The tragic spike in unemployment has prompted a state moratorium on housing evictions and even calls from Rep. Alexandria Ocasio-Cortez and others for rent “cancellation.”
But the activist left might be in for quite the surprise. New York’s response to COVID-19 and the fallout from the lockdowns could lead to a very different housing policy change: a rollback of the state’s draconian rent-regulation laws.
It would be salutary, too: Ending the laws’ stranglehold on the city’s housing could be key to helping revive the post-pandemic Gotham.
Rent-stabilization laws have always been predicated on a housing “emergency,” defined as when the city’s vacancy rate drops below 5 percent. We don’t yet know what effect the crisis will have on the citywide rate, but there is good reason to wonder whether it has increased, as New Yorkers reportedly have begun a significant exodus from the Big Apple.
Three recent studies, including one coauthored by Manhattan Institute Adjunct Fellow Arpit Gupta of New York University, reach similar conclusions: Between 4 and 5-plus percent of the city’s population has headed for the exits. That’s more than 400,000 people. They have predominantly come from the city’s most affluent neighborhoods in Manhattan and brownstone Brooklyn, but even in lower-income areas, 1 to 2 percent have headed elsewhere.
It’s early days, of course, so there is no way to know whether or not they will return — and stories about a widespread flight to the suburbs may well be overhyped. But if these numbers hold, a significant increase in the city’s vacancy rate would come at an impactful time. Every three years, the US Census Bureau, at the city’s request, conducts a survey that determines the official level of vacancies in New York. The last one was conducted in 2017, so we’re scheduled for an update this year.
For a city that will be struggling to rebound after the body blow of the COVID-19 pandemic, lifting rent regulations could be a boon. Residents aren’t likely to find themselves stung by rent hikes when landlords are struggling to find tenants who can pay the rent.
Meanwhile, builders would no longer face the prospect of a legal cap on their revenues — and might start building, growing our city as market conditions change. Small-property owners would no longer face the red tape of rent-stabilization rules, not to mention the $20 per apartment registration fee.
A clean end to rent regulation, in other words, is unlikely to lead to sharp rent increases, as landlords realize they can’t squeeze any more from a cash-strapped populace. In many outer-borough neighborhoods, this is already the case, with stabilized rents not much lower than market rents.
Ending rent stabilization would also mark an end to the massive distortions the system creates, as tenants with extra room in affluent parts of Manhattan hang on to apartments far bigger than they need, just because they’re cheap. As Rutgers economist Jason Barr has pointed out, the city’s low overall vacancy rate masks the fact that vacancies in non-regulated units are actually higher than 6 percent; it’s the rent-stabilized units in which the rates are low.
For postwar, rent-stabilized units, the rate is just 1.2 percent. Those with artificially good deals hang onto them, creating a self-perpetuating crisis, exacerbated by the lack of new, market-rate construction.
So let’s find out the real post-pandemic vacancy rate — and hope it can be a way to free the city from the regulations that have burdened it for so long. With builders no longer fearing state intrusion into their pricing, they will be more likely to undertake new developments in neighborhoods that need more housing.
Rather than investing in its subsidized-housing program, the de Blasio administration should free up private investment and focus its spending on core municipal functions — such as public health and safety to reassure residents and potential newcomers that New York is safe.
It may seem counterintuitive to suggest erasing rent regulations at a time when so many households are hurting financially. But it may actually be the perfect time, with little risk to tenants, and the promise of helping the city come back from crisis. In this way, the pandemic could sow the seeds of revival.
This piece first appeared at the New York Post
Photo by James Andrews/iStock