Rent (not the musical).
June 16, 2012 8:55 AM Subscribe
Rent control, rent stabilization, free market. What's the difference between these categories with regard to apartments in New York City?
I'm curious about the differences between these three rental categories, specifically as to how they impact building owners and the viability of their income investment. How is rent control different from rent stabilization, and what's the philosophy behind the two? What are the lease requirements for rent control and rent stabilization, and what types of rental increases are allowed by each? Is subletting allowed? When an apartment converts to free market, are there still provisions that forbid rental increases past a certain amount or percentage?
Obviously, this is a hoary subject, and any information that sheds light on it is appreciated--as are any caveats that apply to a building owner in New York City.
I'm curious about the differences between these three rental categories, specifically as to how they impact building owners and the viability of their income investment. How is rent control different from rent stabilization, and what's the philosophy behind the two? What are the lease requirements for rent control and rent stabilization, and what types of rental increases are allowed by each? Is subletting allowed? When an apartment converts to free market, are there still provisions that forbid rental increases past a certain amount or percentage?
Obviously, this is a hoary subject, and any information that sheds light on it is appreciated--as are any caveats that apply to a building owner in New York City.
ETA: Subletting always requires the landlords permission, obviously if the rent is less than $2500 they'll allow it.
There is an entire banking niche of lending to rent stabilized landlords. Hudson City Bancorp is a big player.
posted by JPD at 9:23 AM on June 16, 2012
There is an entire banking niche of lending to rent stabilized landlords. Hudson City Bancorp is a big player.
posted by JPD at 9:23 AM on June 16, 2012
The authoritative answers to questions about these forms of rent regulation can be found on the DHCR website, here. Specifically, you want to look at this Fact Sheet. You may also want to check out Owner Resource page.
posted by lassie at 9:36 AM on June 16, 2012 [1 favorite]
posted by lassie at 9:36 AM on June 16, 2012 [1 favorite]
specifically as to how they impact building owners and the viability of their income investment
There are claims that by reducing the overall income a landlord can expect, rent stabilization and/or control schemes limit investment in multifamily real estate and thereby reduce the supply of apartments overall -- which drives up rents overall. I'm not certain, however, that the effect on a vast market such as the commuting distance area surrounding NYC is truly affected given the many, many non-"controlled" jurisdictions.
posted by dhartung at 12:58 PM on June 16, 2012
There are claims that by reducing the overall income a landlord can expect, rent stabilization and/or control schemes limit investment in multifamily real estate and thereby reduce the supply of apartments overall -- which drives up rents overall. I'm not certain, however, that the effect on a vast market such as the commuting distance area surrounding NYC is truly affected given the many, many non-"controlled" jurisdictions.
posted by dhartung at 12:58 PM on June 16, 2012
how they impact building owners and the viability of their income investment.
Check out the first chapter of the book Economic Facts and Fallacies by Thomas Sowell, which discusses rent regulations in New York among other cities (he uses "rent control" as a generic term for all rent regulation). Excerpt:
It's crucial to understand that just because some people benefit from the regulations (yay! their rent is lower!), doesn't mean that society as a whole does. It would be a huge mistake to focus only on the known beneficiaries, at the expense of considering the full consequences of the regulation for the city as a whole. In fact, you have to consider more than the whole city, since these regulations affect people all over the country if not the world (people who were dissuaded from moving to NYC, or who used to live here but couldn't find a decent apartment so they had to move).
posted by John Cohen at 1:51 PM on June 16, 2012 [1 favorite]
Check out the first chapter of the book Economic Facts and Fallacies by Thomas Sowell, which discusses rent regulations in New York among other cities (he uses "rent control" as a generic term for all rent regulation). Excerpt:
The immediate effect of rents set below where they would be set by supply and demand is that more people seek to rent apartments for themselves, now that apartments are cheaper. But, without any more apartments being built, this means that many people cannot find vacant apartments. Moreover, long before existing buildings wear out, auxiliary services like maintenance and repair decline, since a housing shortage means that landlords are no longer under the same competitive pressures to spend money on such things to attract tenants, when there are more applicants than apartments . . . . Such neglect of maintenance and repair makes buildings wear out faster. Meanwhile, the lower rate of return on investments in new apartment buildings, because of rent control, cause fewer of them to be built.Another book by Sowell, Basic Economics, goes into more detail on this — look up "rent control" in the index.
It's crucial to understand that just because some people benefit from the regulations (yay! their rent is lower!), doesn't mean that society as a whole does. It would be a huge mistake to focus only on the known beneficiaries, at the expense of considering the full consequences of the regulation for the city as a whole. In fact, you have to consider more than the whole city, since these regulations affect people all over the country if not the world (people who were dissuaded from moving to NYC, or who used to live here but couldn't find a decent apartment so they had to move).
posted by John Cohen at 1:51 PM on June 16, 2012 [1 favorite]
Also, in the real world, apartments that are rent controlled often have significant violations, as owners don't see a benefit to repairing them. I think that people living in rent controlled apartments cannot have their lease ended under any circumstances, while under rent stabilization the lease can be ended, but only by the landlord if he plans to be occupying the apartment himself or having family stay there.
posted by corb at 5:49 PM on June 16, 2012
posted by corb at 5:49 PM on June 16, 2012
The DHCR rent factsheets above are indeed what you need.
Without crosstalking or sidetracking, I think it's important to note that there are a number of different ways to look at the impact of regulation of the rental market. All apartments in New York City that aren't owner-occupied, that are under x dollars a month, that aren't renovated to a value above x, and that are in buildings with 6 or more apartments (exceptions noted here) are subject to controlled increases in rent. That "controlled increase" is usually at least 3% a year.) Those increases are set by the Rent Guidelines Board. The members of that board represent landlords, tenants and mayoral appointees in a proportion that rent increases are almost always approved successfully on 5-4 vote, and regularly the tenant representatives on the board issues protests or resign.
As of 2010, there were only 40,000 actually rent-controlled apartments remaining in New York City. Being a landlord in this situation is vanishingly rare. (source.) There are about a million rent-stabilized units in New York City. (source.) So certainly not everyone will agree that "society as a whole" doesn't benefit from stabilization, but anti-Marxist thinktank libertarian conservatives will. Particularly the kind who use "rent control" to cover actual rent control and rent stabilization, which are radically different in New York City.
A good number, as well, of rent stabilized apartments are considered such because they take advantage of tax abatements. So the argument that stabilization is anti-free market becomes a bit hilarious when you consider that the developers of the buildings are taking government handouts.
Similarly, the conversion from rent stabilized (and rent controlled) to free market has been speedy:
posted by RJ Reynolds at 7:17 AM on June 17, 2012 [2 favorites]
Without crosstalking or sidetracking, I think it's important to note that there are a number of different ways to look at the impact of regulation of the rental market. All apartments in New York City that aren't owner-occupied, that are under x dollars a month, that aren't renovated to a value above x, and that are in buildings with 6 or more apartments (exceptions noted here) are subject to controlled increases in rent. That "controlled increase" is usually at least 3% a year.) Those increases are set by the Rent Guidelines Board. The members of that board represent landlords, tenants and mayoral appointees in a proportion that rent increases are almost always approved successfully on 5-4 vote, and regularly the tenant representatives on the board issues protests or resign.
As of 2010, there were only 40,000 actually rent-controlled apartments remaining in New York City. Being a landlord in this situation is vanishingly rare. (source.) There are about a million rent-stabilized units in New York City. (source.) So certainly not everyone will agree that "society as a whole" doesn't benefit from stabilization, but anti-Marxist thinktank libertarian conservatives will. Particularly the kind who use "rent control" to cover actual rent control and rent stabilization, which are radically different in New York City.
A good number, as well, of rent stabilized apartments are considered such because they take advantage of tax abatements. So the argument that stabilization is anti-free market becomes a bit hilarious when you consider that the developers of the buildings are taking government handouts.
Similarly, the conversion from rent stabilized (and rent controlled) to free market has been speedy:
From the period of 1994-2008, a total of 83,827 units were registered with the DHCR as being deregulated due to High Rent/Vacancy decontrol, 80% of which have been located in Manhattan.What you might want to consider as you look into this and do the reading necessary to understand the subject is that the main right afforded in rent stabilization is the right to renew a yearly lease. This has the most significant impact on renters in New York City; while an unregulated rent market would adjust itself, I agree with the libertarians, eventually, in some way, what would be extremely difficult to model is a New York City with a <1% vacancy rate where a much greater percentage of renters were forced to move each year.
posted by RJ Reynolds at 7:17 AM on June 17, 2012 [2 favorites]
Rent stabilization isn't just for tax abatements; it also applies to nearly all buildings with 6+ units built before 1971, although many of those units leave stabilization as rents increase.
posted by zvs at 1:16 PM on June 17, 2012
posted by zvs at 1:16 PM on June 17, 2012
So certainly not everyone will agree that "society as a whole" doesn't benefit from stabilization, but anti-Marxist thinktank libertarian conservatives will. Particularly the kind who use "rent control" to cover actual rent control and rent stabilization, which are radically different in New York City.
This is obviously a back-handed reference to my comment about Thomas Sowell (who used to be a Marxist but later moved to the right). As I said, the block quote I gave uses "rent control" as a generic term because he was talking about many different jurisdictions that have different terminologies. The phrase rent control in that quote includes NYC rent stabilization. If there's anything mistaken about the information I've given, please clarify; otherwise, it seems like you're just saying: aha, he's a conservative! Don't listen to him! That's an ad hominem attack, which isn't helpful in answering the question. Sowell's analysis applies to any regulation of rent that doesn't leave it entirely to the free market.
Are there people anywhere on the political spectrum who still support rent regulation? My impression is that there are very few, even on the left, who still think it makes sense.
posted by John Cohen at 1:46 PM on June 17, 2012
This is obviously a back-handed reference to my comment about Thomas Sowell (who used to be a Marxist but later moved to the right). As I said, the block quote I gave uses "rent control" as a generic term because he was talking about many different jurisdictions that have different terminologies. The phrase rent control in that quote includes NYC rent stabilization. If there's anything mistaken about the information I've given, please clarify; otherwise, it seems like you're just saying: aha, he's a conservative! Don't listen to him! That's an ad hominem attack, which isn't helpful in answering the question. Sowell's analysis applies to any regulation of rent that doesn't leave it entirely to the free market.
Are there people anywhere on the political spectrum who still support rent regulation? My impression is that there are very few, even on the left, who still think it makes sense.
posted by John Cohen at 1:46 PM on June 17, 2012
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Rent Stabilization is much more complex. Basically the city gave out tax abatements years ago in exchange for rent stabilization. In a nutshell up until you get to a certain level you may only increase the rent by a % set by the Rent Stabilization board + a rate of recovery on any major investments you've made in the apartment. Once an apartments rent is over $2500 and the tenents move out it is no longer stabilized. As long as you stay in the apartment the landlord has to offer you a lease and the increase on that lease has to be set by regulator - as long as you make <2>
Market rate means market rate - no limits.
Its pretty complex, but that's the basic story.
posted by JPD at 9:21 AM on June 16, 2012