Study: Rent Controls Have Little Impact Outside Affluent Neighborhoods
Ending State Regulation Would Boost Rates For Stabilized Apartments By 22% In Manhattan, 7% In The Bronx, Economist Says
March 12, 2003
By William F. Hammond Jr., Staff Reporter of the Sun
Ending rent regulation in New York City would mainly affect residents of affluent neighborhoods in Manhattan and have little impact on housing costs in the outer boroughs, according to a new study from the Manhattan Institute.
The analysis by Massachusetts Institute of Technology economist Henry Pollakowski estimates that the median rent of stabilized apartments in Midtown and Lower Manhattan would jump by $218 a month, or 22%, if state-imposed price controls were abolished.
But Mr. Pollakowski estimates the increase in the Bronx would be only $37, or 7%, and predicted no significant change in rents for Brooklyn, Queens, or Staten Island.
The study, to be formally unveiled today in Albany, is meant to challenge the conventional wisdom about rent regulation as lawmakers consider whether to extend the laws beyond their expiration date in June.
Proponents of rent regulation make the case that poor and middle-income families could not afford to live in New York City if landlords were allowed to charge what the market would bear. But the new study found that most regulated apartments outside of Manhattan aren't worth much more than their state-controlled price, meaning decontrol would lead to little or no increase in rent.
"The neighborhoods that do not benefit from rent stabilization, and hence would not face rent increases, are predominantly those housing lower- and moderate-income households," writes Mr. Pollakowski, editor of the Journal of Housing Economics. "Thus the arguments that rent stabilization should be maintained for the benefit of those with modest means stands without empirical support."
An activist with Tenants & Neighbors, Michael McKee, called Mr. Pollakowski a "hired gun" of the landlords and dismissed his findings as "absurd."
"Obviously the spread between regulated and unregulated rents is great in Manhattan," Mr. McKee said. "That doesn't mean it's not significant in other parts of the city...That $150 benefit is a lot more important to a working family in the Bronx than maybe a $500 benefit to a stock broker in Manhattan."
In a study released last month, Tenants & Neighbors found that the median rent for unregulated apartments in 1999, at $1,090, was 70% higher than the median regulated rent of $640. It also found that the median household income in regulated apartments was a modest $26,200, versus $51,000 in free-market units.
Mr. Pollakowski said these comparisons overlook the fact that regulated apartments are generally worth less than unregulated ones--because they are typically older, in poorer condition, and in less-desirable neighborhoods.
His analysis began by estimating what regulated units in different parts of the city would be worth on average in a free market, and then subtracted the current median rent to calculate an average "subsidy" for each neighborhood.
He found the biggest subsidies in Midtown and Lower Manhattan, ranging from $292 a month for Stuyvesant Town and Turtle Bay to $485 on the Upper West Side. The average gap in the Bronx, by comparison, was no more than $89 a month, and ranged from $0 to $15 in Brooklyn, Queens, and Staten Island.
Mr. Pollakowski also reasoned that the actual increase in rent, in the event of deregulation, would be smaller than his estimated subsidies, since the market would be flooded with more than 1 million previously price-stabilized units. He said the effect of gradual deregulation, by releasing apartments to the free market as they become vacant, would cause somewhat larger rent hikes because the supply of deregulated units would remain relatively tight.
In an interview, Mr. Pollakowski said it doesn't make sense for taxpayers to spend $40 million a year administering a system with so little benefit for poor and middle-income New Yorkers.
"There's the basic question of fairness--who's benefiting from [rent regulation] and who isn't," he said. "What we see in the numbers so strikingly is it's the affluent lower and middle Manhattan neighborhoods who are getting the rent breaks.”
©2003 New York Sun