Rent Control in New York City

Throughout this essay, I will expound on the background of Rent Control in New York City; the debate/controversy over it in New York City, including historical and present opposition to as well as historical and present support for it. In addition, I will discuss opposition and support for it in other U.S. cities; my opinion of the opposition as well as support for Rent Control.
What is Rent Control? It is a program administered by the New York City Office of Rent Administration, which is responsible for regulating rents in about 1.2 million privately owned rental units statewide under four laws: the Emergency Housing Rent Control Law, the Local Emergency Tenant Control Act, the Rent Stabilization Law, and the Emergency Tenants Protection Act (ETPA). The preceding four laws are the foundation of the rent regulation systems commonly known as "Rent Control" and rent stabilization (New York State Division of Housing and Community Renewal, 2006). However, the focus of this essay will be centered on New York City because of the limited scope of this paper.
Rent Control usually applies to residential buildings constructed before February 1947 in 55 municipalities (including New York City, Albany, Buffalo and various cities, towns, and villages in Albany, Erie, Nassau, Rensselaer, Schenectady and Westchester counties), that have not declared an end to the postwar rental housing emergency (New York State Division of Housing and Community Renewal, 2006). The rules are as follows: for an apartment to be rent controlled, the tenant (or his/her parents) must have been living in that apartment continuously since before July 1, 1971. If a rent controlled apartment should become vacant, it will either become rent stabilized, or, if it is in a building with fewer than six units, it is generally removed from regulation. In addition, an apartment in a one- or two-family house without commercial units must have a tenant in continuous occupancy since March 31, 1953 in order for it to be legally rent controlled. Once it is vacated after March 31, 1953, it is no longer subject to regulation. Previously controlled apartments are usually decontrolled on various other grounds (New York State Division of Housing and Community Renewal, 2006).
Rent Control restricts the right of an owner to evict tenants and limits the rent an owner may charge for an apartment. It also requires the owner to provide essential services and equipment. For example, the owner must provide and maintain all services furnished or required to be furnished on the base date of May 1, 1950 for rent controlled apartments outside of NYC, and March 1, 1943 for those within NYC. Moreover, modifications required and essential services may have been ordered thereafter, with an appropriate adjustment in rent. The essential services may include, but are not limited to: repairs; maintenance; the furnishing of light; heat; hot and cold water; elevator service; kitchen ; bath and laundry facilities and privileges; janitor service, and removal of refuse (New York State Division of Housing and Community Renewal, 2006).
The New York State Division of Housing and Community Renewal (DHCR), outside NYC, determines maximum allowable rates of rent increases under the aforementioned regulation. Periodically, owners may apply for these increases. On the other hand, the said regulation operates under the Maximum Base Rent (MBR) system in NYC. MBR allows a maximum base rent to be established for each apartment which is adjusted every two years to reflect changes in operating costs. Furthermore, owners who certify that they are providing essential services and have removed violations may raise rents by up to 7.5% each year until the MBR limit is reached (New York State Division of Housing and Community Renewal, 2006). In turn, tenants may challenge the increase on the grounds that the building has violations or the owner's expenses do not warrant an increase. They may do so by filing Challenge Re: Maximum Base Rent Order (DHCR Form RA-94 MBR). Owners may challenge Maximum Base Rent Orders by filing DHCR Form RA-94 MBR, also (New York State Division of Housing and Community Renewal, 2006).
"Rents may be increased in other ways: (1) if the owner increases services or substantially rehabilitates a building or installs a major capital improvement; (2) hardship; (3) increased labor costs; (4) in NYC, increased fuel costs (passalongs)" (New York State Division of Housing and Community Renewal, 2006). In turn, DHCR may decrease rents in certain cases: substantial, uncorrected code violations and reductions in services including facilities, space or equipment, or ancillary services (New York State Division of Housing and Community Renewal, 2006).
The preceding paragraphs depict the background and the law of rent controlled housing which contribute to the debate/controversy of it. The main argument of the opposition to the regulation is that it prevents developers from building new housing as illustrated in the following quote,
"It is hard to find any economist who supports rent restraints. Price controls, even if laboriously tweaked, inevitably produce inefficiencies, reduce supply and cause bad side-effects. Black markets and bribery thrive. Building maintenance is often ignored. Landlords and tenants find themselves in poisonous relationships, since they are linked by law rather than by voluntarily renewable contracts. Unscrupulous property owners go to dangerous lengths to evict tenants in order to get higher-paying replacements; as a result, tenant-protection laws have been enacted that make it almost impossible to evict even a scoundrel" (Economist.com, 2003, para 10).
In turn, the main argument of the support for the law is that it creates stability as illustrated by the following quote,
"Now, in principle I think rent control is great-- people shouldn't be driven out of their homes because the neighborhood gets richer and they don't. Landlords getting the profits from increased real estate values is a bit of a scam to begin with since they are benefitting [sic] from social progress in a neighborhood, not their own efforts" (Newman, 2003, para 1).
If we describe supporters of price control on the renting of residential housing as good and opponents of it as bad.... Do we call greedy, opportunistic and hypocritical flip floppers ("do as I say but don't do as I do" on Rent Control) - ugly? So is the case of Robert Nozick, author of the 1974 National Book Award winner: "Anarchy, State and Utopia" which solidified the Harvard philosophy professor's reputation as the intellectual hero of libertarians. Dr. Nozick preaches the supremacy of free markets being the key to a successful society and capitalism should be given a free hand to operate without external interference such as the economic interventionism of contemporary liberals (Tucker, 2003). However, like his conservative cousins (T.V. evangelists) - Jim Baker and Jimmy Swaggart: preachers of the ugliness of sin - Dr. Nozick doesn't always practice what he preaches.... Then, again, he is a living testament to the adage: "there's no atheist in a foxhole because everyone prays to God when their life (self-interest) is on the line."
Case in point: Professor Nozick - an eminent anti-price control advocate successfully used price control laws on the renting of residential housing in Cambridge, Massachusetts against his landlord, the renowned classical scholar and author of "Love Story" - Eric Segal. Eric Segal was forced to settle the lawsuit, in order, to get Professor Nozick to move out of his condominium apartment (Tucker, 2003).
The above paragraphs illustrate the make-up of the debate/controversy of rent-control. Let's continue with the opposition to such control in New York City by starting with its historical roots. According to Economist.com (2003,) - an anti-price control advocate, the law on the renting of residential housing was one of many price controls brought in during the grim, panicky period between the attack on Pearl Harbour in 1941 and America's move to a full wartime economy in 1943. Like rubber, petroleum, coffee and shoes, housing was looked upon as a vital commodity that needed to be regulated for 'the good of the citizens' during a time of war. The Economist.com article (2003) mentioned above continued to lament that by 1947 all the price controls were phased out, except property-price regulations. Specifically, the website pointed out that most cities eventually scrapped the preceding market distortions except the capital of capitalism - New York City (Economist.com, 2003).
From its inception to its current form, the rent ordinance is vitriolically resisted by its opponents - mainly landlords and free market economists. For example, Swedish Economist Assar Lindbeck compared the effects of the ordinance on a city to a city destroyed by bombing. Walter Block, holder of the Harold E. Wirth Eminent Scholar Chair in Economics at Loyola University's Joseph A. Butt, S. J. College of Business Administration, offered an anecdote on his website, illustrating that it is worse than bombing (Block, 2002). (Seriously, I wondered if Dr. Block considers it to be more destructive on an urban center than the Nagasaki and Hiroshima's nuclear bombing or Washington, D.C. and New York City's 9/11 attacks)?
The main complaints against ceiling on rents in New York City seem to be centered on the following.... First, it is a government-mandated price control which is a law that places a maximum price (rent ceiling) on what landlords may charge tenants. In turn, rent ceiling causes shortages, diminution in the quality of the product, and queues, as in the case of other price ceilings (Block, 2002).
Second, it diverts new investment, which would otherwise have gone to rental housing, toward other profitable ventures. Thus, the diversion leads to housing deterioration, to fewer repairs and less maintenance. For example, price ceiling has destroyed entire sections of sound housing in New York's South Bronx whereas it has led to decay and abandonment throughout the entire five boroughs of the city (Block, 2002).
Third, it often benefits the wealthy and politically connected long term tenants instead of tenants who need it most - lower middle class and working class tenants. For example, multimillionaire Ed Koch currently resides in a rent-controlled apartment which he maintained while living in City Hall as the Mayor of New York City.
Let's take a look at the support for rent law in New York City by starting with its historical roots. The rent ceiling program in New York City, like most major cities in Western Europe and North America during World War I, was introduced to mitigate disruptive effects of the War and to prevent profiteering. Subsequently, in some cities, the programs were discontinued after the War while they lingered on in other cities. In World War II, rent freezes were imposed throughout the major cities of Western Europe and North America. Again, all North American cities were fully decontrolled by about 1950 with the exception of New York City (Arnott, 1997).
From its inception to its current form, the housing law is steadfastly supported by its supporters - mainly tenants, and liberal and socialist leaning organizations and politicians. For example, Rachel Treichler (an avid supporter) - the Green Party candidate for New York Attorney General in 2006 made it in New York City and affordable housing in general as one of her major planks in her campaign platform (Voterachel.org). Another example is Betsy Gotbaum - Public Advocate for the City of New York who vociferously campaigned against rent deregulation prior to the expiration of New York City said housing laws in 2003 (Pubadvocate.nyc.gov, 2003).
The main praises for laws or ordinances that set price controls on the renting of residential housing in New York City seem to be centered on the following.... First, it allows working class families and retirees to live in good neighborhoods in N.Y.C. For example, a minimum wage earner would have to work 154 hours a week to afford a two-bedroom apartment at market rent. Second, New York City depends on the diverse work force for her economy; without Rent Control, working class families would have to relocate to other affordable cities. Third, it minimizes tough decisions by working class and retired tenants, such as choosing between rent and food or medication (Pubadvocate.nyc.gov, 2003).
In other cities, opponents and supporters of laws or ordinances that set price controls on the renting of residential housing voiced similar arguments. In Hoboken, New Jersey, its advocates are able to successfully maintain the status quo despite their community undergoing a major gentrification. In Santa Monica, California, its advocates were able to introduce rent control to the community while simultaneously electing pro-rent control City council members in 1979. In Baltimore, Maryland, its advocates developed a citywide housing organization after a pro-rent control law was struck down as unconstitutional by state courts. In San Francisco, California, its advocates eventually won a rent control law despite many hurdles engineered by opponents (Policylink.org, 2006). In Cambridge, Massachusetts, its opponent Jerry Calen of Narsil.org (2003) reported that the effort to re-impose rent control in Cambridge was defeated by slightly more than a 3 to 2 margin.
I personally unabashedly support laws or ordinances that set price controls on the renting of residential housing in New York City for all the reasons and arguments by its advocates reported depicted in this essay, despite being a homeowner. My opinion of the positions taken by its opponents is similar to my opinion of the positions taken by opponents of the Minimum Wage. For example, opponents like Dr. Nozick base their opinions in their own self-interest instead of the interest of the common good.
Another personal example of the housing ordinance is illustrated in the case of my former professor and an assistant department chair (Ph.D., University of Wisconsin-Madison) who co-authored a textbook with another of my former professors (Ph.D., Massachusetts Institute of Technology). The textbook, like most economics textbooks, is highly critical of rent ceiling because of its relationship to the odiousness of price controls. Nonetheless, the professor maintains a rent-controlled apartment in Manhattan along with his privately owned house in Upstate New York. Is my professor's case similar to Dr. Nozick's case? I think not ...although my answer is very biased. From my personal experience, my professor's ethics are impeccable and he is of an irreproachable character. He is one of my best former professors (along with the other mentioned professor). Continuing my disclosure, I earned an A in one of his honor classes because of his superb teaching skills. He, also, selected me to be on a college academic team that earned third place in a nationwide economics competition. OK, so what is my point? My point is rent ceiling like Minimum Wage has a gray area that is situated between the extremes of 'black' (opponents) and 'white' (supporters) - a gray area best illustrated by the following quote:
"Rent control has been presented to fifty years of economics students as
an object lesson in bad policy. Over that period, however, the nature of rent control has changed from a rent freeze to rent regulation which allows each jurisdiction to choose its policy from an extensive menu of provisions. At the same time, economic theory has become more sophisticated and sensible while the standards for the empirical testing of theory have increased enormously. As a result, expert opinion on the effects of modern rent control policies has become increasingly agnostic" (Arnott, 1997).