Reprinted from Forbes Magazine
NEW YORK CITY’s rent control originated during a crisis – World War II – that ended three decades ago. The aim was to keep landlords from gouging people during a temporary housing shortage.
This crisis action, long since having outlived its crisis, is threatening to turn into a national blight. Beginning with the passage of state rent control enabling acts in Maryland and Massachusetts in 1970, controls have been enacted in Berkeley, Calif.; Fairbanks, Alaska; Miami Beach and in dozens of New York City bedroom towns in New Jersey, Connecticut, Long Island and Westchester County.
Rent control proposals are up for debate – usually heated – in many other cities as well; Minneapolis and Philadelphia are two. “The only things that rival the emotion of rent control,” says David Taylor, managing director of Boston’s Rental Housing Association, “are busing and gun control.”
That rent control deters construction of new rental dwellings is no longer open to question. Almost to a man, mortgage bankers shy away from lending on rent controlled structures. Says Edmund Cronin Jr., president of the Mortgage Bankers of Metropolitan Washington: “Rent control doesn’t provide for the long term viability of a project, because controls go into effect before the developer or lender knows what the overall operating expenses will be.”
Even some rent control commissioners grant that controls only aggravate the existing shortage: Why, for example, should anyone risk financing the construction of rental apartments in Washington, D.C. when rent raises are allowed only if the return on the property falls below 8%? “You can go to the bank and pick up a certificate of deposit,” concedes D.C. Rent Commissioner Archie Morris III, “draw 7.9% and go fishing.”
In rent controlled areas, builders shun investing in new rental housing in favor of condominiums – which one housing expert defined cynically as “a means to provide less housing for more money.” Construction of condominiums is up sharply in Boston and the District of Columbia, for example, while the building of new rental units is down almost to zero. This does provide new housing, but it tends to squeeze out the people rent control is supposed to help – the poor and those without down payments.
Where possible, owners of rental housing have also sought to convert them to condominiums; but this can have unexpected consequences. “Just to show you what happens once you start down that road,” says Irving Kriegsfeld, president of Washington, D.C.’s Management Partnership and former director of the Cleveland Housing Authority, “now that conversion has been blocked in D.C., owners are beginning to demolish properties. So the city council recently introduced a demolition control bill.”
But such laws cannot prevent owners, as a last resort, from withholding tax payments and abandoning property. Real estate tax delinquencies in New York City are estimated at $220 million for fiscal 1974-75, while building abandonments, now running 35,000 dwelling units a year, eat away at the tax base.
The reaction of the courts and the law has ranged from myopic to discreetly political. The Supreme Court has refused to hear any rent control challenges, though to any practical eye rent control Involves taking part of a landlord’s property without compensation. State courts have often upheld rent control statutes, while city courts have almost always swum with the political tide. Boston’s City Housing Court, for example, recently frustrated a Federal Housing Administration order that its subsidized properties should be exempted.
The urban theorists grasp the implications even if the public, the politicians and the courts will not. “The tenant now has part title,” says George Sternlieb, director of Rutgers University’s Center for Urban Policy Research. So landlords are paying tenants as much as $10,000 for possession of a rent controlled apartment in New York City.
Listen to Professor Beau James Brincefield of American University’s business school: “Rent control is totally altering the concept of real estate as we have known it In the U.S. . . . The real reason and effect of rent control today is to provide subsidized housing for persons who cannot afford to pay what would otherwise be market rents. Rent control is creating a new industry akin to utilities or any other monopoly in which the local government says here is an essential commodity that must be supplied.” Putting it more bluntly, rent control decrees that the owners of rental property must subsidize their tenants. It is a way of saying that providing reasonably priced housing is a duty of the local government, but since the local government dare not tax its citizens for that purpose, the unfortunate landlords will have to do the subsidizing. Nor are those who get the “subsidy” necessarily needy. Rent control helps the well-to-do tenant as well as the poorer one.
The appearance of rent control in the wealthy suburbs reflects yet another disquieting phenomenon: middle- and upper-income voters using their substantial resources to win special economic advantage.
The spread of rent control from city to suburb has also brought political dangers. It has brought a rash of “tenant” candidates for local offices in the suburban areas around New York. In 1972 in Fort Lee, N.J. &emdash; just across the river from upper Manhattan &emdash; they captured control of the municipal government and soon had the most stringent rent- control statutes in the nation. The landlord complaint that rent control would cut down on construction and exacerbate the housing shortage merely breeds support for the trend: Many suburbanites would, if anything, prefer that no new construction come to their areas, bringing with it “over-crowding,” higher school taxes and “undesirables.” In short, what started as a help the poor movement becomes a keep out the masses movement.
Legal expert Brincefield goes an to say: “We are in a transition from property being viewed as a commodity to property being viewed as a social resource that must be committed to the best interests of society.” However commendable such a change might be from a humanitarian point of view, it is clearly in conflict at many points with the U.S., Constitution, which guarantees citizens against the confiscation of their property. Those who cynically favor rent control as a way to hold down their own housing costs or as a means of keeping their communities small would do well to ponder the implications. Where is the line between semi-socialized housing and semi-socialized everything?
Reprinted from Forbes Magazine, September 15, 1975.