Rent regulations expire; upstate concerned

June 16, 2015

Why would upstate care about NYC area rent regulations, prompting the unlikely headline above?  As time goes on, those lucky enough to have moved into rent stabilized apartments in the City pay less and less of their total income for rent.  Over twenty years or more, these savings can become substantial, producing enough to enable the tenant to purchase a weekend home, which many do in areas surrounding Albany, such as Hudson, the Catskills and the Taconics.  These weekenders pump a lot of money into local upstate economies.  So why do upstaters usually  regard rent regulation as socialistic and anathematic to their values? I suppose many don’t understand that they are beneficiaries (in many cases indirectly) of the law of unintended consequences, but I do believe (though I haven’t seen any studies) that the economic impact on many localities of weekend visits by NYC residents is substantial.

As one who benefited from rent stabilization many years ago, I understand that it makes some parts of the City affordable to those who otherwise would have to live in less desirable areas, and that it therefore may increase diversity in those areas.  I also have seen the effect of a lack of regulation in the commercial rent sector in the City, where many local businesses not fortunate enough to own the buildings they occupy have been forced out, to be replaced by stores and restaurants one finds at malls in more suburban locales.  This does not make the City more attractive.

Nonetheless, rent regulation has many flaws, even if you accept its basic premise.  Though allegedly a restraint on price increases, it is in reality a confiscation of wealth from private owners and a transfer of such wealth to others who, unless they are very high earners, qualify for the program regardless of their net worth or income.  It encourages people to stay in apartments they do not need, because downsizing would cost, rather than save, them money.  When an “empty nester” holds on to a five-room apartment in which he has lived for 30 years because moving to a studio would result in a rent increase, how does that help the young family wanting to move to the City?  One also should not forget that, in the 1970s and 80s when I lived in the City, many landlords who did not want to be subject to rent stabilization converted their buildings into condos and coops and thus removed them from the rental market, though some protections were afforded to tenants who did not wish to buy their units.  And, since rental properties are valued for tax purposes by the income they produce, regulated rents result in under taxed properties, meaning the City does without some tax revenue or others make up the difference.

The unintended consequences of a blunt instrument do not mean it should be abolished.  Certainly, it should not be abolished all at once without prior notice.  If the powers that be line up in a way that indicates support for continuing the present system may not exist, the responsible course of action would be to extend the current system for a year or two, and to use the time to develop a plan for an orderly transition to a substitute, whether it be a different form of regulation or gradual deregulation.  Of course, during that time, the balance of power could shift, meaning it likely will not happen.