How to Fix Rent Regulation
Welfare is defined as “financial aid or other assistance to an individual or a family from a city, state or national government.” It is further defined as “receiving financial aid from the government or from a private organization because of hardship and need.”
In New York, rent stabilization is a form of welfare, rent welfare. It is a system where recipients are subsidized by everyone else in the form of higher average rent levels and higher tax burdens. While well intended to preserve affordable housing for those who are indeed in need, rent-stabilized housing is misallocated, as financial need is not part of the equation. Our rent laws provide maximum benefits to those who have been in place for a long time regardless of their financial status and need.
This results in a system that makes people resistant to moving even when, in the normal course of family life, they would seek to downsize, or to move to a bigger apartment. This limits the supply of available units, which increases the average rent a New Yorker pays. Rent regulation unfairly lowers real estate taxes collected on those properties; and residents who are not the winners of the stabilized lottery are, effectively, subsidizing those who are. This premise has been verified by studies completed by M.I.T. and at the Wharton School. Inhabitants of roughly one million of New York City’s three million apartments receive rent welfare.
Unfortunately, even if every economist in the world proved to New York legislators that the elimination of rent regulation would lower average rents, it would be political suicide for any one of them to take a position against rent regulation. Generations of New York politicians continue to confuse rational housing policy with utopian social policy and do not trust the free market to do its job.
The government’s stranglehold on rent regulation has kept the forces of supply and demand from allocating housing resources. The city’s incessant distortion of its housing market has a political benefit to those who support regulation, as there are thousands of voters who vote on only one issue. This is the key reason why legislators fight to preserve rent regulation as opposed to letting the market naturally make the allocation. Militant tenants’ associations have expertly treated mayors, council members and those in the State Assembly as their own lobbyists for permanent “affordability.”
To experience the fervor of these tenants, attend one of the Rent Guidelines Board meetings that are held each spring. It is at these meetings that tenants and owners make arguments to the board regarding the need for lower or higher regulated rent increases. The most articulate tenants speak idealistically of how New York must remain affordable and accessible for everyone. In reality, their civic idealism extends no further than the walls of their own apartments.
GENERALLY, “AFFORDABILITY” IS attained when someone’s rent equals 30 percent or less of their after-tax income. As diversity is something that is a tremendous asset to New York, the public sector must find a way to create the affordable housing that is needed. The current system of rent regulation unfairly seeks to place this public-sector responsibility on the private sector by literally hijacking private property for public use.