The Public Policy / Controlling Rents, Razing Cities

...But every month the rent-payers of the world find themselves forced to pay once again for what they already have...

...Ir is true that abandonment has taken place in many other cities which haveno rent control but have been subject to the same decline of economic capacity as New York has...

...Unfortunately, the apparent immediate benefits of rent control are obvious to a large number of people, while its destructiveness takes longer to notice...

...For these people, rent control offered a truly golden opportunity to cut down on their housing expenses in favor of spending their money on optional pleasures: winters in Florida, summers abroad, second homes...

...I have struggled all these years to find a pithy answer...

...The American Spectator October 1978 23 A sensible program to strengthen the natural rental market would offer the tenant-in-occupancy enough protection to put him in the same position as the tenant outside...

...Nor do the apartments of the city resemble a monopoly: They differ widely in age, size, style of construction, and location...

...Even if rent controls are not imposed on new construction, the delays met in the course of finding new apartments for rent-controlled tenants from the older building encourage landlords to keep apartments empty as they become vacant...

...Newark has rent control...

...We must, say the rent control advocates,protect the older housing by rent control so that this precious asset will be saved...

...The answer is that one can never prove economic events in the real world, as one can chemical reactions in a laboratory...

...We should examine each proposition...

...While the shopper looking for a new suit or a steak can simply look elsewhere if the price he is asked is unsatisfactory, the tenant-in-occupancy must move his home...

...They established a form of lease that was very favorable to the landlord, and correspondingly unfavorable to the tenant...

...Those who claim rent control is necessary supplement the imaginary owning monopoly with the allegation that a "real estate lobby" must be held in check...

...like the high price of shoes in Russia, the high rent of a vacant apartment makes up for part of the losses on continuously occupied apartments...

...Inevitably, the city loses the tax revenues it could charge on a more profitable property, unless it permits someone to demolish the building, replacing it with a larger one containing far more expensive accommodations...

...The first cost is the diversion of a very large sum of money from the hands of the owners of rental property into the pockets of tenants, without reference to whether or not the tenants need this form of subsidization...

...The pricing process is filled with pitfalls and argu22 The American Spectator October 1978 mentative issues even in the case of electricity...

...The hypothesis that rental housing is controlled by a monopoly simply does not square with the facts in American cities...

...Los Angeles held an unofficial "Town Hall" meeting to discuss rent control in December of last year...

...They govern maintenance procedures like winter temperature and painting...

...To understand it, we should ask what governments seek to accomplish when they regulate the prices of monopolies like power utilities...

...What must be examined is its costs...

...They believe that the passing of laws like these really helps tenants by making their homes more habitable...

...Subsequent to the days when the real estate lobbies overwhelmed local legislatures, changes occurred...

...It is uniform...

...Cities that consider imposing rent controls as a cheap way to insure low rents will get a better idea of its real costs by studying New York—not only its towering housing, but its towering debts...

...When they are very young, boys and girls occupy the same room...

...By far the largest single owner of apartment houses in New York City is the New York City Housing Authority, an agency of the municipal government...

...In most cities, except New York, the end of the war marked the end of rent control...

...As rent control becomes a permanent way of life in New York City, the political spokesmen become accustomed to pretending that no-cost economics works...

...The reduction in real property taxes will inspire a demand that government ensure that the tax savings be passed on to the tenant...

...Rent control has not only spread disease among decent, older buildings, but has destroyed the cure which it made necessary...

...It is true that owners of real estate—the source of most cities' tax revenue—were able to dominate the courts for many years...

...Expecting rent control to be a cheap way to provide standard housing for the needy is as absurd as using great white sharks for lifeguards: They are cheaper than people, but they destroy the drowning...

...They may soon be expanded to include the licensing of owners and agents everywhere, a requirement that has already been imposed in some cities...

...Consequently, they turned over most frequently...

...For years, New York was alone among big cities with rent control...

...The attitudes fostered by rent control—attitudes which support the myth that social benefits cost nothing—are largely responsible for New York's financial condition today...

...Defining the price for a rent-controlled apartment is even more difficult...

...Since those who need the most municipal services are poor, the misuse of land value is one more indication of the way in which rent control servespeople who do not need its help at the expense of the poor...

...At their most theoretical, rent regulators claim to modify the base price of each apartment as operating costs vary—raising it as costs rise, lowering it as services are cut in a specific building...

...First, that tenants are the victims of a monopoly pricing system which rent control corrects, and second, that without rent control, large numbers of apartments that meet housing standards would be priced out of the reach of moderate- and low-income families...

...Naturally, tenant groups object to this procedure because it does not give absolute renewal rights to the tenant-inpossession...

...Even if its owner decides to demolish an old building on valuable land, however, rent control regulations discourage him...

...This motive is not in the public interest, but it is politically very attractive in areas with many rental apartments...

...The New Jersey legislature is now debating a statewide bill establishing rent control standards to guide localities—which in many cases have leaped ahead toinstall their own versions...

...People who remain in their apartments without moving for the longest period of time are not necessarily those of lowest income and greatest financial need...

...Its 15,500 apartments made it the largest such project...

...Even without rent control, people might have been unable to pay rents adequate to maintain housing in good condition...

...Miami Beach has it...

...But even if rising costs of operation were covered by rent increases, no rent control scheme can provide for the increased value of the land on which an apartment house is built, as some areas of a city inevitably become more attractive while others decline...

...Rent control, then, produced a political demand for massive state and city investment in mortgages to build new housing to replace deteriorating older housing...

...and the housing of the poorer tenants, likely not to be fully standard in the first place, deteriorates more quickly than that of the middle-income tenants...

...said, he liked it, but, after all, the apartment didn't belong to him, it belonged to me...

...No other expenditure—except perhaps alimony—returns so little satisfaction to the spender...

...None dares to say that a government which borrows for the purpose of providing housing for middle-class families must be able to demand adequate rents from the beneficiaries of its policy...

...Faced by the possibility of foregoing any increase at all for a long period of time, the landlord would presumably ask for more than the "normal" increase only in areas of great market strength...

...The board would also set, each year, a figure for the "normal" rent increase, based on the general increase of housing costs within the past twelve months...

...a modern kitchen...

...His latest book is America's Housing Challenge...

...Wealthy tenants would still be able to demand quality housing as a condition of moving in, just as they do now...

...Sometimes he will refuse to accept a rent asked by the owner, who will then find himself with an empty apartment because he has overestimated the demand for his apartments...

...Tenant and public-interest groups became active and politically powerful...

...oil heat...

...Oh, yes, he Roger Starr is a member of the editorial board of the New York Times...

...The better apartments could not legally be rented at market rents, while the worse apartments could not be marketed at the rents to which they were legally eligible, a topsy-turvy consequence of rent control...

...He preferred to assume that the cost of fixing his apartment was somehow "over" when the reconstruction was complete and the last painter had rolled up his dropcloths and gone home...

...Younger people marry, and have children...

...In the very same building as the growing family, there may live a shrinking family, whose children have left to live on their own...

...Electricity can be measured by instruments...

...The rent-payer has none...

...A tremendous amount of housing has been abandoned in New York City, and over a million violations of the housing codes are on record in other buildings...

...Rent control has encouraged families to occupy space which does not suit them, and which can only be duplicated at the far greater cost of new construction...

...One suggestion has been to require an owner to offer the tenant-inoccupancy a new lease ninety days before the expiration of his current lease...

...it even, and perhaps more dangerously, offers the satisfaction of high morality to the legislators who support it...

...This happened because top floor apartments were the worst, occupied by the poorest tenants...

...If I owned the whole world, I could, like the Soviet government, increase the prices of clothing, food, and automobiles to cover my losses on rent...

...This made housing more expensive because it cut down the number of living rooms in buildings or the size of the building that could be put on a fixed amount of ground (because the inside of the structure could no longer be used for living rooms...

...Installing the oil burner in the tenement house was a one-time capital expense—but to buy oil, to service the radiators, pipes, and boiler, to check the bills from the oil company, and to pay the electricity bill for driving the The American Spectator October 1978 21 atomizer and blower, the owner spends continuously—more, as prices rise...

...One can't even prove that rent control alone caused the gap of about $400 million a year between the rents needed to keep housing in New York in good condition and the rents actually collected (this according to a Rand Corporation study conducted in 1970...

...While rent control overprotects the tenantin-occupancy, there nevertheless is a basic justification for protecting him to a reasonable extent...

...The immediate peril of the rent control fallacy is that it seems to be spreading...

...Having started with the claim that it is directed against a landlord monopoly, rent control creates instead a tenant monopoly that distorts land value downward or, at best, prevents a municipality from taking advantage of its major economic asset, the value of locations that are in high demand...

...The owner would be allowed to ask whatever rent he chooses, but the figure would become a matter of public record with an appropriate governmental board...

...Its provisions govern the dimensions of buildings and their component parts like hallways, doorways, and fire escapes...

...Rent control advocates, who are quick to counsel their followers to take advantage of every opportunity the law offers them to minimize housing costs, pretend that the owners of buildings should be motivated by something other than economics...

...This is true in every American city...

...To the extent that landlords are unwilling to throw new money into a deteriorating building, the quality standards that rent control allegedly protects are, instead, slowly destroyed...

...In an industrial city, the highest turnover rates are usually found among the poorest people who are most likely to have to move in pursuit of work, or because they can't pay rent, or because the building in which they live becomes so unprofitable that its owner abandons it...

...a new broom...

...In practice, their attempts to modify the legal rent for tenants in continuing possession always fall short of the reality of increased costs, and always result in diminished services in a period of inflation...

...Like war, they made rent control seem a reasonable effort to protect tenants from exploitation...

...Thus, my tenant who didn't want to pay for improvements to the apartment he merely lived in, did not want to be told that it would take years for the owner to recoup what had been put into rehabilitation, without which the house would .soon have crumbled completely...

...Real estate taxes were reduced to a much smaller part of the total city revenue...

...Because of the diversity and imprecision in defining housing quality, there can be no standard rent per room/month...

...All of these standards make housing more expensive to build and operate, but the process of raising them still higher is extremely seductive to state and city lawmakers...

...And, most important, the pace of apartment-house construction quickened to the point at which monopolistic control over prices became a practical impossibility...

...No elected official in New York City dares to admit publicly that there is a connection between housing deterioration and government control of rents...

...Between the state and city governments as much as $3 billion has been invested in so-called Mitchell Lama Housing in New York City since 1955...

...Restrictive situations other than war—as when American blacks faced serious discrimination in obtaining housing in white areas—subjected rents to monopolistic manipulation...

...The responsibility for doing something to ensure that everyone has access to housing that meets its standards is unquestionably a government responsibility...

...Properly, if it takes its standards seriously, government should tax everyone to enable those who need financial help to enjoy the same standards as anyone else...

...Thus, when a section of the city becomes popular, attracting people who would cheerfully pay higher rents to live there, the apartments remain instead in the hands of tenants who are forbidden to pay a market rent, even if they wished to...

...Always an expensive process, moving may involve re-cutting carpets, draperies, and bookcases...

...In the nature of things, the tenant whose lease expires is at a serious disadvantage compared with the tenant who is on the outside looking for an apartment...

...This distinction is now shared by Washington and Boston...

...Thus, rent control is meaningless unless it forces owners of buildings to maintain the quality of their apartments...

...The cost of supplying them would have to be added to the payments to the landlord to get the true rental cost, which would end up exactly where it is now—too high for many low-income families to afford...

...They govern administrative procedures like the posting of owners' and agents' names in public spaces...

...No matter how absurd inflated prices seem to someone who must buy clothes, food, or any of the other necessities or pleasures of life, he can assuage his pain with the prospect of getting something he never had before: a new suit, shining on the rack...

...Usually, this is deemed to be the lowest price at which the service can be sold while covering all costs of operation with a profit large enough to attract needed new capital...

...One reason only...

...We raised rents barely enough to pay back the cost of improvements over a 20-year period...

...Rent control law usually assumes that the price of an apartment at the time it came into effect is a fair basic price...

...Soviet citizens always boast about their low rents, and refuse to draw the connection between the low price of rent and the high price of all other government-furnished goods and services...

...Because in distributing electric power the cost of competition is prohibitive, or nearly so, the regulatory authorities ideally seek to establish by administrative action a fair price per kilowatt/ hour...

...While rent control keeps down the rents in older buildings that originally met the standards imposed by law, it also slows the flow of capital into these buildings that is needed to keep them well maintained...

...The bias in favor of protecting tenants who have not moved is perfectly natural: It is always easier, politically, to permit rents to rise when an apartment becomes vacant...

...How, then, can one say that rent control was responsible for New York's housing decay...

...Because the constant rise in cost makes new housing prohibitively expensive for moderate-income tenants, the older housing that provides lower-cost rentals becomes a precious asset...

...The resistance of these groups indicates that, for them, the real purpose of rent control is not to provide a real market in the face of monopolistic interference, but to provide cheap rents for tenants who already have apartments and to assure their permanent tenure wherever they happen to live...

...Somewhat less poignant for individual families, but of even greater significance to the city as a whole, is the waste of public space which rent control entails...

...If no one likes to pay rent, why shouldn't it he regulated by law so that politicians can take credit for the largesse...

...Its mortgage of more than $400 million, borrowed by the state, is hopelessly in arrears...

...The second defect that follows inevitably from favoring the tenant-in-residence is the gross misallocation of housing space...

...Advocates of rent control insist that no one has proved that it is this deprivation of income that has caused the deterioration and abandonment of rental housing properties in New York City, which has had rent control since 1947...

...The underutilization that results from this is grossly against the general interest...

...No private owner owns as many as five percent...

...Flight of Capital—not rent controls—causes building abandonment" trumpets a headline in the December 1977 issue of the Heights & Valley Free News, published by the Columbia Tenants Union...

...There is no suggestion that capital flees from housing not because the owners of buildings want it to flee, but because it has been destroyed by uneconomic rental levels...

...instead, its objective becomes the perpetuation of low rents and unchallengeable tenure for those tenants who happen to be protected by it, usually those tenants who have moved least often, or not at all, and who thus constitute a firm political power base for elected legislators and administrators...

...Tenants would get the impression that they were paying low rents, but if they wanted to stay warm, dry, and healthy, they would have to supply these qualities for themselves...

...Poor tenants would get cheap rents, but their housing would probably be miserable, as it was when the first housing laws were passed more than 100 years ago: no heat, no light, no air, no bathrooms, insufficient space to live decently...

...I pointed to the improvements we had made in his apartment: a bathroom, for the first time...

...No one can run for office without agreeing that the payment of rent is a surrender to the greed of landlords...

...Favoritism toward the tenant-in-occupancy (who, as we shall see, is in a weaker position than the prospective tenant looking for an apartment) has two very unfortunate results...

...The question which immediately rises, but cannot so readily be answered, is how much damage this diversion of income does to the quality and supply of rental housing...

...The parents now rattle about in an apartment for which they have no use because their continued occupancy makes it a bargain...

...Most of us forget that the new costs of a home last as long as it does...

...We are living in such times and no country is immune from the plague of international terrorism...

...they believed that the increased cost would simply reduce the monopolistic profits which landlords got from their tenants...

...Rent control came to almost all major American cities during World War II when the Office of Price Administration was controlling all prices...

...A simpler method is to repeal all laws mandating housing safety and health standards...

...Rent control not only forced the construction of these developments—through the deterioration of the older, decent stockpile of housing and the irrational use of space—but it also remained as a formidable price competitorfor the housing in which the government placed so heavy an investment...

...We were lured out of our rent-controlled apartment houses," said the strike leadership committee of Co-op City...

...The great majority of these buildings are now in arrears on their mortgage payments...

...New York differs from other older cities in the very large portion of its families who live in rental housing...

...But the economic benefit of staying in one's original rent-controlled apartment tends to slow down the move to new quarters despite the desire for a larger apartment...

...All rent control systems, therefore, depend on a change of tenancy to provide the owner relief from the squeeze of increased costs against fixed rental income...

...If the owner decided to ask no more than the "normal" increase, the tenant would have to accept a new lease at that figure, or move...

...As the family grows, it should move to larger quarters...

...But if the owner asked more than the "normal" increase, the tenant could choose, instead, to remain at his present rental until the owner finds someone willing to pay at least the rent that he had asked of the tenant...

...It finds itself, like the owners of most rent-controlled apartment houses, facing the demand of citizens for services whose costs they refuse to pay, and at its back it hears from the reluctant bankers who will not continue to finance a venture whose expenses exceed its income...

...As a result, rent control appears to be not only a supremely popular government activity where there are large numbers of tenants...

...The reformers believed that rents would not necessarily rise because of the rise in costs...

...But because they make housing more expensive, they succeed in pricing new housing, that fully conforms with all the new standards, out of reach of a continually growing number of tenants...

...Thus, protected tenants may be richer than the owners of the buildings in which they rent...

...The tenant-in-occupancy, at a time of housing shortage, tends to accept a new rent which the tenant outside would not...

...Indeed, the most serious offense against the public good that rent control commits is its debasement of public discourse and corrosion of the political process...

...But there is enough evidence to satisfy any objective observer that some, indeed a very significant part, of the deterioration in the better buildings of New York has been due to rent control...

...One need not be ruler of the world to establish low rents...

...The lower the original rents, the faster the deterioration...

...From the simplest of requirements—like the insistence on a window in every room—government housing standards have been built into an immense structure of law...

...While in other cities the lowest-income families and a few of the highest rent their homes, in New York apartment houses constitute a significant part of the housing lived in by the middle class...

...Rent control does not replace the marketplace which quality standards impair...

...This is much harder even than controlling prices, but the two—price and quality—are integrally connected, as the reformers discovered when they started passing laws raising the minimum standards of housing quality...

...It is now time to examine this second hypothesis...

...But the final decision would be left to him, giving him the opportunity to run his own business without allowing him to exact from the tenant-in-possession any more than he could get from the tenant outside...

...There are times—as was recognized in the republican constitution of ancient Rome, rei gerundae causa—when the security of democracy against subversion, and the security of the citizen against terror, must take precedence over a false liberalism that places freedom and tyranny, terror and law, on the same level...

...Recognizing that a government which had built housing for them would not dare to evict them, tenants and tenant co-operators in middle-income projects have refused to pay rent increases, gone on "rent strikes," and otherwise contributed to the financial pains of the state and city...

...It tends to be a middle-class subsidy...

...Gunter Sonnenberg, Knut Folkerts, and Christian Klar, the assassins of the federal prosecutor-general, Siegfried Buback...

...One of the earliest housing reforms by American city governments was the requirement that every room people lived in (technically called a "living room," but not in the sense in which that term is used today) have a window to the outside air...

...24 The American Spectator October 1978...

...It doesn't work...

...Only the tenant-in-occupancy is put to extraordinary expense when he turns down the landlord's offer of a new lease...

...Rent control today is based, though perhaps not explicitly, on the same two premises...

...In these circumstances the new liberal assault on democratic Germany leaves a had taste in the mouths of those who had suffered from Nazism, fought against Hitler's armies, and now see a new enemy—one with the same concentration camps, the same anti-Semitic trials, and the same suppression of human rights—being abetted by these contemporary Raglans who, imprisoned in their past, do not seem to realize whose dirty work they are doing...

...Under New York's venerable rent control system, it became clear long ago that the top floor apartments in six-story, walk-up tenements had higher legal rent ceilings than all other apartments in the buildings...

...Anyone who understands the economics of housing would expect that lower real property taxes will inevitably produce lower rents because of their stimulation of construction and rehabilitation and ensuing competition...

...Proponents of rent control argue both that their laws shield tenants from monopolistic exploitation and that they are necessary because government standards for housing have destroyed a free market in any case...

...a new piece of meat to chew on...

...Draining the customary portion of current income from the buildings they lived in meant that these same buildings suffered from maintenance undone, gradual deterioration, and a desperate, but rational, move by their owners to discount the future and grab whatever instant return was available—through renting to welfare families, for example...

...Years ago, on behalf of a non-profit group interested in proving that decent housing could be provided in old tenements by an owner content with moderate profits, I supervised the rehabilitation of such a tenement...

...Why should he pay for it...

...Using rent control as a substitute for governmental subsidies is simply a perverse, regressive way of enabling better-off tenants to escape the taxation necessary to pay such subsidies while accelerating the decay of the housing in which all tenants live...

...The thousands of individual owners vary in wealth, professional skill, ownership motive, and access to capital...

...Any state or city which is persistently told by candidates for public office that the cost of capital is unreal, and that consumer appetites can be satisfied without pain, should expect to find itself in financial trouble...

...There is, however, one respect in which the market for rental housing does not work, and this is the area in which some government action is indicated, even wise...

...the interest in rent control in California will surely be stimulated by the passage of Proposition 13...

...In fact, the combination of rent control and natural cupidity produced the deterioration of middle-class areas at the same time that it stimulated a demand for government intervention to produce new housing for the very people who should have been living in the formerly middle-class apartments...

...This had the effect of hastening turnover...

...Few tenants go through life without changing their need for space...

...They believe they are fighting inflation, and helping poor tenants against rich landlords, although, ironically, rent control is never—to my knowledge—based on the tenant's ability to pay (far too complicated even for the hungriest bureaucracy to administer...

...Even the owner of a house, making a mortgage payment on the home he has been living in for years, derives some satisfaction from the knowledge that he has reduced his debt and increased what he calls his "equity" in the house...

...War made housing a natural monopoly because the government decreed that no manpower or material resources could be used for any construction not directly related to military needs...

...A tenant complained about the increase that brought his rent to $60 a month...

...a new trip...

...It owns less than ten percent of the rental apartments in the city...

...But that rarely remains its sole or its major objective...

...but no one ever wants to wait for natural processes when there's a laxative handy for landlords...

...Rent-controlled tenants are specially protected against having to move...

...new window frames—didn't he like all this...

...Tenant groups ritualistically publish their own newspapers, attacking the notion that rent control hurts housing...

...it merely proffers a false solution to the real question of how much government money should be spent to raise housing standards for those who cannot afford housing without help...

...Ultimately, the losers include not only those who would move into the apartments now vacant, and the owner of the building who sacrifices rents to make his building more saleable, but also the city as a whole and those who require its services, paid in large part by the tax revenues derived from the value of land in great demand...

...THE PUBLIC POLICY by Roger Starr Controlling Rents, Razing Cities Everybody hates to pay rent...

...First, it does not relate economic need to the benefit conferred by rent control...