Rent Stabilization

No.

Yes.

No.

wow....i thought there were tax benefits.....cant believe the govt forced landlords to regulate rents.....

For a brief history, back to 1920, see http://www.housingnyc.com/html/about/intro%20PDF/Table2.pdf

RE taxes are based on what they can actually rent apartments for under rent regs, rather than the market value of the building at resale. Plus there's the bragging right of being part of the fabulousness.

so NYT then there is a 'tax' advantage to the landlord.....i spoke to my landlord and he says he has been subsidizing my rent for year since my apt is stabilized(and in this market...its not even that cheap)....and im thinking...well the govt is subsidizing you with tax breaks.....right?

I assume he bought the building at a lower price than "market" to account for lower rent stabilized tenants.

"and im thinking...well the govt is subsidizing you with tax breaks.....right?"

Wrong.

Whatever possible tax "break" he might get by being taxed at a marginally lower rate doesn't come anywhere close to the money he's losing each month in potential rent at market rate.

ao then why would anyone buy a rent stabilized building? i guess as Pawn mentioned...he got a lower price?

NYCMatt just doesn't understand how free markets work or what property means in a democratic capitalist country.

Any LL who bought or inherited after the RC/RS law (that's **all** the human ones), paid for or was given a bundle of rights including RS/RC. The LL didn't pay for and doesn't own a right to a "market" rent.

In a rational market, the price paid would reflect the legal rent, not some imaginary illegal rent, perhaps with some extra for the speculative chance that the LL might get a windfall if the law changes or the LL finds some way to subvert it. Taxes are based on the legal rents and the resulting market value.

The RS law guarantees the LL the right to raise rents if it invests in the building (rent increases that are above market returns on the investment). It also guarantees the LL the right to petition for an extra rent increase if it is earning below market rents.

Also, one of the major problems in any rental market is that renters lack security: they can be kicked out at the end of a lease period. Since moving is quite difficult for many people, tenants worry that LLs may take advantage of them with unfair rent increases. This makes them reluctant to rent and keeps rents below the level they would have in a market with better rules. RS solves this key problem by giving tenants a right to remain in the apartment on good behavior.

In short, the LL earns a normal return based on the price paid. In most of the city and most years (with the exception of years in which there is high inflation or a sudden increase in rental demand), the evidence is quite clear that RS makes the rental market bigger than it would be and that LLs as a group receive MORE rent than they would absent RS, and MORE tenants are willing to pay than would without it. Overall, however, RS rents generally do not stray far from replacement costs, as they should in any competitive, non-bubble, market.

(Smart LLs generally like RS, because it gives them a reason to raise rents every year without getting flack from tenants and because it makes renting attractive to long term tenants who are very hard to find outside of NYC. Plus they get to pretend they are victims of an unfair system.)

Some LLs may have been willing to overpay for their buildings because the bubble made them stop thinking or on the assumption that they, or the legislature, would expropriate RS/RC tenants and they'd be able to raise rents to "market" levels. This, of course, is anti-social speculation and they have no claim, moral or otherwise, to be compensated for it.

Odds are strong that you are subsidizing your LL, not the reverse. If not, he can petition for a hardship increase. And, yes, his taxes are based on the actual rent, not some higher rent than he could get if the RS law were repealed and your property rights were given to him for free.

Well, there are NEW bldgs that get tax breaks in return for being rent stablized...so it depends on if you mean a new building or a pre-war.

Great summing-up, financeguy, as usual. No victims either side, yet both get to carry a good grudge, than which there's nothing better to have.

my landlord wants me to move and offered me $1000 and i laughed.....he said he has been subsidizing me all these years......and im like...you purchased the building cheap...made millions on it and are getting some tax breaks........the rich are such penny pinchers its ridiculous....and my rent is not even that cheap!

If your landlord has owned for a long time and hasn't renovated recently, then he/it is almost certainly being subsidized by ALL of us.

In an imaginary ideal competitive market, competition drives prices (here, rents) down to marginal costs (here, the cost of keeping the apartment operating and in good repair) -- likely to be well under RS rents and indeed, too low to guarantee LLs a market return.

Rents (RS and "market") basically reflect replacement costs -- but his/its marginal costs are far less than that. In other words, he is receiving monopoly profits -- using the law to appropriate money that in a free market would belong to you.

In housing, we allow LLs to charge more than marginal costs in order to create an incentive for someone else to build new housing. You are being overcharged relative to a hypothetical free market -- and the LL is taking surplus rents above what would be required to keep your apartment on the market -- in order to make sure that someone else can make a profit building better housing for someone else.

Bottom line: Your rent -- and the rent of everyone not in new or newly renovated housing -- is, in effect, being taxed to subsidize a very inefficient program of publicly subsidized housing for the rich. (Given the way NYC has responded to the system, even the new housing buyers are overpaying; the subsidy goes almost entirely to landowners).

In a real free market system, housing would be provided more or less the way passenger railroads and highways are provided by real free markets: rarely and badly. Sometimes monopoly rents would get so high that entrepreneurs would frantically build to capture them, but most of the time they'd recognize that markets force prices to marginal cost, which is too low to make a profit on capital intensive projects, so they would find another way to make a living. In the end, we'd either be miserable or abandon fully competitive markets.

Once we've decided to abandon free markets in housing (as every rich country has), the cheapest and fairest alternative would be to require LLs to charge only **competitive** market rents -- i.e., marginal cost of operating and maintaining the housing -- and to tax everyone in order to pay for new construction. Since we hate taxes, that is impossible. The subsidy you are paying to your LL, and the profits your LL is making from his state-granted local monopoly, are the alternative.

Incidentally, the parallel system for financing drug and medical technology development -- using the law to grant incumbents monopoly power through the patent system -- is one reason why US health care costs twice as much as the next most expensive company, while providing us with results, measured in the usual way by life expectancies and infant death rates, right at the bottom of the OECD countries, competitive with Croatia and Cuba.

When I moved out of the stabilized apartment I had occupied for 25 years, and which was an amazing bargain to begin with, I expected my landlord to be overcome with joy. He wasn't. Other than congratulating me on my purchase he was very subdued and almost sorry. I couldn't understand it at all.I remembered all people who were moving in and out of the building every 6 to 12 months, not all of them I suspect as regular as the sunrise with the rent even if the rent was a multiple of what I was paying. Bottom line a "higher" rent is necessarily a more profitable one if you have problems collecting it or have to replace a tenant frequently versus a stabilized tenant whose rent may be less but who has an emotional, if not financial investment in the apartment and is by a whole plethora of measures--more "stable".

When I moved out of the stabilized apartment I had occupied for 25 years, and which was an amazing bargain to begin with, I expected my landlord to be overcome with joy. He wasn't. Other than congratulating me on my purchase he was very subdued and almost sorry. I couldn't understand it at all.I remembered all people who were moving in and out of the building every 6 to 12 months, not all of them I suspect as regular as the sunrise with the rent even if the rent was a multiple of what I was paying. Bottom line a "higher" rent is necessarily a more profitable one if you have problems collecting it or have to replace a tenant frequently versus a stabilized tenant whose rent may be less but who has an emotional, if not financial investment in the apartment and is by a whole plethora of measures--more "stable".

When I moved out of the stabilized apartment I had occupied for 25 years, and which was an amazing bargain to begin with, I expected my landlord to be overcome with joy. He wasn't. Other than congratulating me on my purchase he was very subdued and almost sorry. I couldn't understand it at all.I remembered all people who were moving in and out of the building every 6 to 12 months, not all of them I suspect as regular as the sunrise with the rent even if the rent was a multiple of what I was paying. Bottom line a "higher" rent is necessarily a more profitable one if you have problems collecting it or have to replace a tenant frequently versus a stabilized tenant whose rent may be less but who has an emotional, if not financial investment in the apartment and is by a whole plethora of measures--more "stable".

Wow, financeguy. Kudos for your ability to just pull information out of your ass.

"NYCMatt just doesn't understand how free markets work or what property means in a democratic capitalist country."

I do, actually. But rent control and stabilization are anything but capitalist or democratic.

*****

"The RS law guarantees the LL the right to raise rents if it invests in the building (rent increases that are above market returns on the investment). It also guarantees the LL the right to petition for an extra rent increase if it is earning below market rents."

Virtually none of these petitions are ever granted.

*****

"In short, the LL earns a normal return based on the price paid. In most of the city and most years (with the exception of years in which there is high inflation or a sudden increase in rental demand), the evidence is quite clear that RS makes the rental market bigger than it would be and that LLs as a group receive MORE rent than they would absent RS, and MORE tenants are willing to pay than would without it."

As an individual landlord, I don't give a rat's ass about what we're making in the *aggregate* -- I care only about MY bottom line.

*****

"(Smart LLs generally like RS, because it gives them a reason to raise rents every year without getting flack from tenants and because it makes renting attractive to long term tenants who are very hard to find outside of NYC. Plus they get to pretend they are victims of an unfair system.)"

Wrong. I'm supposed to be "happy" about being able to legally raise rents by a paltry 3-5%, when the current rent rolls still cover only 70% of each unit's carrying costs -- the cost of which are consistently outpacing what I can legally charge?

@FinanceGuy

Tell 'em!!

"and im thinking...well the govt is subsidizing you with tax breaks.....right?"

Hey boss... can you please lower my salary so I can "save" on taxes?

Finance Guy:THE CONSTITUTION PLACED PROPERTY RIGHTS,ALONG WITH INDIVIDUAL LIBERTY, AT THE TOP OF ITS PRIORITIES ASA WAY TO SAFEGUARD AGAINST AGAINST TYRANY.TWO POLITICALLY OPPOSITE FOUNDERS ,JEFFERSON AND HAMILTON,BOTH ELEVATED PROPERTY RIGHTS AS A PROTECTED RIGHT.THANK YOU FOR KNOWING WHAT'S BEST FOR ME AS A LANDLORD;THANKS TOO FOR ENDOWING A LUCKY SUB CLASS OF TENANTS WITH UNEARNED PRIVILEGES,AND SPECIAL APPRECIATION FOR MAKING OUR SOCIETY MORE PATERNALISIC.

"THE CONSTITUTION PLACED PROPERTY RIGHTS,ALONG WITH INDIVIDUAL LIBERTY, AT THE TOP OF ITS PRIORITIES ASA WAY TO SAFEGUARD AGAINST AGAINST TYRANY"

right, this is totally unrelated with them being property owners?

till WWI property was the source of 99% of taxation instead of work, lets go back to that!

notadmin & somewhereelse: two good rebuttals.---------i'd agree to a flat tax;would you then yield on rent control/stabilization ?

which way do you want me to yield? financially, I'm completely against rent control/stabilization.... it is simply inefficient and costs us as a city in many ways financially.... though I do respect that it does give some diversity... but there are better ways to do that.

Finance Guy: please e-mail the phone number of your crack dealer. Gotta be the best shit
ever sold/

MattNYC: All democratic capitalist countries have some form of rent stabilization in place somewhere, because RS is fairer, more efficient and works, while un-stable rental markets don't work any better than other markets with tendencies to local monopoly and insufficient return to capital.

If you don't believe that unstablized rental markets have problems, just listen to the posters on this site who go on and on about how terrible an experience upperclass renting is, or how much they plan to exploit their tenants: without stabilization, renting requires a culture of non-grasping landlords that is hard to achieve and harder to maintain. Otherwise, everyone with choices shifts to owner-occupied, despite its inefficiencies, illiquidity and bubble problems -- see any US city without RS -- and those who'd prefer to rent, or offer housing for rent, are basically out of luck (the out of luck, of course, just suffer with what they can get, which is not much).

Jrw: The RS tenant has property rights. You and Matt just want to expropriate them. Fortunately, the Constitution protects tenants - mainly through the ballot box - and not just landlords. While it is true that it was meant to protect property, the main form of property it was meant to protect was slaves, and in the course of changing that we learned that property rights don't come from God or Satan. They are legislative creations and the legislature must adapt them to changing morality and needs. The days of slavery are gone and so, too, landlords with feudal powers.

Somewhereelse: Properly done public housing would be cheaper, but we lack the kind of competent government that could pull that off; public housing is very difficult to do right and few US municipalities have great records of success. Barring that, RS is far cheaper than the alternatives of having a failed rental market.

Rb -- I think the guy you are looking for is named Samuelson. His boss is called A. Smith.

All this is in your intro economics text book, at least if you went to school somewhere that wasn't entirely enslaved to ECMH.

The basic citation for marginal cost pricing is Ronald Coase. Look him up, too.

you people are seriously the most pompous time-wasting jerk-offs in town. sitting and debating this shit ONLINE
have fun with your pissing contests

i think i am done with street easy, except when i have something to list of course.

So sad. We'll miss him so.

financeguy:pardon me,at first i didn't realize how much leftist-oriented you are-now i do.you adore centralized gov,t planning while you belittle free enterprize and individual iniative.the maximum liberty for individuals to achieve their potential [subject of course to common sense restraints],is what makesthis country excel.then again,you probobly don,t agree that america does excel--right?

"All democratic capitalist countries have some form of rent stabilization in place somewhere, because RS is fairer, more efficient and works"

No.

All democratic capitalist countries have some form of rent stabilization in place somewhere because all too often politics trumps sound economics.

All democratic capitalist countries also have murder -- but that doesn't make murder a good thing, now does it?

*****

"without stabilization, renting requires a culture of non-grasping landlords that is hard to achieve and harder to maintain."

Wrong again.

Without stabilization, renting requires a culture of landlords being forced to charge no more than the market will bear.

*****

"Otherwise, everyone with choices shifts to owner-occupied, despite its inefficiencies, illiquidity and bubble problems"

So how do you explain that 75% of all New Yorkers (most of whom are NOT in R/S apartments), continue to rent?

*****

"see any US city without RS -- and those who'd prefer to rent, or offer housing for rent, are basically out of luck (the out of luck, of course, just suffer with what they can get, which is not much)."

Actually, MOST cities in the United States are without R/S. And yet, people still manage to rent apartments in those same cities.

"Without stabilization, renting requires a culture of landlords being forced to charge no more than the market will bear. "

For me the benefit of RS/RC is not 100% about price, it's about giving the benefit to the tenant of choosing whether to renew or not the lease. That benefit alone is worth having as it helps to shield young workers from housing bubbles like the one we just had, as it makes it easy and possible to be a long term renter during periods in which renting is a much better deal than buying.

Sustainable econ growth and cheap housing go together. Bright young workers will not go to placer where more than 50% of their wages go to housing. There should be a policy that makes sure that those not interested in "accumulating wealth" in the form of brinks are not obligated to give up more than 25% on the brinks of others imho and have protections. There should be a supply of rentals where renovating the lease is up to the tenant, not the landlord.

brinks ? bricks... omg omg in need of coffee...

notadmin - slight disagreement about RS/RC helping to "shield young workers from housing bubbles". Actually, IMHO it's the "young workers" who suffer from RS/RC as tenants in those apartments tend to stay long after they have actually outgrown the apartments, and long after their income would allow them to move to apartments they actually might prefer. It's the "young workers" therefore who usually can't find an RS/RC apartment and who move into much higher priced apartments with multiple roommates.

"shield young workers from housing bubbles"
The young workers are the last in line for these deals.
You must be joking. The RS people are the entrenched chunk of the renting population who NEVER let go of their grip on the places. THAT is the problem.

"shield young workers from housing bubbles"
The young workers are the last in line for these deals.
You must be joking. The RS people are the entrenched chunk of the renting population who NEVER let go of their grip on the places. THAT is the problem.

Agree with all of you. imho the program should be for workers, not retirees nor households without at least 1 worker. There's no need to keep retirees in the most expensive city in USA with a tiny SS check, help them to move to a cheaper place is better. That said, there are tons of RS available in Harlem for example. Lack of knowledge is what affects newcomers to get a RS. Many of my friends know about RS thanks to me, not thanks to the NYTimes or friends of them. Having the right not to move is a huge plus as a tenant.

Sorry guys, you don't convince me. A RS program targeted to young households with at least 1 worker would be a good thing. A lot of talent is lost during housing bubbles due to young workers getting fed up with high housing costs.

agree with you all that the current RS system as it is doesn't work optimally, but my version of it would work imho.

Um, people who finance their homes by borrowing from the bank ("buying") "hold on" until they feel like stopping or can't pay.

Why should people who finance their homes by "renting" (i.e., borrowing from the LL instead of a bank) be treated any differently? Middle aged and retired people also have communities and good reasons to "hold on" to their homes. Moreover, cities are healthier when they include creative young people AND those people can stay on as they live their lives.

Since new construction does not come under RS, and RC has had vacancy decontrol in place since the 1970s, neither RS nor RC, as currently in force, can possibly reduce the supply of housing. All they do is change who gets the unearned surplus due to shortages: it goes to existing tenants and builders of new housing, instead of to existing landlords and builders of new housing. Unless there is some reason why tenants who live in a community are less deserving of the right to "hold on" than landlords are of unearned handouts, all this envy of RS tenants is just a sign of deep moral deficiency.

The major problem with the current system is "luxury" decontrol, which kills the market for middle class families seeking stable rental apartments and therefore helped fuel the RE bubble. If the only way you can guarantee that your kids will grow up in one home is to rent money instead of renting the apartment, then people with choices will "buy", even though they -- and the rest of us -- might well be better off if they had the freedom to rent the apartment instead of the money on a 30 year term.

Correction: I should have written that RS shifts SOME of the unearned surplus to tenants instead of landlords. Landlords still end up with most of it under the current system.

Of course, it is tenants, far more than landlords, who make the city an interesting and profitable place to live and, therefore, create the shortage in the first place.

But blaming RS for shortages is simply irrational. New construction comes in at "market" prices, so the only influence RS has on the quantity of new construction is by being ABSENT. You can believe that a better or broader RS system might increase building, or not. But you can't rationally maintain that repealing an RS system that doesn't reach new building could increase building. Repealing nothing can't make the world better no matter what your politics, ethics or level of economic literacy may be.

The best part of a Stabilized lease (except those with Preferential rent which almost makes Stabilized leases meaningless) is that you can't just be priced out the next year or have a landlord refuse to renew your lease.

Not all democratic industrialized countries have rent control. Who told you that lie? Plenty don't, including in "socialist" countries:

http://www.globalpropertyguide.com/investment-analysis/The-pros-and-cons-of-rent-control

"have a landlord refuse to renew your lease."

BINGO! That's huge. Each big city should have a big amount of long-term rentals where it's up to the tenant to renew (this is what many European cities have). That way there's a real option to young workers against buying when RE bubbles form. Also for those that know/like how to invest, the optimal thing is not to accumulate forced savings into a single illiquid asset, so for those financially literate renting might also be optimal as it allows for a higher savings rate.

People from Switzerland are richer than Americans and they pride themselves in not wasting $ on their home and investing instead. They are just better at investing, after all, they have a long tradition on that. I wouldn't be surprised at all if parents over there teach their kids the basics of finance while growing up.

"People from Switzerland are richer than Americans and they pride themselves in not wasting $ on their home and investing instead. They are just better at investing"

Now if they could just learn how to bathe and brush their teeth ...

NYCMatt, question for you. If you can't cover your carrying costs then why do you own these buildings or apartments? A smart business man doesn't own things to lose money. Obviously, there is another reason why you see these buildings as a smart investment.

I really don't care one way or the other on this issue but if you have such a problem with it then why do you own RS buildings?

till Matt can bathe and brush his teeth... he's just fine.

"But blaming RS for shortages is simply irrational. New construction comes in at "market" prices, so the only influence RS has on the quantity of new construction is by being ABSENT. You can believe that a better or broader RS system might increase building, or not. But you can't rationally maintain that repealing an RS system that doesn't reach new building could increase building. Repealing nothing can't make the world better no matter what your politics, ethics or level of economic literacy may be. "

The fallacy of this argument is that it assumes the majority of supply (which, in the case of rental units IS NOT the number of new units BUILT at a given time, but rather the TOTAL number of rentals units AVAILABLE at a certain time); in fact, the majority of the rental "supply" (i.e. what is current;y on the market for rent) is not what was just built, but was has just been vacated by the prior tenant. And there is absolutely no question that if RS was completely done away with immediately, there would be an ENORMOUS spike in supply and a HUGE decline in prices - at least short term. Whether or not that would cause other unwanted things is a different issue, and there are lots of good arguments against doing so, but if you want to very simply pare it down to "But blaming RS for shortages is simply irrational", I can assure you that immediately ending RS would probably result in a fairly large over-supply situation, which is the exact opposite of a shortage. In other words, it's not necessarily a shortage caused by lack of new building, its a shortage of supply caused by a decrease in vacancy.

I will agree that the impact of RS on new building is substantially less than it's ever been (using the inception of RS as a starting point), and an awful lot of that is due to changes in the RS laws. Also, remember most RS housing was built prior to RS, so of course it had no impact since it wasn't even a consideration at the time.

But I'll also go into another area: for a long time NYC had the worst services from landlords to tenants of almost any city in the US. I think the bellwether event of change in this area was when Related bought the foreclosed Tribeca Tower condo project and wen rental with it. They brought with them their experience as landlords from other areas in the country where one of the large goals of management was to RETAIN tenants. Up until then, the vast majority of Landlords, with largely RS buildings, considered management's main goals to be reducing costs and getting RID OF low paying tenants. While there were some large builer/managers knonw for good service, the majority were pretty shitty on purpose - because their bread was buttered on the side of "vacancy increases".

While I think the statement "New construction comes in at "market" prices, so the only influence RS has on the quantity of new construction is by being ABSENT" is NOT true (they still are RS if they took any form of abatement they are RS for the term of the abatement, and most builders believe that there would be SOME point during that time where rental prices would increases above what RS increases would allow), I do think that the housing stock being built is with the intent of being high quality/high service/tenant retention, rather than the old model of "turnover" (which we see sunk the Stuy Town guys). As such, I think over time between vacancy decontol, new housing stock and a few other issues that for Manhattan anyway, RS is becoming less and less of an issue as it's impact fades (despite the Stuy Town Court Ruling).

30 yrs: If RS has the effect of keeping rents down at all (as opposed to just making them more stable),which I assume it does in Manhattan at least, then it necessarily increases the profitability of new construction, which has the option of coming in at a market rent that is boosted by lack of competition from the RS stock. If builders opt into the RS system voluntarily, then either the stability created by RS is more profitable to them than maximizing rents, or they don't believe that RS actually reduces rents for RS tenants.

Either way, RS is encouraging, not discouraging, new construction and so it increases the total housing stock. On average that means it is lowering rents for everyone.

I don't mean that RS rents wouldn't go up or non-RS rents down if RS were suddenly abolished. It is always hard to predict the result of overturning well established property rules like RS.

Most likely, if RS were suddenly abolished, the immediate result would be mass dislocation, as RS landlords attempted to raise rents to current market, forcing tenants out, discover that current market rates are far too high given the vast increase in the supply of destablized apartments, market rents drop, bankrupting many current LLs, tenants who need security of tenure (most of them) attempt to shift to owner-occupied and, finding city prices too high, flee the city, the loss of the remaining middle class causes economic recession, LLs need to learn how to retain tenants, etc. The chaos would probably result in no new investment in city RE for years until builders and LLs could figure out a new business mode -- REDUCING total housing stock.

In the end, instability and unpredictability would probably result in a new equilibrium at a lower construction rate: the profits on new construction would be lower (since builders would no longer be able to appropriate the monopoly profits that RS presumably creates and tenants would be less willing to pay for less secure housing).

Assuming the same population, less new construction/renovation means that average prices will have to be higher. If the chaos permanently injures the city, population (or willingness to pay a premium to live in NYC) may drop, so we could end up with reduced supply and reduced prices too.

Of course, there will be a massive redistribution from RS tenants to currently market tenants and from current non-RS owners to current RS owners, so there will be winners and losers. But over all, we will be losers as the city gets harder to live in and the total housing inventory drops.

"But blaming RS for shortages is simply irrational. New construction comes in at "market" prices, so the only influence RS has on the quantity of new construction is by being ABSENT. You can believe that a better or broader RS system might increase building, or not. But you can't rationally maintain that repealing an RS system that doesn't reach new building could increase building. Repealing nothing can't make the world better no matter what your politics, ethics or level of economic literacy may be."

Bad logic. New construction is very tough in this city, period. All the regulation, land restrictions, etc. Its just hard and expensive to build. Note that most new construction is 80/20...

But what RS does is essentially keep apartments "off the market". Folks that would not be able to afford market rate apartments currently living in RS are basically subtracting that apartment from the market. Depending on how you look at it, RS is either increasing demand (by giving those folks a way into the market they wouldn't have otherwise) or constricting supply (that apartment isn't in the free market). Can't do both obviously.

But the effect is there.