What would happen to SF and NYC if you abolished "rent control"

In My Humble Opinion
1

Having lived in NYC for sometime and trying to find a livable apartment in San Francisco recently I was wondering what the effect would be if you could abolish rent control.

I remember back in the mid 90s when I lived in Manhattan, it was irritating that I was paying $1,500/month for my studio in a building with 45 apartments. The irritating part was at a tenent meeting I found out 30 of those people were paying $500 or less per month for apartments and all had one or two bedrooms.

It seemed obvious that the landlord was just averaging out the rents on the lower apartments to make the same overall profit.

It seemed to me all this did was prevent the lower rent people from ever moving while encouraging the upper rent people like myself to leave the city. Which I did.

I noticed, though it wasn’t as bad as NYC, that in SF the situation was similar. Though I admit it’s better in NYC because as the rents are really only out of control in Manhattan and you can quickly commute from Brooklyn or Queens and get decent rent something you can’t really do in SF.

Anyway just wondering what the effect of abolition of rent control would do to NYC and SF. I’m sure it would destabablize the cities for a year or so till the market came to even itself out. Or would it ever even out?

2

The laws of Economics don’t work that way. Suppose rent control was abolished. The landlord could raise rates on the formerly rent-controlled tenants to raise his profits. Do you think he would turn around and lower your rent(and thus his profits)? Of course he wouldn’t.

3

ISTR a discussion a few years ago here on the Dope that suggested that rent control, far from providing a brake to rising rents for the market over-all, actually tends to push the rental market up higher, over all.

If that’s the case it does cut a leg out from the arguments in favor of rent control.

But, I’m not sure that it’s politically feasable to remove rent control. Even people don’t benefit from it like the idea that, if they win the equivalent of the housing lottery, they could get a nice, affordable apartment in a super-heated housing market. Further, I believe that Rysto is correct that the short-term effect of removing rent control would simply see an increase in rents across the board. “All the market will bear,” is as close to an universal law of economics as anything I can imagine.

4

Actually, there might be changed to the studio apartment pricing as well.

Suddenly there are a bunch of 1 and 2 bedroom apartments, that used to be rent controlled, on the market. What if the landlord raises the rents from the $500 he had, to $1500, now all of his studio units will seem overpriced.

If the current rates are driving people to move out of the area anyway, the landlord won’t be able to raise rates above his current non-rent-controlled rates, or those same people will still be leaving for cheaper housing. So the market may all ready be at the “All the market will bear” level. Removing rent-controls would really just add more units to the pool/

5

You would see a distinct makeup in the population of the city. You’d see the older folks who have been living in rent-controlled apts. for 50 years leave for Florida. More lower-income minorities, etc., would be driven out. Young people starting out would not be able to live in the city (unless they were already quite wealthy), or else you’d see even more insane numbers of people living in each apt.

Now, some of that is going to happen over time, anyway–old folks die, apt. becomes available at higher prices, etc. But you could see a city that is already quite expensive to live in become a city that is home only to the super-wealthy.

6

It’s not too hard to see why, when you think about it.

Rent control provides an incentive not to move, which leads to inefficiencies in the market, as people stay in apartments larger than they need because the price is controlled. Inefficiencies end up as higher costs overall.

Rent control (sometimes, depending on how it’s implemented) provides an incentive against building new apartments, since you might not be able to charge reasonable amounts for them. This restricts suply, which drives up prices.

Rent control is great for the few people who get to pay below-market rents. But on average, it sucks.

If you removed it, a lot of people who rely on rent control would have to move out of the city, and the average price of rent in the city would drop slightly as it reached a new market equilibrium.

7

I actually disagree with this, I knew many “young people starting out” while I lived in New York, very rarely did they have their name on a lease at a below-market rate. Most of them went into a share or an under-the-table arrangement, and didn’t have the protection of a lease at all, or lived in the boroughs and paid market rent. Rent stabilization, IMHO, does little to help the person who is trying to get INTO an apartment, it’s designed to protect those who are already in place. Yes, everyone knows someone who got an apartment at below-market 5 minutes after it hit the market, but in my experience these people already have a job and cash for the brokers fee, and are not at the bottom of the economic ladder.

8

Sugar and spice – you’re at least somewhat confused between rent control & rent stabilization. Rent stabilization applies to the property itself and not the tennt. I moved into an apartment in Queens last year, and it is rent stabilized. This means there is a mandated upper price that can be charged in rent (our market rent is less than the full amount that legally could be charged) and that rent increases 3% per year.

Rent control is something else entirely, and I don’t quite know how it works except that it attaches to the tenant somehow and when they move out/die, ithe apartment goes on the open market.

9

What did I say that makes you think I’m confused? I’m familiar with the difference, I spent 4 years in 2 different rent stabilized apartments.

10

Rent stabilization applies to everyone equally; I don’t see a particular advantage to entrenched tenants.

11

Okay. What I meant to say is that rent stabilization protects people who have their name on a lease in a rent stabilized apartment. If you do not have a your name on such a lease, then you personally will not benefit from the increase limits of rent stabilizations. For example, if you live with a boyfriend or roommate but your name is not on the lease, then you are SOL if you the relationship goes bad (I’ve seen it happen). Likewise, if you rent under the table, are a live-in employee, or your building is <6 units and not stabilized, then you are also unprotected. In order to benefit from stabilization, you have to get your name on the lease, and in a desireable Manhattan neighborhood this requires both a job and several months cash to cover the deposit and fees, and its not easy to save up this much money when you live month-to-month. Basically, my point is that while the system is technically open to anyone, its difficult to enter in if you want to live in a popular neighborhood and don’t have connections.

12

Both rent stabilization and rent control are extremely bad ideas. They have the same effect that other price controls have - they create shortages of the things being controlled.

The experience of rent control in almost every place that’s tried it has been to stifle mobility of the population, reduce investment in making new rental properties, reduce investment in maintenance of rent controlled buildings, and increase the supply of condominiums, often by owners converting apartments into condo units.

High rents are an important market signal - they choke off demand in an environment where there is a shortage of supply. They ensure that only the people who really, really need to live in an area of high demand actually live there. They force inefficient, labor-intensive businesses to relocate or open in areas that are in less demand and where workers can afford to live. And at the same time, the higher rents stimulate investment in rental properties, helping to ease supply problems.

All of this is very important to a well functioning market. But when you cap the price of rents, or control the increase in rental prices so they can’t grow with the demand for housing, you simply create a situation where the people who are already in the rent-controlled apartments get a bargain, while increasing shortages for everyone else make rents and purchases even more expensive. Then the government usually gets involved and starts subsidizing housing to make it ‘affordable’, which further chokes off the market’s ability to control demand by increasing cost. So demand never decreases, and the problem just gets worse. Only now taxpayer money is also flowing into the system (and into the pockets of the people who own the real estate, who are generally already wealthy).

Rent control is an attempt to deny reality by fiat. It always fails. It’s one of the worst ways that the market is commonly manipulated by governments. And they never seem to learn. My city is now toying with the idea of rent controls, despite the fact that when the NDP tried them in Ontario it was a complete disaster.

The other problem with rent controls is that once they have been instituted they are almost impossible to remove, because the people in the rent-controlled apartments rapidly find the non-controlled real-estate increasing in price until it’s well out of their reach. So a few years after rent control comes into effect, removing it would essentially mean the wholesale evictions of hordes of people, possibly right out of the city. So you wind up with those abominations where the existing tenants get grandfathered in, and one neighbor pays two or three times as much rent as the other due to an accident of timing.

Rent control: Just say no.

13

I just signed a lease on a huge, rent stabilized 2 bedroom in manhattan for $1500 per month. I absolutely love that such an apartment was available for myself and my roommate because of rent stabilization. I understand that overall it is not a good thing, but this is a much lower cost than most pay to live in NYC, so it gives us the ability to live in New York instead of having to stay in Dallas.

14

I lived in Berkeley when rent control was in force. There was a constant shortage of apartments, and the rents were still fairly high (though lower than the rents in Internet-booming San Jose*, where we moved next; that was a shock). The apartments were usually in fairly bad shape–old, not particularly well-cared for, and luxury appliances that broke were simply removed, not replaced (such as sink garbage disposals). Landlords had little incentive to improve properties, and there was no incentive to build more places to live (or to renovate un-liveable places).

My brother moved into Berkeley just after rent control was taken away. The rents were horribly high, because there was still a shortage of housing. He had 3 guys living in a one-bedroom apartment.

Now, it’s my understanding that the housing shortage has improved considerably, and rent prices have stabilized. I would expect that the apartments are improved, as well. But I would like to hear from a resident if possible.

Anyway Berkeley is a city where you can look at results; rent control was in force for many years and was taken away fairly recently.

*Rents in San Jose were indeed higher, but the apartment we moved into was also a lot nicer (though by no means a luxury place; just medium). So I’m not quite sure how a comparable apartment would have been priced. I do remember that we were stunned by what the landlords were willing to do in the way of repairs and such.

15

Is it bad to encourage people to not move?

Isn’t that how renters become a community? Doesn’t that keep kids in the same school?

If rent controll/stabalization went away, I think the first effect would be a disaster but then, maybe, a tennant could have leverage with the landlord when the lease came to be renewed if you could find better deals. But that is one big “if” man.

16

San Jose has rent control. It has not “stifled mobility of the population, reduced investment in making new rental properties, reduced investment in maintenance of rent controlled buildings, or increased the supply of condominiums”. It has worked and thus “It always fails” is a falsehood. If you don’t believe me, check out the minutes of the SJ Advisory Comm on Rents or RealFacts.

Now, SJ is not rent control anything like SF or NYC or Santa Monica. It only applies to older buildings over 25 years old. And, all it does is to limit rent increases to no more than 8% a year. 9 years out of ten, the market keeps rent increases to less than 8% a year.

What SJ ordinance does do is stop landlords from being stupid. A few years ago, the NASDAQ was going crazy and there were instant millionaires all over Silicon Valley. Suddenly the market went up 30% or more. Stupid landlords raised the rents on their good, established tenants, driving them out. Of course, the market was hot so they were able to rent to new richer dudes. Which was nice until next year when Tech stocks collapsed and those new “richer” tenants couldn’t pay the rent at all. Meanwhile, the good solid dependable tenant had been pushed out of his home of many years. Everyone got fucked. Except those lucky few with Rent controled buildings- both landlord and tenant.

The rep from the Tri-county Apartment owners assoc actaully said at one San Jose Rent Comm meeting “I don’t like rent control in general, but all the San Jose law does is stop landlords from being stupid.”

So yes- Strong Rent Control doesn’t work in the long run. But it is OK for a year when the Market is unstable. And mild/moderate rent control- where owners can raise their rents within market limits most years- work just fine.

17

Without knowing the specifics of the situation, I can tell you in general what happens when rent stabilization caps the annual increase in rent - rents tend to increase more than they would in years where the increase is well under the cap.

Why? Think of it this way - you’re a landowner. Without rent controls, you can set your rents at market prices and be done with it, comfortable in the knowledge that you can adjust them as local market conditions change. Now add in an 8% annual cap. Now you’ve imparted a new risk on the landowner - what if rents increase by more than 8% next year? He’ll be operating at a disadvantage. All else being equal, an increase in risk increases the amount of money one must earn for a fixed amount of investment. So in general prices go up to pay for the increased risk to the landowner.

In addition, if rents are only up 4% this year, but there’s a risk that rents will go up 15% in the next year, the landowner may choose to ‘use up’ his 8% and increase rents this year by the full 8% in order to give him some ‘headroom’ at the start of the next year. If rents don’t go up, well, he can just hold them where they are until inflation catches up.

THe most likely scenario is that the law has little effect one way or the other because the 8% mark is higher than, say, the 10 year average increase. The way to tell is to look at rental prices of apartments that have existed under the increase cap arrangement, and see if they are still tracking rents of uncontrolled units. If they are, then the law is pretty much useless. No harm, but no benefit either.

18

I see what you’re saying, but whenever you rent without protection of a lease, you are setting yourself up for a potential screwing. Not just in re: rent stabilization; you are without any legal protection in your place of residence! I know lots of people do it, but its really, really stupid. Basically, you rents under the table and you takes your chances… – in pari delicto potior est conditio defendentis (where both are guilty the defenedant is in the better position).

FTR, I can’t seem to work up much sympathy for people who complain because they can’t afford trendy neighbrhoods in Manhattan. Move to Queens like the rest of us. Problem solved.

19

That’s the key, really…rent in Manhattan SHOULD be high, because so many people want to live there, and it’s a relatively small place. Without rent control, competition for those apartments will naturally drive the cost up, forcing most people to look for housing elsewhere. This is why rent control causes shortages…the lowered prices allow too many people to be able to afford the neighborhood.

20

Well, even the boroughs are not that easy. There are very few SAFE neighborhoods withing 1 hour of Manhattan where you can get a legal stabilized lease without a guerantour or a documented income. (Keep in mind the discussion started about “young people starting out”). Sunnyside and Kew Gardens come to mind, but you would still have to get through the credit check. There’s also the investment of the brokers fee, although I do admit that many building will talk directly to the applicant once you get far enough out. And while in theory yes you could go to Flushing and take LIRR, I don’t think that’s realistic if you’re young and single and your entire support network lives elsewhere. At that point its safer to go into a share in Astoria.

Feel free to dispute my list of accessible neighborhoods, I’ve been gone since 2005.

I totally agree, though, there’s nothing wrong with the boroughs, and there’s nothing more obnoxious than listening to College Grad Barbie complain about how her dream UWS apartment won’t take her dad as a cosigner.