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Research Memorandum
December 1994 No. 2


The Best Christmas Present Washington Could Give New York

Against the welldocumented* negative effects associated with rent regulation neighborhood— decay and increased crime and disorder, diminished mobility, a dearth of new low-income housing units, accelerated coop and condo conversions, outright housing abandonment—proponents offer one seemingly overriding defense: rent regulation protects poor families from being exploited by avaricious landlords. A number of enduring economic myths have been shattered over the last decade, but none more deserves to be exploded than this one.

Today it is impossible for any well-informed individual to honestly defend rent regulation—on any grounds. From the faculty of the Kennedy School to the Editorial Board of the Wall Street Journal, from the small businessperson trying to create housing opportunities in East Harlem to the newlyarrived office worker forced to pay $2,000 for a onebedroom apartment: everyone knows that rent regulation benefits the haves—not the havenots.

The reason is simple: the benefits of all price controls are sooner or later captured by the most sophisticated, informed and motivated market players. In the case of rent control this economic scenario is strengthened by the commonsense fact that poorer people move more often than richer ones, and one of the rules of the rent regulation game is the spoils belong to those who stay put.

It was in this vein that in 1989 the Manhattan Institute submitted a policy memo to then Secretary of Housing and Urban Development Jack Kemp and other members of President Bush's domestic policy council. Written by housing specialists Peter Salins and Gerard Mildner, the memo suggested that HUD make federal housing aid to cities with rent regulation regimes conditional on those cities agreeing to a gradual abolition of those regulations. The rationale for such a policy was straightforward: HUD's mandate is to expand housing opportunities for the poor, and since housing experts are in unanimous agreement that rent regulations diminish the housing stock for that segment of the population, it would be good politics, as well as good economics, to oppose, and—by opposing—end them.

The Bush Administration apparently thought otherwise, and HUD policy remained unchanged (despite the memo's similarities to a recommendation put forward in the early 1980s by New York's junior senator, Alphonse D'Amato—now Chairman of the Senate's Committee on Banking, Housing and Urban Affairs). Since 1989, HUD's lowincome housing grants to cities have climbed to $26 billion from $14 billion. New York City's share amounts to $ 1.1 billion—including $300 million in discretionary funding, much of which goes into the city's disastrous "inrem" housing program, thereby giving the Mayor of New York the dubious distinction of being the world's largest "slumlord."

But, as they say on Wall Street about every dog having its day, every bad policy has its moment of truth . . . sooner or later. We think the time would have been right in 1989—or indeed when the Manhattan Institute brought out its first study on housing policy in 1980 (see below). But with New York's fiscal condition teetering on the brink, and with a new zeitgeist that's friendlier to Adam Smith's insight that free markets not only allocate scarce resources more efficiently but bring about more equitable outcomes, the time has definitely come to address this issue.

We call upon our elected leaders—in Washington, Albany and City Hall—to remedy an aberration in public policy that has arguably caused more distress, distortion and aggravation to more New Yorkers than any single law passed since World War II. Consigning New York's rent regulations to the dustbin of history would signal that New York has indeed made a new beginning.

William M. H. Hammett December 14,1994

* THE ECOLOGY OF HOUSING DESTRUCTION. Economic Effects of Public Intervention in the Housing Market, Peter D. Satins, New York University Press, 1980.

HOUSING AMERICA'S POOR, Peter D. Satins, University of North Carolina Press, 1988.

SCARCITY BY DESIGN: The Legacy of New York's Housing Policies, Peter D. Satins and Gerard Mildner, Harvard University Press, 1992.

 


Center for Civic Innovation.

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SUMMARY:
Against the well-documented negative effects associated with rent regulation neighborhood, proponents offer one seemingly overriding defense: rent regulation protects poor families from being exploited by avaricious landlords. A number of enduring economic myths have been shattered over the last decade, but none more deserves to be exploded than this one.

 


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