By Matthew Paletz, CEO Paletz Law (Troy, MI)
One of the most significant ruses in politics today is the claim that rent control will provide more affordable housing and necessary tenant protections in the U.S. But a closer look at literally decades of documentation and evidence from cities across the country reveals the reality that what rent control policy consistently results in, is harm to the people it’s supposed to help.
At the top of the nation’s examples of rental policy gone wrong is New York City, which today and apparently tomorrow, stands as the most comprehensive case study of rent control failure. Currently, with over one million rent-stabilized or rent-controlled apartments, New York City faces a historic housing crisis, as vacancy rates stand at a minuscule 1.41%, the lowest since 1968, according to the city’s Housing and Vacancy survey released by the U.S. Census Bureau. Concurrently, according to the city’s Community Housing Improvement Program, the landlord group’s estimates indicate that 20,000 to 60,000 rent-stabilized apartments are vacant. The U.S. Census also reported last year that at least 26,000 rent-stabilized units remain unavailable for rent, tantamount to a year’s worth of new construction in New York.
Why is this the case? It’s basic economics. When a landlord or property owner’s operating costs exceed a city’s capped rental income, they have an untenable choice. One property owner in New York told the City Journal, “When those operating costs exceed what we can collect in rent, plus the fixed building costs, then it’s no longer viable.” In turn, rather than operating their rentals at a loss, they abandon the units, sometimes converting them to condos or deciding that leaving them vacant results in less financial hardship.
Simply put, rent control leads to increased costs from taxes to insurance, labor, electricity, etc., that get transferred to the tenants who eventually will be paying for the rent-controlled unit.
You have to ask: when it comes to government-enacted price controls, why are property owners and landlords always the poster children for these demands? Tell me what other industry is subject to this kind of unwanted scrutiny? Yes, inflationary costs have increased since COVID, but why are private property owners, who are simply trying to provide housing opportunities and make a profit, being singled out? Try as they might, no politician has mandated this for an out-of-control drug market. Why the private landlords?
Mamdani Policies Could be Catastrophic
The poster child for the peddling of fool’s gold is New York mayor Zohran Mamdani. With a bag full of rent control plans on steroids, his plans to “make living in New York more affordable” will instead lead to a full-blown catastrophe for city housing availability. Winning his election, in part, on a promise to freeze rents on all rent-stabilized units for his entire four-year term will negatively affect two million New York residents. While previously, New York mayors have occasionally implemented temporary freezes, his call for a permanent freeze represents an unprecedented commitment that economists are condemning. According to Vital City’s article “A Housing Roadmap for New York’s Next Mayor,” a four-year rent freeze while costs continue rising could push 100,000 additional units into insolvency, forcing the city to acquire distressed properties or watch them deteriorate.
I’m not naive enough to believe that politicians will always say one thing and do another, but it still baffles me how gullible the electorate is. This reminds me of my time in high school when kids ran for class president promising free soda, open campuses and classroom pizza delivery. Never mind, they couldn’t make this happen. The irony is that most people knew these promises weren’t feasible and voted for them anyway because they “sounded” good.
A quick glance at historical rent control policies across the country also shows that it’s not just the New York housing market that has suffered from these policies over the years. The Brookings Institution documents that rent control in San Francisco led to a 15% drop in the number of renters living in treated buildings (those subjected to rent
control). A study in the Boston suburb of Brookline, Massachusetts, found that the number of available rental units ultimately fell by 12%, following the enactment of strict rent controls in the 1980s. In California, Berkeley and Santa Monica lost 14% and 8% respectively, of their rental supply between 1978 and 1990.
In Los Angeles, after banning rent increases for four years during and after the pandemic, the Los Angeles City Council voted this month to lower annual rent increases in most of the city’s apartments. The city’s current rent control rules guarantee landlords the right to raise rents at least 3% every year. Increases can reach 10% or more in some apartments during periods of high inflation.
But under the new reforms, rent increases would be capped at 4% annually, and an additional 2% increase for landlords who cover utilities would be eliminated. The exact rate each year would be equal to 90% of the change in the region’s consumer price index, a government measure of economic inflation.
According to California Apartment Association spokesperson Fred Sutton, “These changes will not create a single new home, but they’ll make it even harder to build, making the housing crisis worse for everyone.”
Not All Landlords Are Corporate
Another significant aspect of the negative impacts of rent control, rarely covered by the media, that I have personally observed in my real estate practice is what has happened to small or “Mom and Pop” landlords and property owners. For example, an article published last year by Reason.org told the story of Bryan Liff, a Harlem landlord who purchased a building with plans to renovate and modernize it. After New York’s 2019 Housing Stability and Tenant Protection Act took effect, because he could no longer charge prevailing market rates for his vacant units, the renovation goal went out the window. Today, his building remains largely empty because capped rental income won’t cover his needed improvement costs.
In another article in New York’s City Journal, published this past fall, entitled “This Law Could Tip New York’s Housing Market into a Death Spiral” Ann Korchak of the Small
Property Owners of New York made the case that when you limit rent increases, it “restricts an owner’s ability to maintain, upgrade, and renovate,” pushing properties toward foreclosure.
A Constitutional Purge of Property Rights
But beyond the potential economic devastation of rent control policies is a fundamental constitutional violation. As a lawyer and advocate for private property owners, one thing I have regularly pointed out is that rent control constitutes a regulatory “taking” of private property under the Fifth Amendment. That Amendment mandates that private property shall not “be taken for public use, without just compensation.” This Fifth Amendment’s Takings Clause was designed to prevent the government from “forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole,” an irony to be sure when facing socialist mandates.
This month, New York rental property owners filed a lawsuit in U.S. District Court for the Southern District of New York against the city and its Rent Guidelines Board, alleging that the rent caps on vacant units have made it economically impossible for them to put these units back on the market. The suit claims that the government’s vacancy caps have effectively taken their property without paying just compensation, thereby violating the Takings Clause. All the power to them, but these suits are continually a mountainous uphill battle against increasingly activist judges.
Under scrutiny, the supposed positive effects of rent control policy championed by advocates just don’t hold up. The National Multifamily Housing Council concluded in its study that consumers of housing gained only 52% of what housing providers lost under rent control, concluding that the remaining value eventually evaporates through market distortions. Additionally, research in Cambridge, Massachusetts, showed that rent control imposed $2 billion in additional costs on local property owners, with only $300 million of that money being transferred to rent-controlled tenants.
In summary, there’s nothing at the end of the rainbow that will increase the rental supply precisely when demand for it actually surges. The resulting scarcity of rentals actually
inflates rents while decreasing housing quality, as landlords lack the incentives or funds to adequately maintain their properties while operating at a loss.