THE Rent Guidelines Board votes today on what in creases it will allow for lease renewals in rent-regulated city apartments. But this year, New Yorkers should wonder why they even need the protection of rent regulations anymore.
Non-regulated rents are clearly going down. And rent regulations are disappearing – unless some city and state politicians get their way.
These politicians will probably fail to stop the progress this year – but they’ve got a good chance of success down the line, if Democrats take control of the state Senate.
Want to know what could happen to the Manhattan rental market over the next few years? Just look around.
In some neighborhoods, a dozen high-rise condo buildings are newly finished or under construction. But wait until dark and you’ll see that few lights are on in some new buildings.
Developers are finding it hard to sell as the market tightens – so they’re switching buildings to rentals.
On sites like Prudential Douglas Elliman, pages of “luxury” one-bedroom apartments, never lived in, are there for the taking. The market is in flux, with some owners thinking they’ll get $4,000 a month and others hoping to get $2,700 for near-identical apartments.
With tens of thousands of layoffs working their way through the city’s banking industry, and with permits to build 30,000 or so new residential units issued in each of the last three years, it could be a renter’s market for middle-class and affluent Manhattanites for quite some time.
The winners wouldn’t just be six-figure-earners, though, if New York really had a free market. If a state-of-the-art “luxury” apartment commands only $3,000, down from $4,000, then a less-nice apartment that might once have rented for $3,000 should rent for $2,000 – and so on down the line.
In fact, in a normal city – one with an unregulated market – this is how it would work all the time, even in a rising market. Apartments farther from Manhattan would cost less than ones in the city center; older apartments in Manhattan would cost less than newer ones.
Instead, the decades-old rent-regulation system prevents that from happening. These laws stop landlords from charging market rates to new tenants if the rent is under $2,000, and limit the rent hikes that landlords can charge tenants who renew their leases.
With renewal rent-hikes smaller than what landlords can charge new tenants, people avoid moving. But overall housing supply suffers, too – the limits on what landlords can make are a key reason new construction is for high-end, where the rent laws don’t apply.
Fairness suffers, too: One person can pay $600 next-door to someone paying $1,800 for the same-sized space, while the true market price likely would lie somewhere in the middle.
Happily, New York has been slowly phasing out this system for more than a decade – “de- regulating” apartments as soon as they crack through that $2,000-a-month rent ceiling, but only if they become vacant, or if their tenants earn $175,000 a year. Through inflation, someday, all apartments will reach $2,000 a month, even though it will take two decades more.
But that gradual deregulation was a compromise to please so-called “tenant advocates.” Now the advocates – and politicians hoping to win their support – are looking to undo the deal.
They’d even recapture apartments that have “escaped” the rent-regulation system over the last decade. The state Assembly has passed a bill that wouldeliminate the $2,000 ceiling – likely retroactively covering most one-bedroom apartments in big buildings (anything under $3,500).
City Council Speaker Christine Quinn, meanwhile, is pushing for an end to the Urstadt law – which, since the early ’70s, has prohibited New York City from enacting rent regulations that are harsher than those imposed on the city by the state Legislature. A bill to kill Urstadt has already passed the Assembly. If the Senate passes it, too, the possibility of the council passing new, harsher rent laws would be a dark cloud hanging over the housing market.
There’s a reason new-rental construction has soared in Manhattan over the last 15 years: Developers figured that they could earn a decent profit without the risk that regulated rents would fall short of costs.
There’s also a reason landlords have made improvements to older rental stock: They figured they could recoup those costs once they could charge new tenants market rents in neighborhoods where $2,000 is a reasonable price.
Fresh life for any of the rent laws would give developers far fewer incentives to build, leading to an ever-tighter housing market – which would mean higher prices for all but a few who are lucky enough to have cheap, regulated rents.
Nicole Gelinas is a senior fellow at the Manhattan Institute.