The Rent Guidelines Board’s Recent Debacle
Robert Knakal July 8, 2014, 2:10 p.m.
Recently, the Rent Guidelines Board adopted rent-regulated rent increases at historically low levels of 1 percent for one-year leases and 2.75 percent for two-year leases. Property owners and tenants both lamented the result, with owners complaining that rents were not rising to the same extent as expenses. Tenants are complaining that rents should be rolled back and argue that any increase is disastrous, thanks in part to Mayor de Blasio campaigning so strongly on a “rent-freeze-to-save-affordable-housing” platform.
Here are a few observations:
First, it is laughable when politicians—and they have all done it—refer to our rent regulation system as an “affordable housing program.” Affordability has absolutely nothing to do with it. For an overly simplistic example, if someone walked up to a widget stand and asked how much a widget was, and the reply was $100, how would you determine that he could afford that widget? The first question a rational observer would ask is, “How much money does the buyer have?” If he had $50 in his pocket (assuming no credit cards or ability to buy on credit), the widget is unaffordable to him. However, if that person had $1,000 in his pocket, the widget is affordable.
So, knowing the resources available to the consumer of goods and services is a critical element in determining affordability. Yet no politicians ask this very basic question. They are content to simply make the assumption that all tenants in New York are in low-paying jobs and are unable to pay the sky-high rents that exist in the city. From a political perspective, this makes total sense, as there are about 1 million rent-regulated units that house voters. However, it is devastating to our housing stock.
After all, would any politician agree that giving food stamps to millionaires is a good idea? Would anyone campaign on a platform of allowing billionaires to go on welfare? The answer to both of these crazy hypothetical questions is an obvious “no,” but why are housing subsidies distributed at random without a care in the world about true affordability? Without implementing some sort of means-testing, our rent regulation system is nothing more than a political tool, creating fodder for bumper sticker slogans to get votes for those seeking office. It is nothing more than an inertia program, which has nothing to do with affordability.
Second, tenant advocates always are concerned with harassment. So are our elected officials as evidenced by the recent formation of the Tenant Protection Unit. As a counterpoint, I haven’t heard of any concern for small property owners who go to landlord/tenant court on non-payment cases and take 18 months, or longer, to get deadbeat tenants out of their buildings. If these advocates and elected officials really cared about harassment, they would require means-testing, and eligibility guidelines, to have all tenants qualify for rent subsidies. If a tenant proved that the apartment was their primary residence, and they had income below the level appropriate for rent subsidies, property owners would have little need to take tenants to court (which is the embodiment of “harassment”), other than for non-payment or other breaches of their leases.
Third, the inertia that is caused by rent regulation leads to a gross misallocation of our housing stock. Families of five remain in one-bedroom apartments because of the low rents they are provided and elderly people living alone stay in three-bedroom spreads for the same reason. This incentive not to move is one of the two main reasons that free market rents are so high in the city. (The other is real estate tax policy, but that is another conversation for another day.) Rather than having 3.3 million choices for housing if you are looking to move to Gotham, you have only about 2.3 million choices. This strain on the supply of housing exerts tremendous upward pressure on rents.
Fourth, if elected officials were truly interested in providing affordable housing, implementing means-testing would free up tens of thousands of units for those who truly need them. They could also provide the private sector with incentives that would create all of the affordable units they would like. It is simply a matter of creating the right mix of increased density in exchange for the affordable units. Additionally, reincarnating the 421-a program back to its original iteration would add dramatically to the stock of affordable units.
Lastly, providing rent increases below an appropriate level to keep up with inflation, and other expenses controlled by the city will lead to disinvestment in and the deterioration of our housing stock. Providing incentives for investment in the stock is what caused a resurgence of our housing stock after the dark days of the 1970s. Perhaps some history books for those crafting our housing policy would be the best investment of all.