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New York Post

 

Eliot's Rent Reversal

August 18, 2006

By Nicole Gelinas

ATTORNEY General Eliot Spitzer has proposed what sounds like a modest change to the Empire State's rent-regulation laws: On Wednesday, he said that if he wins the governor's office this fall, he'll consider working with the Legislature to index the rent-regulation "ceiling" for apartments, now set at $2,000 a month, to inflation.

This doesn't seem like a big deal. But were Spitzer to make such a change, he would slow the progress Gotham has made over the past decade in moving its long-dysfunctional system of government-regulated rents to a rational free-market system.

The fact that some units become "free-market" apartments at all is only due to a 1990s reform: Before then, apartments remained under the state's strict rent-regulation system indefinitely. Under that system, city bureaucrats mandate how much landlords can raise rents each year, with small annual increases for lease renewals and larger ones for vacant apartments.

But in the 1990s, Gov. Pataki and lawmakers took a step toward the free market: When a vacant apartment's rent reaches $2,000 a month, the state no longer regulates it. Thanks to that reform, New York may eventually get something it hasn't had since rent control began in the 1920s: a rational market for rental housing.

Moreover, it will achieve this feat without having kicked any elderly or poor tenants out of their homes, since the change doesn't affect occupied apartments (unless their tenants earn well above six figures).

How? It would happen under what Spitzer has identified as a problem: "Should there be an inflation escalator, so that $2,000 figure doesn't become ... a much lower threshold as years go by?" he asked Wednesday. "It's time to revisit this number."

But Albany established a ceiling that's not indexed to inflation for a good reason: Over the decades, all of the city's rents eventually will reach $2,000 a month through the compounded effect of annual rent increases. And since most apartments also become vacant eventually, gradual deregulation would take place across the city.

Spitzer's proposal would retard this progress. By indexing the $2,000 ceiling to inflation, he'd make sure that even as rents inch up, the ceiling inches up as well — thus, fewer units would reach the ceiling and become deregulated.

That would ensure that Gotham's housing stock continues to suffer under city control: First, because landlords cannot raise rents enough to keep up with rising costs like fuel, many of them cut corners and fall behind on maintenance. The effect over decades is that New York has thousands of buildings in a state of disrepair.

Spitzer toured some of those buildings to coincide with his speech, pledging to do more to make landlords keep up their properties. But the best way to do that is to make sure they have an economic incentive to do so.

Second, because tenants face higher rents if they leave stabilized apartments, they don't have an economic incentive to move, even if they've long outgrown their apartments: Landlords in turn know their tenants are trapped in place, so they don't have to work hard on their buildings to keep tenants happy and attract new ones.

Full deregulation would do much to fix these problems. Indeed, since New York partially deregulated rents, landlords have built thousands of beautiful apartments in the city's best neighborhoods. If Spitzer wants to do something to continue that progress, he should, if anything, lower the $2,000 ceiling.

Of course, lots of low low-income and middle-income tenants think Spitzer's sticking up for them in defending regulation. The fact is, regulation hurts them the most: After all, they're the ones living in forlorn apartments because their landlords can't keep up with fuel costs.

 

 
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