One would guess the folly of rent control regulations needn’t be explained any further. If rents are held in place by government edict, landlords have no incentive to maintain apartment units to attract renters, the housing stock ultimately deteriorates, and homelessness increases. But, as Bloomberg reports, “Tougher rent control, returning worldwide, destroys $75 billion in property value. Cash-strapped tenants cheer as they maintain a foothold in the city.”
That was the article’s subtitle. The title of the piece authored by Patrick Clark and Prashant Gopal screams that New York City apartment values have been cut in half. In 2019, alarmed about the decline in affordable housing, New York State lawmakers made rent control laws tougher. They sharply reduced how much landlords could raise rents after renovations, and worse yet, the units no longer leave the program when rents rise high enough.
The difference between rent-stabilized unit values and market rent unit values since the 2019 change is startling. Last year, the price of New York buildings with at least one rent-stabilized unit sold for prices that were 34 percent lower than in 2019. By contrast, the price of nonregulated apartments rose 23 percent during the same timeframe.
The Federal Deposit Insurance Corporation unloaded $15 billion in loans backed primarily by New York rent-stabilized apartments in December at a 40 percent discount. And the charges New York Community Bank took for its exposure to rent-stabilized projects is well known.
“A lot of owners I’m speaking with want to walk away from buildings,” Lazer Sternhell, chief executive officer of Cignature Realty told Bloomberg. Douglas Peterson, who bought more than forty properties for $300 million over twenty years, is behind on his mortgage payments and fresh out of money for repairs. “My career is over,” Peterson says. “Now it’s just a question of: What’s my legacy going to be? Is it going to be that I abandoned the ship when it was sinking, or that I stayed and fought?”
“The politicians are defunding these buildings,” Lewis Barbanel told Bloomberg. “They’re trying to create a situation where the owners fail.” Mr. Barbanel is taking his investment dollars to New Jersey.
Sounding like Wesley Mouch in Atlas Shrugged, Cea Weaver, campaign coordinator of Housing Justice for All, said defiantly, “We weren’t being very secret that we were trying to change the rules, nor were the lawmakers in Albany,” Weaver said. “I don’t know if it was hubris or not, but laws change, and that impacts markets.”
What’s happening in New York City hasn’t stayed in the Big Apple. Oregon and California have instituted rent stabilization statewide, and two dozen states last year considered rent caps, according to the National Multifamily Housing Council.
Canada, India, and Sweden all have rent control. Denmark’s government placed a two-year cap on rents last year, while Berlin froze rents for five years in 2020 until courts overturned the measure.
Chris Herbert, managing director of Harvard University’s Joint Center for Housing Studies, says the rental market in large cities is a market failure, citing scarce land and zoning laws. He is forgetting or ignoring that one government intervention leads to others, as Ludwig von Mises explained.
New York has sixteen thousand units under rent control and a million units under rent stabilization. Before the 2019 changes, property owners could raise rents by 20 percent each time a tenant moved out. Past a certain threshold, they could set their own rents. Owners could also raise monthly rents by one dollar for every forty dollars in renovations. Landlords have taken their case against the 2019 rent laws to the US Supreme Court with no success.
Clark and Gopal write, “In one of the strange twists of rent regulation that worry economists, [Douglas] Peterson is among the landlords leaving apartments empty because it doesn’t make sense to repair and rent them out at current rates. Thousands of apartments are vacant, according to government and industry estimates.”
A strange twist? It’s just simple economics.
Full story here Are you the author?You Might Also Like
Fiscal Rules Do Not Undermine Investment, But Government Profligacy Does
2024-02-03
To prevent public debt from soaring in the wake of the global financial crisis in 2009, Germany has enshrined a “debt brake” in its constitution. The debt brake sets strict limits on federal public debt levels and restrains government borrowing. This fiscal rule has served its purpose, and public debt has been on a downward path, dropping by about 15 percentage points of gross domestic product (GDP) since its introduction. Yet the government suspended it during the pandemic and raised an extra €370 billion of debt in 2020 and 2021. It also tried to circumvent this rule on several occasions by setting up off-balance sheet funds, such as a €100 billion special fund for military spending during the war in Ukraine.
In 2022, the German parliament decided to shift about €60 billion from the
Argentina and the Watching World
2024-02-02
Javier Milei has already been sworn in as the new president of Argentina and faces a Promethean challenge, having inherited a country riddled with debt and inflation. Balancing the books is going to be his priority before he can implement most of his innovative ideas, and that is going to cause temporary pain as he has clearly admitted. He does not seem keen on wasting time though, and in his first weeks we have seen a historic revocation of more than three hundred laws that have formed part of the crippling, overregulated Argentinean system for decades (many inherited from the military dictatorships). We have also seen a reduction in the number of ministries and public workers, an update of the official peso-dollar exchange rate to match the real market rate, a colossal effort to deal
Navigating the Complexity of Climate Change: A Closer Look at the Scientific Method and Its Challenges
2024-01-31
The physical sciences have greatly advanced knowledge by elucidating the workings of simple phenomena. In a simple phenomenon, we have a limited number of important variables, all of which are identifiable and measurable. This allows us to run a scientific experiment. In such an experiment, we hold all other variables constant and examine the influence of one variable on the phenomenon. We can therefore measure this variable’s direction and how important it is to this phenomenon. We can then do this same experiment to all the other variables to determine their direction of influence and relative importance. We can identify which assumed relationships are correct and which are wrong. We can draw conclusions on hypotheses about simple phenomena.
Complex phenomena, on the other hand, have
China’s Inefficient and Unsustainable Central Planning
2023-10-31
Over one hundred years ago, Ludwig von Mises wrote about the impossibility of successful rational economic planning under socialism. Yet China is still trying, even while its blend of markets and socialism results in shortages and surpluses. This article examines three contemporary initiatives spearheaded by Xi Jinping, each marked by an inherent problem: food insecurity, the aging crisis, and the real-estate bubble. Each problem was created by legislation and is being made worse by further legislation enacted to correct the problem.
Food Scarcity
China is a net food importer, capable of producing only 66 percent of the food it needs. The country has less than half as much farmland as the United States and four times the population. In order to increase food security, possibly in
Tags: Featured,newsletter
