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Stand up for Rent Regulation

The adage among the economist crowd is that rent control is worse for cities than bombing. It’s a phrase repeated so often in Microeconomics 101 that its origins are obscured — but the insidious false truths it spreads are not. Opponents of rent regulation are common, and they include many economists, a supposed-progressive candidate for New York City Mayor, and Adam Davidson of the New York Times and NPR’s Planet Money. Davidson recently penned this article for the Times magazine arguing that rent regulation may have a perverse effect on the affordability of New York City.

That “progressive” candidate’s campaign is currently self imploding, so we will sit contentedly by for now and let that problem take care of itself. (After interviewing many candidates, Tenant PAC endorsed Bill de Blasio for Mayor. They never considered endorsing Anthony Weiner.) As for Adam Davidson, we’ve already explained why many of his arguments are misinformed (if not dead wrong.)  Steven Wishnia, editor of Tenant/Inquilino writes that they are “utterly clueless about New York City’s housing realities.” Read the rest of his brilliant take down below. 

Why The Push To Abolish Rent Regulation is Stupid and Irresponsible
Originally published by Steven Wishnia at Gothamist

What would happen if New York State repealed its rent-regulation laws?

New York Times Magazine economics columnist and NPR Planet Money co-founder Adam Davidson thinks it might be a good idea. In his article in this week’s magazine, “The Illusion of Control: How Rent Regulations Preserve the City We Know at the Expense of a More Affordable One,” Davidson contends that rent control and rent stabilization should be ended because they create a bifurcated market in which longtime tenants hardly ever move, and people seeking apartments compete to pay high unregulated rents.

Most people who live in rent-stabilized apartments are above the poverty level, he says, and the poor could be protected more efficiently by giving them housing subsidies.

These arguments, which are common among critics of rent controls, are utterly clueless about New York City’s housing realities.

First, rent controls are not a housing program only for the poor. They are an attempt to protect all tenants from gouging during a chronic housing shortage. The city’s rent-regulation laws, first enacted as a continuation of World War II price controls, would expire automatically if the vacancy rate for rental apartments went above 5 percent. That has never happened. It’s a simple issue of supply and demand: Without the regulations, renting an apartment here would be like buying batteries during Hurricane Sandy.

Second, the bifurcated market is largely the result of the weakening of rent stabilization in the 1990s, which primarily affected people looking for housing. In 1994, the city deregulated vacant apartments where the rent had reached $2,000 a month. The state enacted a similar law in 1997, which made it impossible for the city to repeal it.

Those laws were sold to the public as something that only affected a handful of Manhattanites who were too rich to deserve cheap rent. Anthony Weiner, who voted for deregulation as a City Councilmember, still defends it on those grounds. It hasn’t worked that way.

If you want to see what would happen if rent control and rent stabilization were eliminated, look at what has happened in the city since 1997. The combination of inflation, the housing shortage, and fraud has led to the deregulation of almost every vacant apartment in the lower half of Manhattan, and pushed up rents all over the city. Apartments over the current deregulation threshold of $2,500 are advertised in Bay Ridge, Bedford-Stuyvesant, and East New York; in Astoria, Harlem, and Washington Heights; and in Kingsbridge and on the Grand Concourse.

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New housing in “Prime Williamsburg” (via quiggyt4)

In the New York City of today, the two best ways to make housing more affordable would be to strengthen rent controls and build much more genuinely affordable housing. Both of these remedies face major political obstacles.

A 1971 state law prevents the city from enacting rent regulations stronger than the state’s, and the real estate lobby shovels lots of money into Albany. After the Republicans retook the state Senate in 2010, Rent Stabilization Association head Joseph Strasburg bragged about how landlords had “basically emptied our piggy banks” to protect their interests. One real-estate magnate, Leonard Litwin, exploited a loophole in campaign-finance laws to give almost $2 million in the 2012 election, primarily to Senate Republicans, and has already contributed $625,000 to Gov. Andrew Cuomo’s 2014 campaign.

With federal funds for new public housing eliminated, almost all new “affordable” housing here in the last 20 years has been created by complicated schemes that give luxury developers tax credits for building token amounts—20 percent, often less in practice—of below-market apartments.

Mayor Michael Bloomberg’s New Housing Marketplace program has built more apartments for people who make more than $100,000 than for people who make less than $32,000. This is due to the program’s indirect financing, and because the median income in the affluent counties of Westchester, Rockland, and Putnam is included in the formula that determines what “affordability” means.

The most intellectually honest argument against regulating rents is the naked libertarian one—that government has no business interfering with the market, and people have no right to a product they can’t afford. This reasoning is far too ruthless to fly politically, so rent-regulation foes have to find friendlier ways to package it.

One is to portray rent-stabilized tenants as affluent, aging “dowagers,” who pay $225 for a seven-room apartment on West End Avenue. This is like the Reagan-era legends of “strapping young bucks” buying T-bone steaks with food stamps. Davidson seems to buy into this myth, as did former city Rent Guidelines Board chair Edward Hochman.

Here’s the reality: In the pre-deregulation year of 1996, when there were still more than 200,000 rent-stabilized apartments that cost less than $400, 80 percent were occupied by people making less than $25,000 a year, and half by people making less than $10,000. About 200—less than 0.1 percent—were occupied by people making more than $100,000.

Today’s rent-stabilized tenants are decidedly not affluent. According to the 2011 federal Housing and Vacancy Survey, their median household income is about $37,000, and about half of them spend more than one-third of their income on rent. More than 60 percent of the 3 million low-income New Yorkers—defined as less than $35,000 for a family of three—spend more than half their income on rent, according to an April study completed by the Community Service Society.

Yet the federal survey concluded that from 2008 to 2011, the city lost more than 150,000 apartments that rented for $700 or less. The remaining low-rent units make up less than one-sixth of the total supply, and most are in public or subsidized housing.

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(via Brunocerous)

Rent-control foes offer a way to ease our consciences by offering subsidies to the poor and the elderly. At the Rent Guidelines Board’s final vote in June, both chair Jonathan Kimmel and owner representative Steven Schleider argued that this would be fairer to landlords than restricting rents; Davidson endorses this too.

The truth is that rent subsidies for people below the poverty level—about $17,000 for a family of three—would do nothing to protect working and middle-class tenants.

Davidson admits that eliminating rent controls would likely drive everyone who makes less than $90,000 out of Manhattan, which he says would not be healthy for the city, but then he claims that it would be “great” for the middle class. This makes sense if he’s defining “middle class” as an income in the low-mid six figures, visualizing all the fantastically located apartments in Manhattan and brownstone Brooklyn occupied by rent-regulated peasants, and imagining that a mass eviction would open up many more choices on the market and might even enable him to snag a place for $3,300 instead of $3,750.)

Curiously, the real-estate lobby has yet to advocate for the tax increases necessary to adequately fund the federal Section 8 rent-subsidy program, which has been closed to new applicants here since 2009 and generally won’t help pay for a two-bedroom apartment that costs more than $1,474.

A lesser-known but important issue is that rent-controlled and rent-stabilized tenants can’t be evicted without a legal reason, while unregulated tenants have no right to renew their leases. How stable would the city’s neighborhoods be if rising rents forced residents to move every year or two? How would people raise children? How would they maintain the social relationships that sustain communities?

There is also a deeper social and moral issue. Opponents of rent regulation often argue that it forces property owners to “subsidize” tenants who pay below-market rents.

But who is really “subsidizing” whom? Real estate in New York City is valuable because of its proximity to the biggest public transportation system in the world, and because it sits at the center of a metropolitan area sustained by the labor of millions of people. Why should these millions be forced to subsidize a few thousand multimillionaires who have bought up this land?

 

Rent Regulation: Our Defense

Last week, The Atlantic Cities published this article, which advocates against rent regulations based on the widespread disdain on the part of economists.  The article argues that a better approach may be “adopting policies that encourage the production of more diverse types of housing, implementing strong regulations and practices to ensure housing quality and to protect tenants from abuses; and providing targeted, direct subsidies to people who need help paying rents.”

We happen to think that rent regulation is exactly such a policy: a strong piece of regulation that protects tenants’ rights and makes the city a more livable and affordable place for low income renters.  Last spring, the United States Supreme Court agreed to hear Harmon v. Kimmel, a case challenging New York City’s rent stabilization law. It was upheld, and New York renters breathed a collective sigh of relief. Rent stabilization in New York is good policy, and here’s why:

New York City faces an incredibly tight housing market due to a “highly desirable location, exceptional population density, high construction costs, and limited space due to natural geographic boundaries.” (Quote from Attorney General Schneiderman’s spirited defense of rent regulations.) These characteristics lend themselves to rent profiteering – allowing landlords to charge exorbitant rents due to both extreme need and extreme shortage. Those with less money would inevitably be pushed out. Even economist Edward Glaeser, who describes himself as “a staunch and steadfast enemy of rent stabilization,” told the New York Times:

“Certain types of stabilization can create more integrated communities,” and “New York is a more diverse place because of rent stabilization.”

Can’t argue against diversity.

Enemies of rent regulation generally make the same couple arguments: housing conditions suffer because landlords have no incentive to fix units and high income people end up living in low rent apartments. They also tend to believe that rent regulations provide a disincentive to create new housing, which would alleviate NYC’s housing shortage and bring prices back down. These are all preposterous arguments.

First, development: But housing units are not built overnight. In the short run, the current supply of housing is basically what we’re going to have. (Current events tell us that supply can in fact decrease, thanks Sandy!) Incentivizing development would do very little for New Yorkers who need help now. But there is a long run, and anyone who thinks that there aren’t developers frothing at the mouth to build housing in New York City should take a look out the window at the Williamsburg waterfront, or try Googling “Bruce Ratner.” Under-development is not an issue. (Whether or not we actually want new development, what we could do to better utilize existing housing stock, is a different conversation. Stay tuned!)

Second, as the Furman Center proved last spring, the vast majority of tenants living in rent regulated apartments are not high earners – they have a median income of $34,000. (Their policy brief is chock full of other socio-economic and demographic facts about NYC’s rent regulations – read more here.)

Third: NYC housing conditions are a problem, but the reason is negligence and greed, not regulations. And thankfully, the housing maintenance code is getting stronger every day.

Peter Tatian, journalist for The Atlantic Cities, suggests that more direct subsidies would be better than rent regulation. While I’m in favor of a stronger and wider safety net, I think we should acknowledge its limitations:

The Section 8 voucher is the most common direct rent subsidy, but unlike food stamps, it is not considered an “entitlement program.” This means there are a finite number of vouchers and not everyone who qualifies will be able to receive one. In New York State, the program has been frozen for several years.  As recent federal budget discussions have shown us, direct subsidy spending is very politically vulnerable and isalways at risk of termination.We can look to the Work and Child Advantage experience for an example.

Even entitlement programs do not reach all who qualify. According to the Food Action and Research Center, about 1 in 4 people who qualify for food stamps don’t even bother to apply due to a variety of reasons ranging from stigma, to misinformation, to hassle. By regulating rents rather than providing direct subsidy, we can ensure that the benefit is received by a major swath of the population who need it, free from stigma and bureaucratic obstacles.

Finally, we stand in defense of rent regulation because there isn’t much else out there for renters. Our national housing policy overwhelming supports homeowners (to a fault, I happen to think.) Public housing has largely been demolished and Section 8 is frozen. So, we stand in favor of rent regulation as one of the last bastions of supportive policy for a growing population of renters who deserve the protection.

New York State Legislators and New York City Council call for Rent Guidelines Board Reforms!

Picture via Capital New York

Yesterday, we stood with State Senator Daniel Squadron, Assembly-Member Brian Kavanagh, City Council Speaker Christine C. Quinn, Tenants & Neighbors and tenants and neighbors from around the city to urge New York State elected officials to pass legislation to reform the Rent Guidelines Board (RGB), ahead of the RGB’s annual vote to adjust rents.

The Rent Guidelines Board was established in 1969 and is mandated manage the persist housing shortage in New York City that puts low to moderate income New Yorkers at risk of losing their home. New York City Council and New York State legislature have both recognized that under conditions of less than 5% vacancy rate, an unregulated rental market causes “severe hardship to tenants” and forces the “uprooting [of] long-time city residents from their community.” By establishing the annual rate at which rent in regulated units is allowed to rise, the Board’s mission is to create fair rent levels in a market driven by chronic scarcity.

Under current law, the RGB is made up of nine members, all appointed by the Mayor. These nine members are charged with investigating the economic condition of the real estate industry in NYC, including average cost of operating a multifamily building and the average income and cost of living for residents each borough. Two members are appointed to represent tenant interest, two members are appointed to represent owner interest, and five members are appointed to represent the general public. The RGB is consistently under fire from tenants and the NYC affordable housing advocacy community for regularly raising rents despite data that suggests landlord income is going up and affordable housing is scarce.

The proposed legislation (S741A/A6394B), sponsored by Senator Squadron and Assembly member Kavanagh, would require City Council confirmation of the Mayor’s appointees to the RGB, bringing necessary checks and balances to the system and making the appointment process more democratic. The bill would also open up appointment to a wider array of professionals – including those who work non-profit and urban policy – and ensure that more diversified views are represented on the RGB.

City Council Speaker Christine Quinn expressed support for the bill, pointing to the fact that the council already has the authority to provide oversight to various NYC agencies and boards that are arguably less important to New Yorkers. “The question becomes…why hasn’t this happened? Why is this one board that is so important, so central to the life of so many New Yorkers, only appointed by the executive with no input from the legislature?”

Like Tenants and Neighbors, we agree that the RGB is consistently pro-landlord, taking little cue from actual data or tenant experience in New York City. These days, nearly everyone is weighing in on whether or not the housing market is rebounding. (We have our own thoughts – stay tuned.) People don’t seem to argue that years of homeownership struggle have caused on influx of new renters to the market. Basic economics tells us that rents will naturally rise. But unemployment isn’t dropping nearly as quickly as rents are rising and tenants in the Bronx and Central Brooklyn are still struggling with high rents and low pay. Even though the “market” may be doing better, we know that the people who live in this city are still struggling. By bringing accountability and democracy to the RGB, we hope that the board can become a stronger ally for affordable housing and NYC tenants.

To join this fight, follow Real Rent Reform on Twitter (@realrentreform) and like them on Facebook! Even better, get on the van to Albany on Wednesday to support the Assembly Housing Committee vote on R3’s priority bills: preferential rent reform, RGB reform, MCI reform, rent control reform, and the decrease in the vacancy bonus. Help R3 and Tenants and Neighbors put weight behind these bills! The van leaves from 236 W. 27th Street in Manhattan. RSVP to Sam at sstein@tandn.org.

For more on the RGB, visit their website: http://www.housingnyc.com . Stay tuned to this important fight for NYC tenants! Check out Capital New York for more on this story and yesterday’s announcement.

New Foreclosure Legislation Would Require Banks to be More Transparent


Yesterday, New York 1 reported on legislation proposed by Christine Quinn that would require banks to notify the city when they’re going to put a building in foreclosure. This legislation will help tenants who live in foreclosed buildings continue to get the services they need, which is very important, considering foreclosure often means divestment and deterioration for the buildings.

The tenants who live in 164 Dikeman, the building featured in the NY1 video, are a great example of why this type of legislation is needed. For this building, the foreclosure process consisted of an absentee landlord and deteriorating conditions.  The residents discovered that the foreclosure was only the tip of the iceberg of the buildings problems. Due to the poor conditions the building fell into the Department of Housing Preservation and Development’s (HPD) Alternative Enforcement Program (AEP), meaning it was one of the 200 worst buildings in the city. On top of this, the residents realized all the tenants were being illegally overcharged for rent, while receiving no services. The tenants were able to file for rent reductions to have the legal rents restored, but while this was going on the bank sold the notes to a building to a Eman Realty who has now become the owner.

Unfortunately, the new owner has not proved to be more responsive than the last.  Eman Realty’s principal, Alexander Varveris, has a history of being a neglectful landlord.  Eman took over in September, yet tenants have seen very little change in the building.

Besides tipping the city to be on the lookout for declining physical conditions, another reason this legislation could be helpful is it could provide more time for the tenants to have a voice in what happens to their homes after the foreclosure ends. The tenants at Dikeman were not able to intervene in the sale of the note because they were not aware that was a possibility and that a new landlord was going to take over through a note sale. The residents are fed up with the neglect and would like the building to become Co-op. The tenants and UHAB are currently organizing and working towards this goal, but this outcome might have come sooner and possibly easier for the tenants if the foreclosure proceedings were more transparent to the city and to residents of the buildings.

Goodybe 2011: A year in Review

For those of you new to this blog or trying to get a handle on Predatory Equity in New York City – here’s your down-and-dirty year in review.

Highlights, Lowlights, and the Stuff in Between:

1. Lowlight: In April 2011, New York Affordable Housing Associates sold eight  distressed buildings to Bronx VIII LLC (Townhouse Management). While we still don’t know how much Townhouse paid for the buildings, the disappointing transaction was facilitated by New York Community Bank – who explicitly sold the debt to a developer the tenants did not endorse.

2. Somewhere In Between: In May of 2011, Finkelstein Timberger Real Estate bought the infamous ten building Milbank portfolio for the giant sum of $30 Million dollars. This transaction, which still reeks of over leveraging, was made through financing with Signature Bank. Fortunately for tenants, their advocacy throughout the process meant that all of the tenants are protected by an agreement to ensure repairs, eliminate the quest for back-rent, and cap the amount for potential MCI’s in the next two years. Additionally, six of the buildings entered the city’s Alternative Enforcement Program, ensuring further protection from the horrible conditions these tenants suffered for years.

3.  Highlight: In May 2011, after two years in foreclosure, the tenants at Borinquen Court in the Bronx had their building purchased by the non-profit organization West Side Federation for Senior and Supportive Housing. It was a a hard earned victory and the tenants are looking forward to living in a building with the owner they chose!

4. Somewhere-In-Between: Rent regulation was extended in June 2011! The “grand compromise” however has many complaining about the fact that  rent-regulated affordable housing has not been permanently preserved due to the fact that vacancy decontrol is still in effect.

5. Lowlight: In September 2011, The Bluestone Group sold a group of six dilapidated Bronx buildings to Anthony Gazivoda for a whopping $17 Million dollars. This made for the fourth over leveraging of this severely distressed portfolio.

6. Highlight: In September 2011, 1520 Sedgewick (AKA the “Birthplace of Hip Hop”) was saved! With tenant endorsement, Winn Residential and Workforce Housing Advisors purchased the building with an extensive rehab scope and permanent affordability plan to accompany the acquisition!

It was a busy year fighting for decent conditions and permanent affordability in New York City housing. UHAB organizers, tenants, and allies are still actively fighting to against over leveraging, bad conditions, negligent landlords, and against the banking industry’s bottom-line, top-dollar mentality. As Predatory Equity becomes a clearer and more understood trend,  we sincerely hope that our 2012 year in review will hold fewer lowlights and many more highlights as we continue to develop new tools to fight this rapacious phenomenon.

See you in 2012! We have a feeling it will be a great year!

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