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DISPELLING DISINFORMATION ABOUT RENT CONTROLS (part 1 of 2)

by Timothy L. Collins

This memorandum was drafted to assist those involved in the
current debate over the extension of New York's rent laws. The
analysis is based upon a personal review of hundreds of studies,
reports and surveys generated by government, industry, tenant and
academic experts over the past thirty years.

INTRODUCTION

New York landlords and their advocates have spent millions of
dollars over the past two decades on lobbyists, campaign
contributions and advertising - all aimed at ending or
discrediting rent regulations. Industry advocates, including the
Real Estate Board PAC, the Rent Stabilization Association PAC and
the Neighborhood Preservation Political Action Fund contributed a
total of $401,605 to legislative incumbents and campaign
committees just before the last round of rent law renewals in
1993. Nearly 90% of those contributions went to Republicans. In
the 1994 and 1996 election cycles, Senate Republicans received
$883,925 from real estate industry PACs. Most of these funds go
to legislators who do not have a single rent regulated
constituent in their districts.

In my seven years with the New York City Rent Guidelines Board
landlord organizations such as the Rent Stabilization Association
and the Community Housing Improvement Program spent hundreds of
thousands of dollars on studies which invariably concluded that
rent and eviction protections are bad public policies. Notably,
research funded by non-profit organizations, academic
institutions or government agencies produced findings that were
starkly at odds with the conclusions of the landlords groups.
Unfortunately, due to limited funding and marketing efforts the
results of these non-partisan efforts rarely received public
notice. As a result, the hard facts about the experience of New
York and other cities with rent regulations have been overwhelmed
by a well engineered public relations effort by the landlords.
Today, the myths and rhetoric generated by the landlords' effort
to persuade the public of the evils of rent regulation are
routinely and uncritically echoed in the local media. The purpose
of this brief memorandum is to identify and correct some of the
unfounded assumptions about rent regulations.

HISTORY

Contrary to a common perception that rent controls are a vestige
of New Deal liberalism government, correction of market imbalances
is a practice that is over 500 years old. Medieval theologians
developed the concept of a "just price" for the necessities of
life and persuaded the English Parliament to regulate the price
of bread, meat, lodgings and other staples of life for centuries.
In the American colonies similar laws followed the English
tradition. Many of those laws continued long after the American
Revolution. In fact, New Jersey enacted a statute regulating the
amounts Innkeepers could charge for food and lodging just ten
months before it ratified the U.S. Constitution. Throughout the
19th and 20th centuries various price regulations were challenged
and upheld as constitutional exercises of government's power to
protect public health and welfare.

Even if rent and price controls are within our historical
experience and national traditions, hasn't the "free market"
addressed our housing needs throughout most of that history?

The sad fact is that free markets in New York City have rarely
produced an adequate supply of decent and affordable housing. The
horrors of open market housing were well documented by Jacob Riis
in the nineteenth century. (See Jacob Riis' "How the Other 
Half Lives" on TenantNet) Rising rents and evictions led to
extreme public unrest, rent strikes and mass protests at the turn
of the twentieth century and into the 1920's when the City first
experimented with rent controls. The Rent Laws of 1920 lapsed in
1929 because a growing economy led to a building boom which
reduced the need for controls. During the Depression of the
1930's poverty forced many families to double up. Overcrowding,
along with a deflationary economy kept rents in check. When state
officials met to revise the State's Multiple Dwelling Law in
1946, they noted that a housing shortage began to appear as early
as 1936 but that the Depression had forced many families to
double up which concealed the shortage.

The Emergence and Demise of Rent Control

During World War II rent and eviction protections were
reactivated as part of a national price control program. While
demand for apartments was strong, building construction was
stalled due to the diversion of resources to the war effort.
After the war housing construction rose dramatically. The fact
that over two million rental units remained under strict rent
controls had no measurable impact on the development of new
housing. The Rent Control system initiated during the war now
governs only 71,000 housing units. Since 1971, rent controlled
apartments in three to five unit buildings have been deregulated
upon vacancy. Rent controlled apartments in buildings with six or
more units which are vacated now fall under rent stabilization.
Consequently, over 700,000 pre-war apartments which were formerly
subject to rent control are now under rent stabilization.

Rent Stabilization

By the end of the 1960's rising construction costs and zoning
changes slowed the production of new housing. Strong demand for
rental units and a low vacancy rate caused a sharp rise in rents
throughout the uncontrolled housing stock. Complaints flooded the
City's Housing and Development Administration - mostly from
middle class residents of newer and higher priced post-war
apartments. In 1969 rent stabilization was established to protect
about 400,000 households living in these uncontrolled apartments.
The stabilized stock has since grown with the influx of vacated
rent controlled units.

In 1971 the state adopted vacancy decontrol for both rent
controlled and rent stabilized apartments. Rising rents and
complaints that owners were harassing tenants out of regulated
apartments to take advantage of vacancy decontrol led to a
reestablishment of rent stabilization coverage for vacant units
in 1974. In 1971 the State adopted a law which prevents the City
from adopting rent controls that are stricter than those already
in effect. Since then, the City has been deprived of home rule
over rent regulations.

The rent stabilization system was adopted to ensure reasonable
rents for everyone. That is, it was designed to restore fair
bargaining relations between owners and tenants - whether those
tenants are rich or poor. Although it clearly benefits low income
tenants, it was never intended to serve as a social welfare
system. The much repeated criticism that rent regulations were
primarily intended to protect poor people raises a convenient
straw man for the critics of rent controls to knock down. While
concern was expressed for those on fixed incomes and for the
displacement of long term City residents, the main objective
contained in the legislative declaration was to relieve tenants
of the burden of "abnormal" rents which had been driven up by the
housing shortage.

In 1993 with the passage of the so called Rent Reform Act, the
state imposed a means test on a very small group of exceptionally
affluent tenants. Tenants who earn over $250,000 for two
consecutive years and who pay more than $2,000 in monthly rent
are subject to decontrol. The state also imposed vacancy
decontrol on apartments with rents that exceed $2,000 per month.
Although these changes were supposed to effect less than one
percent of the housing stock, they have disrupted the lives of
thousands of tenants who must now file income verification forms
every year. Many tenants who earn far less than $250,000 have
been deregulated because forms are returned a few days late or
are lost in the mail or by the DHCR. Many owners have illegally
increased rents beyond $2,000 just to escape coverage under the
rent laws. Administratively, the luxury decontrol provisions have
been a costly nightmare. At best they benefit a few wealthy
owners of upscale buildings who have no particular need for such
increases.

Notably, tenants who earn more that $250,000 and reside in
apartments renting for less than $2,000 per month remain
protected by rent regulations. Why is this so? When the rent laws
were revisited in 1993 there was a widespread recognition that
the housing shortage did not effect the luxury market. That is,
those who can afford to shop for high rent apartments (above
$2,000) have plenty of options. By continuing protections for all
tenants in lower rent units where housing remains scarce, the
legislature reaffirmed the anti-profiteering goals of the system.

Once you go below $2,000 housing becomes scarce. According to the
City's triennial Housing and Vacancy Survey the vacancy rate for
apartments with monthly rentals above $1,250 declined from 4.47%
in 1993 to only 2.5% in 1996. Therefore, a lowering of the
threshold for "luxury" apartments which are decontrolled upon
vacancy (to say $1,500) would erode protections for many middle
income families who now face a tight rental market.

HOW WOULD DEREGULATION WORK?

There are three ways to terminate existing the rent laws.

Vacancy Rates Exceed 5%

Both rent control and rent stabilization exist because of a
housing shortage which is measured through periodic vacancy
surveys (usually in three year intervals). If the vacancy rate
rises above 5% rent stabilization will automatically terminate
after a public hearing. In most cases, that would mean that rents
would go to market once existing leases expire. Landlords would
have no obligation to offer renewal leases. If they did offer
leases, they could increase rents as much as they want and they
would be free to rewrite any terms in the new leases. If the
vacancy rate rises above 5% rent control does not automatically
terminate but local authorities are required to implement a plan
for "orderly decontrol".

Currently only 4% of housing units are vacant and available for
rent. Very few of these vacant units are affordable to middle
income households.

The Laws "Sunset" by Legislative Inaction

The state Emergency Tenant Protection Act expires periodically
and must be renewed prior to each expiration. The ETPA is now
scheduled to expire on June 15, 1997. About one million
apartments are covered by this law. If the law sunsets, landlords
will have total control over rent levels and lease terms as
existing leases expire.

The State Affirmatively Ends Renewal of Local Laws

About 30,000 rent stabilized apartments are governed solely by
the local Rent Stabilization Law. Also, some 71,000 apartments
are protected under the local rent control law. These laws were
just renewed by the City for three more years. If, however, the
state decides to amend the 1962 enabling legislation which
permits local regulation of these apartments, those protections
could also fall.

Varying interpretations of these laws by government lawyers and
state courts could result in an earlier or later termination.
Complex issues such as the funding and function of the State
Division of Housing and Community Renewal's Office of Rent
Administration which enforces the rent laws would have to be
worked out.

HOW DOES RENT REGULATION HELP TENANTS?

Fair Bargaining between Tenants and Owners

The City's housing shortage places tenants at a bargaining
disadvantage when it comes to rent levels and lease renewals.
Under rent regulations landlord's cannot evict tenants unless
they prove in court that a tenant has violated a condition of the
tenancy. In the absence of rent regulations landlords could
simply refuse to renew a lease without any explanation at all.
Eviction protections would not work if landlords could force
tenants out through large rent hikes. Similarly, rent protections
would offer little protection if landlords were free to evict
tenants at will.

Reasonable Rents

There is ample evidence that New York's rent regulations provide
critically needed protection against unreasonable rent increases.
According to the City's 1996 Housing and Vacancy Survey, the
average income of rent stabilized households is only $21,600 per
year. The average income of rent controlled households is only
$12,408 per year. Among the ranks of protected tenants are a
relative handful of the City's rich and famous. By the last
available count only about 4% of rent stabilized households
earned $100,000 or more per year. Less than 1% of rent controlled
households earned $100,000 or more per year.

Compared to other high rent cities (Los Angeles, Boston, San
Francisco and Washington D.C.) middle and low income tenants in
New York benefit substantially from rent regulations. According
to a 1991 study by the Citizens Budget Commission, a typical rent
regulated tenant who earned less than $100,000 per year paid a
little less for rent as a proportion of income than did similar
tenants living in another high rent cities. For example, rent
regulated New Yorkers earning between $10,000 and $15,000 per
year devoted about 38.9% of their incomes to rent payments.
Tenants in the same income group in other high rent cities spent
48.5% of their incomes on rent. Notably, a typical New York
tenant who earned more than $100,000 per year faced virtually the
same rent burden experienced by their counterparts in other high
rent cities. In New York those earning over $100,000 per year
spent 9.5% of their incomes on rent. In other high rent cities
those earning over $100,000 spent 9.4% of their incomes on rent.
Thus, in terms of relative rent burdens rent regulations do a
better job of protecting low and middle income tenants than high
income tenants and high income tenants in New York do not have
unusually low rent burdens.

That is not to say that rent regulations have afforded middle and
low income tenants overly generous protections. The city wide
average rent burden for all income groups has grown dramatically
over the years. In 1970 the average New York tenant devoted only
20% of their income to rent. As of last count in 1993, over 31%
of tenant earnings go to the landlord. Evictions for non-payment
of rent are nearly twice as high as they were twenty eight years
ago - rising from about 13,000 in 1969 to nearly 25,000 in 1994.

Overcrowding is another indicator of the bargaining leverage
exerted by landlords. In 1984 only 7.7% of rental units were
considered overcrowded (having more than one person per room). By
1996 overcrowding had risen to 10.3%. If economic growth were to
stimulate a rise in new household formation - and a corresponding
decrease in overcrowding - the City's overall vacancy rate of 4%
could fall precipitously leaving starkly few housing options for
new households.

In a nation where the richest 2% of the population has more
wealth than the bottom 90%, no responsible citizen or legislator
can ignore the income effects of dramatic changes in public
policies such as rent regulation. Approximately 25,000
individuals, corporations and partnerships own rent regulated
apartment buildings in the City. If deregulation were to cause
only a 15% increase in rents, the total transfer of wealth from
tenants to owners would be approximately 6 billion dollars in the
first five years of deregulation. About 12% or some 3,000 of
these owners own fully 77% of the City's residential rental units
and would reap the bulk of this transfer. In short, ending rent
regulation would result in a massive transfer of wealth from
largely poor and middle income households to some of the richest
people on the planet.

Protection against Arbitrary Evictions

Nearly 300,000 non-payment petitions for evictions are filed in
New York City's courts every year. Of these about 100,000 remain
unresolved before a hearing is scheduled. About 25,000 end up in
actual evictions. Often tenants withhold rents to get owners to
make repairs. There are over three million housing code
violations of record outstanding in the City so the need to
withhold rents to secure repairs is widespread.

Most owners find that they can increase profits by cutting back
on maintenance. Free market rents will not resolve this problem
because buildings with high maintenance deficiencies usually
house tenants who cannot afford rent increases. It is well
established that income limits have a greater influence over rent
collections in low income neighborhoods than do rent regulations.
That is why the tenure protections secured by rent regulations
are so important to low income tenants. Without such protections
low and middle income tenants who assert their right to safe and
habitable housing will encounter owners who simply discontinue
their tenancies by refusing to renew their leases. To be sure,
the statutory defense of "retaliatory eviction" will survive
deregulation. Nonetheless, that defense is very difficult to
prove and most owners know how to defeat it. In the final
analysis, deregulation will have a dramatic chilling effect on
tenants who would otherwise have the strength to stand up to
landlords who try to squeeze every dime from their buildings.

(continued in part 2 -- see next message)

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