Price Controls Make Life Miserable for New YorkersTags Bureaucracy and RegulationU.S. History
If you can pay through the nose here, you can pay through the nose anywhere.
That’s because the most common complaint of overtaxed New Yorkers for generations has been housing costs here are outrageous. This happens in a city and state in which rent control laws have persisted for generations, going back to the 1940s and even before then.
Yet almost no major pol here dares to state the obvious to anyone with economic commonsense: price controls for housing are as bad as price controls for any other product or service. They inevitably result in shortages, driving up prices. However, recently some of our leading politicians admitted that housing costs here are outrageous despite close to a century of overregulation. That’s despite decades of rent controls laws, which they generally support and want made stronger. The citizen who can’t find honest, market, prices is suffering.
A New Yorkers’ Biggest Cost
Indeed, New York State Comptroller Thomas DiNapoli says many pay half or more of their income for housing. This disastrous policy of long running price controls affects both homeowners and renters, he wrote. “The high cost of housing can force some New Yorkers to go without basic necessities or to be evicted,” he writes. It is a problem, DiNapoli added, affecting people “across the state who can’t stretch their dollars far enough,” according to the report “Housing Affordability in New York State.” Housing, the comptroller added, is considered affordable when it is less than 30 percent of household income. DiNapoli warned that, “unaffordable housing undermines New Yorkers’ living standards and quality of life and damages the state’s economic health. Napoli concludes New York is the “third highest among states in the nation for both the percentage of renters, 26.6 percent or 900,000 households, and homeowners, 12.4 percent or 500,000 households, deemed to be severely burdened by housing costs that consumed half or more of their income.”
A New York City official agreed.
“The rising cost of rent continues to outpace income growth, throwing New York City households into financial distress,” wrote New York City Comptroller Scott Stringer in his recent “Affordability Index” report. Stringer, the same as almost every other city and state official, believes publicly supporting rent control laws is critically important, despite the bad results. He and other elected officials believe that they must support these laws just as they must support, for example, more tax dollars for the state-run New York City subways, a transportation disaster that most public officials agree is a wreck.
The Wrong Solution
But while government officials here have to concede the obvious problems, they are also calling for more of the same. DiNapoli called for more government affordable housing programs.
Stringer wrote the, “lack of affordable housing and the soaring cost of everything from child care to basic everyday necessities have ravaged New Yorkers’ bank accounts and now these pressures are pushing people out.”
The rent control laws were recently expanded by the state legislature. These laws have obviously failed here as even some socialist economists (See below) have admitted. We have had rent controls for generations and we still have the same problems
DiNapoli didn’t mention rent controls laws in his report although Stringer spokeswoman Hazel Crampton-Hays emphasized that “he (Stringer) is committed to extending the protections of rent controls.”
An official of a builder’s organization said he was “unsurprised” by New York’s high housing costs.
“New York State is the most overtaxed and overregulated state in the country,” said Lewis Dubuque, executive vice president of the New York State Builders Association. He said “property taxes, environmental and labor regulations only exacerbate the nationwide skyrocketing construction costs and labor costs.” Dubuque added that the state’s Scaffold law, which he says in the only one in the nation, “drives up general liability costs for builders and makes it incredibly difficult to hire the small pool of qualified subcontractors.” Dubuque complained that “the politicians are either blind or ignorant of these facts.” The state’s rent control laws and their extension inevitably make the situation worse, he charged. They lead “to increased gentrification, higher rents and hurt the New Yorkers who need help the most,” Dubuque asserted.
Lots of Regs
Pace University Professor Joseph Salerno said a “plethora of regulations” are causing New York housing shortages.
“A study has shown that from the mid-1980s to the early 2000s, the average price per square foot of housing was approximately twice the average cost of building an extra foot of housing in New York, due mainly to regulatory regulations,” Salerno says. Salerno quotes a Swedish Social Democrat economist’s assessment of rent control laws. “On the market for apartments without rent controls,” he says, “a greater demand for housing will not lead to a shortage but to higher rents and more economical use of space by tenants and more intensive use of the existing housing stock.”
“In many cases,” wrote Assar Lindbeck, “rent control appears to be the most efficient technique presently known to destroy a city — except for bombing.”
Where Are the Honest Prices?
By distorting the housing market through rent controls, the market will not produce honest prices, Salerno notes. Honest prices, when allowed to exist, are how people make informed decisions, he adds.
“Young single people and older retired people living alone will take on one or more roommates to help pay the higher rents. People who own single family homes will rent out rooms or perhaps convert basements, garages or attics into apartments. In the long run, higher rents will raise the price of existing apartment buildings and make it profitable for builders to construct new apartment buildings. The supply of housing will expand and rents will begin to fall back toward their former level,” Salerno says.
The market can correct if allowed to do so. But rent controls destroy this market mechanism for adjusting supply to changes in demand.
“If rent controls are imposed that are lower than rents dictated by market forces, an excess demand for apartments almost immediately appears,” according to Salerno.
“Over time, if the demand for apartments increases, the shortage grows worse leading to long waiting lists for apartments. In the long run, as taxes, utilities, maintenance and other costs of operating an apartment building continue to rise, the supply of apartments actually decreases, as landlords convert their apartments into co-ops or condos or abandon them altogether,” he adds. “They will also try to reduce their costs by cutting down on the maintenance of their buildings causing a deterioration of the housing stock.”
It’s the Property Owner’s Fault, not Ours
The interesting thing is that, while pols and mainstream media constantly put the blame on property owners, there is no attempt on the part of the city to limit real estate taxes. So owing to rent controls, a slow socialization, a slow destruction of property, takes place over the years in the city’s real estate.
It is similar to what happened to the private management in the subways: Over some 40 years of private transportation companies in the subways, they were never allowed to raise the subway fare beyond a nickel. The fare was “controlled.” The inevitable happened.
The subways started to lose money with fixed prices. The private transportation eventually wanted to sell, just as many private owners of housing want to leave New York.
Many New York City tenants in rent-controlled or rent-stabilized apartments believe their rents should never be raised (P.S. I personally know of some apartments in the city where the rent was never raised over 20 years. Why? Because the law required that every owner in a building had to jointly apply for a rent increase. And owners, just like renters or people in any big group, very rarely can unanimously agree on anything. That, I am sure was the point of the rent control law designed to suppress market rents).
Salerno’s analysis is exactly what has happened in many New York City neighborhoods, especially in my native Bronx. They sometimes look as though someone has bombed them.
More importantly, rebuilding doesn’t take place as new builders don’t enter because they are spooked by rent control laws or their extension.
“It is no longer profitable to build apartment buildings,” Salerno says. Indeed, price controls, whether of housing or of anything else, have a tendency to do that.