Rent Regulation Is Not a Subsidy, It is an Anti-Profiteering Measure

Rent Regulation Is Not a Subsidy,
It is an Anti-Profiteering Measure

There are many myths and misunderstandings about rent regulation. One such myth is that rent regulation amounts to a subsidy from landlords to their tenants. This notion was first promoted by the real estate industry in the 1990s, and was aimed at dismantling the system.

But the goal of rent regulation is to ensure fair rents for all tenants, not to produce subsidies for poor tenants. The system was designed to eliminate the unfair advantages landlords have in a market driven by chronic shortages, and to dampen speculative practices which pose a threat to the stability of households and neighborhoods.

Owning rent-regulated housing continues to be a profitable business. In 2007, the average income after operating expenses for landlords of rent-stabilized property in New York City rose to 38 cents on the dollar. The median rent-stabilized rent in 2008 was $925 per month, equal to 31.6% of the median household income for renters in stabilized apartments – a rent burden that is higher than what is considered affordable using HUD standards.

The shortage of apartments gives landlords excessive market power. The foremost purpose of rent regulation in New York State has been to eliminate "abnormal" rents in an overheated market. The recent landlord-inspired notion that rent protection laws constitute a subsidy contradicts the historical understanding that a properly structured rent regulation system produces fair rents.

The objective for all anti-profiteering measures is to protect the public from those who would take advantage of abnormal shifts in demand for various goods and services. Forces such as natural disasters, war, monopolistic pricing, and sustained imbalances in supply and demand, can leave consumers or producers in unfavorable bargaining positions.

Regulating a just price, particularly for the necessities of life, does not produce unfair subsidies, but rather, eliminates unfair advantages. Scarcity of housing options strips tenants of the leverage they would otherwise have in bargaining, particularly as housing is a necessity of life. Rent regulation is designed to temper excessive demand-driven rent increases, and otherwise curb profiteering in a market where demand chronically outstrips supply.

Vacancy decontrol permanently moves apartments out of rent regulation, and this is rapidly undermining the entire system – this amid a housing crisis in the downstate New York region, and in an economy where tenants are more vulnerable than ever. We must repeal vacancy decontrol now!

Sources: Based ” ‘Fair Rents’ or ‘Forced Subsidies’ Under Rent Regulation: Finding a Regulatory Taking Where Legal Fictions Collide” by Timothy L. Collins, former executive director of the NYC Rent Guidelines Board, for Albany Law Review, 1996.

 

First published by Met Council on Housing: May 19, 2009