Out of control

New York City's main industry lies in ruins; its finances are in peril; its housing market is falling. What does the city need?  That's right, tougher rent controls!

In times like this, it's easy to believe that if you laid all the economists in the world end to end, they still wouldn't reach a conclusion.  But here's one of the things that basically everyone, left to right, agrees on:  rent control is the surest way to destroy a city's housing stock short of aerial bombing, and one of the major culprits behind New York's painfully low vacancy rate.  Rent control allows some people to stay in artificially cheap apartments, but only by forcing the people who would have rented them into some other, less desireable place.  Those people bid up the price of the uncontrolled housing, so that you essentially end up with two housing markets, one with rents above the natural market price, and one with rents below it.  There is no way to ensure that the deserving middle class folks you want to see stay in the city end up in the latter, and indeed, many of the owners of rent stabilized apartments were notorious for finding the richest tenants they could.  Rich tenants rarely get behind on the rent, and move sooner than people who can just barely afford their below-market place.

Meanwhile, the stabilized stock deteriorates, because, especially in inflationary times, it does not pay the landlords to maintain them beyond the barest minimum required by law.  And no one wants to build any new housing except luxury units which will not be controlled. 

Then everyone wonders how come there are no houses for middle income people in the city.

This bill, if it passes the Senate, will represent the third time that New York has reneged on its promises not to control new housing.  From what I can tell, it's trying to claw back decontrols of units that were built under laws providing for time-limited stabilization in exchange for tax breaks.  Just like the first two times, it's a good bet that New York City will now have a damn hard time getting anyone to build anything except another skybox for rich patrons who do not arouse the sympathy of the New York State legislature.  Every time a New Yorker curses their dirty, run-down shoebox of an apartment, they should save an especially juicy oath for Sheldon Silver.

Presented by

Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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