surplus they now control to landlords (with some temporary spillover to market-rate tenants). Since the transfer will reduce the profitability of new construction, actual supply will drop and average rents will increase. But the middle class will be poorer and landlords will be wealthier at their expense, so the reverse-Robin Hood goal will be fulfilled.

(6) San Francisco doesn't have rent stabilization. Really?

Financeguy, do you really think the removal of bad rent stabilization laws is expropriation and forced redistribution of wealth? Rent controlled apartments are not owned by the tenant and there is no legal contract guaranteeing them low rent forever. When my landlord raises my rent is it expropriation and forced redistribution of wealth too?

I don't agree with you ChasingWamus. Those who are in rent controlled apartments reached an agreement long ago. This is nothing different from a long-term commercial lease. They own their rights to continue to rent their regulated apartment at the reasonable rates that are set by New York State. Removing them from their apartments steals from them their property.

On the contrary, rent stabilization IS "expropriation" and "forced redistrubition of wealth".

The government is forcing landlords to practically give apartments away at a fraction of what they're worth to people who could not otherwise afford them.

It's no different than the government forcing Mercedes dealers to give away their cars for $15,000 apiece because "the people" need "affordable"transportation.

Debbie, it's not "their" property. They're RENTERS.

That's the crux of this whole entitlement issue: people who can't afford to buy (or refuse to buy) their own homes actually believe that just because they've parked their behinds in a space for X number of years, that space has somehow become "their property".

Newsflash: It hasn't. They're still RENTERS -- living in someone ELSE'S property.

debfrank, the rent control laws have a built in expiration and have been renewed by the grace of the legislature several times. No tenant has ever been guaranteed rent control forever. The next expiration is set for 2011.

Someone can own a leasehold interest. Property could belong to one party, and the leasehold to another. Property owner is very restricted in its rights if it enters into an agreement that transfers a long-term leasehold interest to another party. Empire State Building is one great example. This is NOT a foreign concept in real estate and those who are talking about renters like they are transient should understand the full economics and rights of all parties.
http://books.google.com/books?id=pvRH7FI_vRAC&pg=PA269&lpg=PA269&dq=Empire+State+Building+Leashold&source=bl&ots=p00DiGu1pB&sig=Vh5liEMtYuph1F4TQmkt8CoWZcY&hl=en&ei=tYxTSoe7A5WENPOw-OAI&sa=X&oi=book_result&ct=result&resnum=8

Gsnare, we are talking about people, not commercial properties and not Donald Trumps. But, if you get a rental lease, Matt, it is YOUR place to live in and the owner collecting rents can do certain things and not other things. Some of the things the owner can't do is kick out the tenant or cut services. And thank goodness for that. Matt, if you go buy a building with rent stabilized tenants, you can throw a tantrum like the dwarf in Rumpelstiltskin, but you won't be able to kick out the rent stabilized and rent controlled tenants, and you'll have known it going in.

"Someone can own a leasehold interest. Property could belong to one party, and the leasehold to another. Property owner is very restricted in its rights if it enters into an agreement that transfers a long-term leasehold interest to another party. Empire State Building is one great example. This is NOT a foreign concept in real estate and those who are talking about renters like they are transient should understand the full economics and rights of all parties."

"Leasehold interest" has absolutely nothing to do with residential leases.

Wow, there's an image of NYCMat!

matt's even worse than a broker, he's a wannabe slumlord.

RS tenants are leaseholders which is a property right with defined rights just like any other property right. Although the property right is not fully transferable, landlords are free under current law to BUY it, and some do when it is profitable. The question is whether the legislature should simply take it without compensation and give it to landlords for free.

Legislatures have the right to change property rights and they do so all the time, often with no compensation.

The usual meaning of "expropriation" is to change a property right simply to transfer value from the incumbent to someone else, without choice or compensation. Sometimes expropriation is justifiable, for example, when the property owner is using the legal rights they've been granted in a fashion that makes everyone else worse off or hinders some important social goal. Relatively minor changes to property rights are not usually called expropriation.

Eliminating a right to renewal on good behavior and at a reasonable rent increase that has lasted for more than a generation, would be a major change in property rights. Indeed, for many tenants it would mean the end of the most valuable property they own, after, perhaps, their right to sell their labor. So, yes, doing this without compensation or choice is expropriation.

The question is whether that expropriation is justifiable. On the one hand, it destroys existing property rights and takes something from people who have a legitimate expectation that it will continue absent significantly changed circumstances. Moreover, systemically, RS is a highly useful remedy to one of the key problems of long term residential rentals for the middle and upper middle class -- it is highly unusual for cities to have successful rental markets for that group without some form of RS -- and so destroying it would most likely condemn the rental markets to failure, especially the higher quality/price end, as people found it difficult to negotiate a private equivalent to RS --guaranteed tenure on good behavior with an appropriate pass through of increased costs, and near guaranteed returns to capital with limitations on ability to exploit temporary quasi-monopolies.

The arguments for why expropriation would be appropriate, so far as I understand them from the comments above are: (1) that rental markets are bad and should be coercively diminished even if landlords and tenants find them attractive, (2) a one-time transfer of wealth -- the surplus created by NYC's vibrancy -- from tenants to incumbent landlords is good, even if the cost will be reduced vibrancy, and (3) landlords have right to whatever rent they can charge given the rights the law gives them, but not including the limits on those rights or the rights the law gives tenants, because they are called owners.

Economics in One Lesson

by Henry Hazlitt

The Lesson Applied

What Rent Control Does

Government control of the rents of houses and apartments is a special form of price control. Most of its consequences are substantially the same as those of price control in general, but a few call for special consideration.

Rent controls are sometimes imposed as a part of general price controls, but more often they are decreed by a special law. A frequent occasion is the beginning of a war. An army post is set up in a small town; rooming houses increase rents for rooms; owners of apartments and houses increase their rents. This leads to public indignation. Or houses in some towns may be actually destroyed by bombs, and the need for armaments or other supplies diverts materials and labor from the building trades.

Rent control is initially imposed on the argument that the supply of housing is not “elastic”—i.e., that a housing shortage cannot be immediately made up, no matter how high rents are allowed to rise. Therefore, it is contended, the government, by forbidding increases in rents, protects tenants from extortion and exploitation without doing any real harm to landlords and without discouraging new construction.

This argument is defective even on the assumption that the rent control will not long remain in effect. It overlooks an immediate consequence. If landlords are allowed to raise rents to reflect a monetary inflation and the true conditions of supply and demand, individual tenants will economize by taking less space. This will allow others to share the accommodations that are in short supply. The same amount of housing will shelter more people, until the shortage is relieved.

Rent control, however, encourages wasteful use of space. It discriminates in favor of those who already occupy houses or apartments in a particular city or region at the expense of those who find themselves on the outside. Permitting rents to rise to the free market level allows all tenants or would-be tenants equal opportunity to bid for space. Under conditions of monetary inflation or real housing shortage, rents would rise just as surely if landlords were not allowed to set an asking price, but were allowed merely to accept the highest competitive bids of tenants.

The effects of rent control become worse the longer the rent control continues. New housing is not built because there is no incentive to build it. With the increase in building costs (commonly as a result of inflation), the old level of rents will not yield a profit. If, as often happens, the government finally recognizes this and exempts new housing from rent control, there is still not an incentive to as much new building as if older buildings were also free of rent control. Depending on the extent of money depreciation since old rents were legally frozen, rents for new housing might be ten or twenty times as high as rent in equivalent space in the old. (This actually happened in France after World War II, for example.) Under such conditions existing tenants in old buildings are indisposed to move, no matter how much their families grow or their existing accommodations deteriorate.

Because of low fixed rents in old buildings, the tenants already in them, and legally protected against rent increases, are encouraged to use space wastefully, whether or not their families have grown smaller. This concentrates the immediate pressure of new demand on the relatively few new buildings. It tends to force rents in them, at the beginning, to a higher level than they would have reached in a wholly free market.

Nevertheless, this will not correspondingly encourage the construction of new housing. Builders or owners of preexisting apartment houses, finding themselves with restricted profits or perhaps even losses on their old apartments, will have little or no capital to put into new construction. In addition, they, or those with capital from other sources, may fear that the government may at any time find an excuse for imposing rent controls even on the new buildings. And it often does.

The housing situation will deteriorate in other ways. Most important, unless the appropriate rent increases are allowed, landlords will not trouble to remodel apartments or make other improvements in them. In fact, where rent control is particularly unrealistic or oppressive, landlords will not even keep rented houses or apartments in tolerable repair. Not only will they have no economic incentive to do so; they may not even have the funds. The rent-control laws, among their other effects, create ill feeling between landlords who are forced to take minimum returns or even losses, and tenants who resent the landlord’s failure to make adequate repairs.

A common next step of legislatures, acting under merely political pressures or confused economic ideas, is to take rent controls off “luxury” apartments while keeping them on low or middle-grade apartments. The argument is that the rich tenants can afford to pay higher rents, but the poor cannot.

The long-run effect of this discriminatory device, however, is the exact opposite of what its advocates intend. The builders and owners of luxury apartments are encouraged and rewarded; the builders and owners of the more needed low-rent housing are discouraged and penalized. The former are free to make as big a profit as the conditions of supply and demand warrant; the latter are left with no incentive (or even capital) to build more low-rent housing.

The result is a comparative encouragement to the repair and remodeling of luxury apartments, and a tendency for what new private building there is to be diverted to luxury apartments. But there is no incentive to build new low-income housing, or even to keep existing low-income housing in good repair. The accommodations for the low-income groups, therefore, will deteriorate in quality, and there will be no increase in quantity. Where the population is increasing, the deterioration and shortage in low-income housing will grow worse and worse. It may reach a point where many landlords not only cease to make any profit but are faced with mounting and compulsory losses. They may find that they cannot even give their property away. They may actually abandon their property and disappear, so they cannot be held liable for taxes. When owners cease supplying heat and other basic services, the tenants are compelled to abandon their apartments. Wider and wider neighborhoods are reduced to slums. In recent years, in New York City, it has become a common sight to see whole blocks of abandoned apartments, with windows broken, or boarded up to prevent further havoc by vandals. Arson becomes more frequent, and the owners are suspected.

A further effect is the erosion of city revenues, as the property-value base for such taxes continues to shrink. Cities go bankrupt, or cannot continue to supply basic services.

When these consequences are so clear that they become glaring, there is of course no acknowledgment on the part of the imposers of rent control that they have blundered. Instead, they denounce the capitalist system. They contend that private enterprise has “failed” again; that “private enterprise cannot do the job.” Therefore, they argue, the State must step in and itself build low-rent housing.

This has been the almost universal result in every country that was involved in World War II or imposed rent control in an effort to offset monetary inflation.

So the government launches on a gigantic housing program — at the taxpayers’ expense. The houses are rented at a rate that does not pay back costs of construction and operation. A typical arrangement is for the government to pay annual subsidies, either directly to the tenants in lower rents or to the builders or managers of the State housing. Whatever the nominal arrangement, the tenants in the buildings are being subsidized by the rest of the population. They are having part of their rent paid for them. They are being selected for favored treatment. The political possibilities of this favoritism are too clear to need stressing. A pressure group is built up that believes that the taxpayers owe it these subsidies as a matter of right. Another all but irreversible step is taken toward the total Welfare State.

A final irony of rent control is that the more unrealistic, Draconian, and unjust it is, the more fervid the political arguments for its continuance. If the legally fixed rents are on the average 95 percent as high as free market rents would be, and only minor injustice is being done to landlords, there is no strong political objection to taking off rent controls, because tenants will only have to pay increases averaging about percent. But if the inflation of the currency has been so great, or the rent-control laws so repressive and unrealistic, that legally fixed rents are only 10 percent of what free market rents would be, and gross injustice is being done to owners and landlords, a great outcry will be raised about the dreadful evils of removing the controls and forcing tenants to pay an economic rent. The argument is made that it would be unspeakably cruel and unreasonable to ask the tenants to pay so sudden and huge an increase. Even the opponents of rent control are then disposed to concede that the removal of controls must be a very cautious, gradual, and prolonged process. Few of the opponents of rent control, indeed, have the political courage and economic insight under such conditions to ask even for this gradual decontrol. In sum, the more unrealistic and unjust the rent control is, the harder it is politically to get rid of it. In country after country, a ruinous rent control has been retained years after other forms of price control have been abandoned.

The political excuses offered for continuing rent control pass credibility. The law sometimes provides that the controls may be lifted when the “vacancy rate” is above a certain figure. The officials retaining the rent control keep triumphantly pointing out that the vacancy rate has not yet reached that figure. Of course not. The very fact that the legal rents are held so far below market rents artificially increases the demand for rental space at the same time as it discourages any increase in supply. So the more unreasonably low the rent ceilings are held, the more certain it is that the ‘‘scarcity” of rental houses or apartments will continue.

The injustice imposed on landlords is flagrant. They are, to repeat, forced to subsidize the rents paid by their tenants, often at the cost of great net losses to themselves. The subsidized tenants may frequently be richer than the landlord forced to assume part of what would otherwise be his market rent. The politicians ignore this. Men in other businesses, who support the imposition or retention of rent control because their hearts bleed for the tenants, do not go so far as to suggest that they themselves be asked to assume part of the tenant subsidy through taxation. The whole burden falls on the single small class of people wicked enough to have built or to own rental housing.

Few words carry stronger obloquy than slumlord. And what is a slumlord? He is not a man who owns expensive property in fashionable neighborhoods, but one who owns only rundown property in the slums, where the rents are lowest and where payment is most dilatory, erratic and undependable. It is not easy to imagine why (except for natural wickedness) a man who could afford to own decent rental housing would decide to become a slumlord instead.

When unreasonable price controls are placed on articles of immediate consumption, like bread, for example, the bakers can simply refuse to continue to bake and sell it. A shortage becomes immediately obvious, and the politicians are compelled to raise the ceilings or repeal them. But housing is very durable. It may take several years before tenants begin to feel the results of the discouragement to new building, and to ordinary maintenance and repair. It may take even longer before they realize that the scarcity and deterioration of housing is directly traceable to rent control. Meanwhile, as long as landlords are getting any net income whatever above their taxes and mortgage interest, they seem to have no alternative but to continue holding and renting their property. The politicians—remembering that tenants have more votes than landlords—cynically continue their rent control long after they have been forced to give up general price controls.

So we come back to our basic lesson. The pressure for rent control comes from those who consider only its imagined short-run benefits to one group in the population. But when we consider its long-ran effects on everybody, including the tenants themselves, we recognize that rent control is not only increasingly futile, but increasingly destructive the more severe it is, and the longer it remains in effect.

"Those who are in rent controlled apartments reached an agreement long ago"

Name one person in the history of NYC who signed a Rent Control lease.

all of them

All you anti-renter people who want to end NYC rent rules just have no grounding in reality, no thoughts about NYers.
This is exactly the reason why, just one example
http://www.streeteasy.com/nyc/talk/discussion/4619-secty-depsit-charge-tenant-for-re-caulking-tub-bc-mold-

thank you, jazzman!!!

"all of them"

typical of the amount of ignorance in this thread.

Hazlitt is describing a system of RS that doesn't actually exist in NY. Details matter. I'm talking about our RS system, not some other system.

1. There is no rule against buying tenants out. So the RS does not "discriminate in favor of existing occupants" any more than any property system does. People have the right to stay in their apt until they decide it isn't worth it or someone pays them enough to leave -- whether they are RS, condo owners, coop owners or real property owners. ALL property right systems let people stay in their homes even after Hazlitt or some other High Commissioner decides they no longer "need" it. All RS does is solve a major inefficiency of market contracting: it is extremely difficult to write a lease that (a) lets the LL evict for non-payment, (2) gives LL and tenant reasonably effective assurance of rent increases in line with costs and (3) gives the tenant the right to stay indefinitely on good behavior.

It is true that if tenants had the right to sell their leases ('key money'), it'd be easier for them to move, which would cause more mobility -- but higher rents for newcomers. That's a tradeoff, but it isn't obvious which result is better.

2. Hazlitt's explanation of how RS reduces new construction -- it drives up the profits associated with new construction -- doesn't make sense.

3. RS does allow profits on renovations, so this point is just inapplicable.

4. There are no abandoned buildings in NY. Either this essay is quite old or the author is quite uninformed.

5. There is almost no city in the world that has market-provided new construction for the poor. It is hard to build for people who can't pay the cost of building. That's a basic market problem, not the fault of RS.

6. It is simply false to say that landlords are "forced to subsidize tenants". RS guarantees them the right to charge a rent that enables them to earn a profit even if their expenses are higher than they need to be -- more than they'd get in a competitive market. What RS does force them to do is to share the windfall surplus created by the City's attractiveness -- in this city, (some) tenants are willing to pay more than the costs of maintaining housing. In fully competitive markets, competition always gives that kind of surplus to the customer, not the producer -- so by giving some of it to tenants, RS is merely attempting to mimic the results of competition.

There are few "justice" claims associated with distributing a surplus that neither party created. Landlord and tenant have exactly the same claim to it: they happened to be in place when the city got nicer. There are no efficiency consequences to giving it to one party or the other: the market will provide the same amount of housing either way. The only issue is who is going to get this windfall gain -- incumbent tenants or incumbent landlords. (Newcomers, in either event, end up paying for it).

7. NYC has had some form of rent regulation in place for 2 generations. No one is forced to be a landlord under these regs. Anyone who chose to buy real estate in the last 50 years voluntarily assumed the obligations of the regulations and, if the market was working as it should, paid (or could have demanded) a price that reflects the effects of those regulations. There is no injustice to landlords here at all. Instead, there is special pleading: by repeal of RS they would get rights they never paid for. A gift from all the citizens of NY, who will pay in higher rents, lower availability of quality rental housing, and a less interesting city to a small group of profit-making businesses and their owners or shareholder-investors.

8. Human landlords who lost some value when regs were first imposed after WWII, probably have some kind of a claim for compensation, but if it is offset by the benefits they have received from the system in the last 30 years, and especially from the work others have done to make this a great city, I suspect they will be just as happy to waive the claim. No one who bought or invested since WWII, however, has any sort of "justice" claim.

I"m no economist, but I do know people, I know families, I know the elderly, I know NYers. There's no ignorance Mr. 30years. You want to throw out tenants or jack up their rents just because you are a real estate investor. That's your game. You should be ashamed but I'm not sure who is worse, the real estate investor who will throw out an elderly person to the street or the jealousy and hatred by others who have some fantasy that if they pay market (which is not higher than it would otherwise be) and someone pays less, they should wish bad on the people who pay less.

REO -- Unless I'm mistaken, before vacancy decontrol ended new RC tenancies in the 1970s, tenants used to enter into the apt under a lease, so they would have signed a lease then. So Debfrank & Alpha seem to be technically correct, even though the grandfathered RC tenants haven't been under leases for the last 40-50 years and some of them, presumably, have inherited occupancy rights from the original leaseholder.

In any event, this thread has been about RS, not RC, and RS tenants always have leases.

Very articulate financeguy and hard to argue with. Except for the people who will just blindly post what some Ivory Tower economist said without knowing it doesn't apply to reality let alone New York City. But you are right, the people who have stayed in this city for 30,40,50 years while it has gotten better deserve the rewards as anyone else. And once they get to age 70,80,90, certainly they deserve the respect of us all and this city and the land LORDs.

that was to your prior post

and financeguy to your more recent post, interesting you showed 30years who thinks he knows everything but really knows no people.

REO - the correct answer to your question is: None of the them. Not one rent controlled lease - they don't exist.

debfrank - you act as if all tenants are saints and all landlords/investors are villains. As you can see from my posts I think RS is a terrible system as it doesn't accomplish it's own goals. But it's here now and the question is what do we do now. I'm all for keeping it. To get rid of it quickly would be a classic case of the cure being worse than the disease. But, (there's always a "but" right) I think we should end the most egregious of the RS shortcomings. Namely.
1. Allowing rich people to keep stabilized places.
2. Making the laws so easy to circumnavigate for tenants who chose to illegally sublet or who take extra roommates.
3. Allowing people to own other realestate - RS was started to end a housing shortage -if that's your goal how in the hell can you allow people to keep multiple residences?
4. Allowing people to live in Florida for 6 months a year - we should require 10 months per year. RS was started to end a housing shortage -if that's your goal how in the hell can you allow people to keep an apartment empty for 6 months a year?
5. Passing units on to the next generation.

Certainly my suggestions would keep the core group of stabilized tenants in their homes. Those who need it the least will be forced to change their circumstances or give up their apartment. Another important benefit of passing these rules is that it takes the bulls-eye off of the back of rent stabilization. These above points give the anti-RS crowd so many talking points, eliminate these and you take away most of their best arguments. Cut off a few RS tenants to protect the masses.

All fine and good, but don't be talking about abuses as if they are anything but a minority of circumstances

debfrank - please expound on this concept "a minority of circumstances"

"And once they get to age 70,80,90, certainly they deserve the respect of us all and this city and the land LORDs."

Respect? Absolutely.

A free lunch? No way.

"REO - the correct answer to your question is: None of the them. Not one rent controlled lease - they don't exist."

THAT IS EXACTLY FUCKING RIGHT. So the concept that "Those who are in rent controlled apartments reached an agreement long ago" is pure BS. What happened is that Landlords had leases with these tenants, and then the leases were thrown out the window and replaced by a "statutory tenancy". So the idea that Landlord and RC Tenant somehow agree long ago to some MUTUAL AGREEMENT is pure BS.

from "I don't agree with you ChasingWamus. Those who are in rent controlled apartments reached an agreement long ago. This is nothing different from a long-term commercial lease. They own their rights to continue to rent their regulated apartment at the reasonable rates that are set by New York State. Removing them from their apartments steals from them their property."

So it is absolutely NOT like along term commercial lease, because when a Landlord enters into a long term commercial lease, they do it willingly, make a deal they think they can live with long term, set escalation clauses THEMSELVES..... you name it. They don't sign 1 year commercial leases on favorable terms to the tenant "knowing" that "next year w will see if we think differently, and are then told "Oh, btw, even though you signed a 1 year lease, now it's permanent, you can't get the tenant out and rent to a better quality tenant, and you can't raise the rent as the market goes up.

"I"m no economist, but I do know people, I know families, I know the elderly, I know NYers. There's no ignorance Mr. 30years. You want to throw out tenants or jack up their rents just because you are a real estate investor. That's your game. You should be ashamed but I'm not sure who is worse, the real estate investor who will throw out an elderly person to the street or the jealousy and hatred by others who have some fantasy that if they pay market (which is not higher than it would otherwise be) and someone pays less, they should wish bad on the people who pay less."

No deb, I don't want to throw out all those poor elderly Rent Controlled tenants. What I want is to have discussions where people know their facts before spewing out BS. But if you are going to throw rocks in my direction as being the representative of Real Estate investors and Landlords, I find it very interesting that you think that people who took no financial risks "in this city for 30,40,50 years " deserve credit for somehow holding the city together, while landlord and investors who kept their money here during the darkest times, at high risk and stuck with the dogs of buildings where for years they piled more money into these buildings than they got out... well, somehow this group of people deserves NO CREDIT for what THIS GROUP did. So what you're really saying is that "the people who have stayed in this city for 30,40,50 years while it has gotten better deserve the rewards as anyone else" AS LONG AS THE ANYONE ELSE ISN'T A LANDLORD, BECAUSE THEY DON'T DESERVE THE SAME RESPECT FOR STICKING WITH THE CITY .... BY PUTTING THEIR OWN CAPITAL AT RISK .... BECAUSE THEY ARE THE DEVIL AND TENANTS ARE ALWAYS ANGELS. Kiss my ........

"REO -- Unless I'm mistaken, before vacancy decontrol ended new RC tenancies in the 1970s, tenants used to enter into the apt under a lease, so they would have signed a lease then. So Debfrank & Alpha seem to be technically correct, even though the grandfathered RC tenants haven't been under leases for the last 40-50 years and some of them, presumably, have inherited occupancy rights from the original leaseholder."

How does one do a rigorous, in depth analysis of a subject where they don't understand the parameters of that subject first?

30yrs: Don't know if the analysis on this thread has been rigorous or in depth, but in any event it was about RS, not RC.

That said, I think you are misrepresenting the pre-vacancy-decontrol RC rules. You seem to be describing the initial enactment of RC in the 1940s(?) when, presumably, some people who had signed short-term leases suddenly discovered that the new statute was changing their terms (was there really no warning that this was a political possibility? I don't know anything about how RC came to be passed).

But for 30 years or so after that, when RC apartments turned over, the new tenant signed a lease. Or so I'm told by people who think they did it. Are they misremembering?

As to the differences between long term commercial leases and RS:

The key point is the similarity: both are attempts to solve a key problem in rentals, namely how to protect the tenant's need for an option to stay long term, while ensuring that landlords receive an adequate return on capital even as market conditions change, and provide a quality product at a profitable but not extortionate price. Residential leases have the additional problem that normally the landlord, rather than the tenant, is in the best position to assume the risk of unexpected changes in expenses and to do maintenance/improvements in a cost effective way, and to assume the risk of market changes if the tenant needs to move unexpectedly. (Landlords can diversify these risks and make them predictable, therefore cheaper, while tenants ordinarily cannot).

The hardest part of the problem is the interaction between maintenance/improvements and market fluctuations: if tenants are responsible for improvements, they (1) will fear that if they spend money to make the unit better, the landlord will then up their rent and they'll end up paying twice and (2) need to have access to the credit markets without using the apartment as collateral. As a result, landlords usually take this on. But then long term contracts are not attractive to tenants, since the landlord will be inclined to skimp on promised quality once the tenant is locked in.

So the default is short term contracts, but that's a problem, since many people actually want the option of remaining in their home long term. If they act that way -- e.g., by fixing up the apt -- however, they signal to the landlord that it has become a partial monopolist and can jack up the rent without driving them out.

So tenants and landlords act short term even if they want long term. This is the market failure: potential long term tenants and potential long term landlords fail to make a deal.

Coops -- in which the tenants collectively become the landlord, in order to gain economies of scale and diversification while reducing the likelihood of landlord exploitation of incumbent tenants -- are one possible solution to the problem, but they require that tenants have access to the credit markets (which is why they've usually been available only to the relatively well-off). They also have heavy transaction costs, so they don't work as well for medium term tenancies.

RS is another attempt to solve the market failure. Primarily for middle class families who are looking for an option (but not an obligation) to stay long term and for landlords that'd be happy to have long term tenants if they could figure out how to charge them. It is no help to the poor, who need a subsidy that RS doesn't offer.

Instead of negotiating an individual escalation clause as in commercial (and putting the costs of repairs, etc. on the tenant), and instead of creating a tenant owned landlord as in coop, here the escalation clause is negotiated (1) collectively, (2) politically and (3) after the fact. That may seem weird, but each of the parts are actually quite common, and in any event, it clearly works: we have a wider variety of rental housing than most US cities.

In RS, the escalation clause is negotiated politically, collectively, and after the fact. None of three are that unusual, taken separately. After the fact is common in ordinary "supply" contracts under the UCC, banker's bonus contracts, union contracts, etc. Political is common both in minimum standards (minimum wage, FICA, health and safety, zoning) and beyond (all regulated industries -- which at the time of RC included electricity, trucking, RRs, gas lines, telephones, water, airlines, nuclear, police, sewage, fire, insurance, banking, most of education, agricultural commodities, gold, radio and TV airwaves, etc.). Collectively is quite common both formally (unions, corporations, professional standards, regulated industries) and informally (all oligopolies).

In any event, unlike the market rules it replaced, RS does seem to work, in the sense that matters: NYC has a vibrant rental market including for tenants who in most other US cities would not be able to find suitable rental housing.

The fact that RS is unavailable to the upper middle class (NY style i.e., over 200k income and 2k rent), probably made the bubble worse than it might have been.

The usual end to a bubble is that potential buyers realize they can get a better deal elsewhere, eg by renting at half the cost.

But even if a buyer recognized that RE prices were out of whack, many affluent families/potential long term tenants saw no realistic rental alternatives and so bought even if they had misgivings about prices. (Didn't CC describe doing this?)

The reason they had no realistic rental alternative is that the market for long term, affluent rentals doesn't work. We don't have a good (non-RS) lease form that does what participants want: (1) Tenant has option but not obligation to stay long term, (2) Landlord, as financing source, pays for capital improvements and assumes risk of major repairs and RE market shifts (better neighborhoods, secular price rises, bubbles, etc) and (3) Rents rise to reflect increased costs including average repairs, but not windfall profits resulting from tenant being committed to a particular apt or general RE market price increases (4) Landlord can remove tenant for non-payment or other good cause, (5) Tenant has an effective remedy (other than moving) for lower than promised quality/maintenance. (The market does do reasonably well in sectors dominated by short term tenants, where rapid turnover gives landlords the right incentive to maintain quality -- e.g., one-BRs for the yuppie singles crowd -- and tenants aren't worried about having to change apts at age 13 or 75.)

RS -- imperfectly -- ameliorates all three problems at least to an acceptable degree.

If they'd had a plausible RS alternative, many might have rented instead of paying silly prices. That might not have been enough to counter all the "RE prices can only go up" hype, but it would have exerted a significant downward pressure.

If older people are deregulated, the result is a disaster. Many apartments would need serious renovation and landlords wouldn't even have the money these days to do the renovations en mass, but they'd be displacing too many elderly almost out of spite.

Financeguy might like this
http://www.dnainfo.com/new-york/20150325/little-italy/italian-american-museum-looks-evict-85-year-old-italian-grandma