'Vital for tenants' or 'textbook' bad policy: How rent control works in NYC

Before Ontario's provincial government announced its plans to expand rent control, some economists were already sounding alarm bells about imposingthe controversial policy.

In response to some Torontotenants who saytheir rents have doubled,the government on Thursdayunveiled its Fair Housing Plan. It included theclosing of a loophole thatexemptedrental units builtafter 1991 from rent control.

In a report released weeks before, CIBC economist Benjamin Tal had slammed the idea, arguing that such regulations only discourage developers from building rental properties.

"If history is a guide, such policy will mostly hurt the people it's trying to protect,"Tal wrote.

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Look no furtherthan New York City to observe the ramifications of a failed policy, he said. The housing market there isconstantlyunder-supplied,he said, and the share of rent-controlled units that are in poor maintenance is almost four times higher than seen among uncontrolled units.

Achieved 'near opposite of its goals'

The city "should be featured in any economics textbook as an example of public policy that achieved the near opposite of its goals," Tal wrote.

Rent regulations in New York have also dried up rental supply by spurring developers to convertrental units into condos, saysHarvard University economics professor EdwardGlaeser.

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"Alot of the nicest buildings, the prewar buildings in Manhattan built originallyas rentals,whenrentcontrolcomes in...they figure out a way to take them off the rentalmarketandswitch them over to cooperatives andcondominiums."

"You are basically ensuring that anyone who builds is going to want to build for the condo market instead of this highly regulated rental market."

No Fixed Address: What's the deal with the 1991 'loophole?'

8 years ago

Duration 1:56

CBC Toronto tells you everything you need to know about the so-called "1991 loophole," which allows some landlords to hike rents by huge amounts while others are subject to strict controls.

Glaeser said it's difficult to estimate what effect rent regulation has had on development, but suggested it has had a chilling effect on new construction.

"Why you'd want to have a targeted policy that essentially pushes builders and existing properties to withdraw rental units from the market and switch them over to something else that seems like a very hard thing to justify."

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But housing rights advocateJenny Laurie believes rent regulations in New York have played a "vital role" in preserving affordable housing.

'Agreat benefit' for tenants

"We're very happy to have rent regulations in the NYC," she said. "We think they are a great benefit, particularly for low- and moderate-income tenants."

At initial glance, it would seem such controls have had little effect on New York rental rates. According to a recent study by RentCafe,a U.S.-based online service that helps people find apartments, the average price for a one-bedroom apartment in NYC is$4,900 Cdnper month. In comparison,the average rent for a one-bedroom Toronto apartment of just under 1,000 square feet isabout $1,600 per month.

But those New York rents are for vacant apartments and don't necessarily give a complete picture of the current rents paid by those who for years have been living in rent-regulated units.

"If you've been living in your apartment for 10 years and it's rent stabilized, your rent is well below whatthe asking rent wouldbe for a vacant apartment," Laurie said.

The case against rent control

8 years ago

Duration 6:40

CIBC World Markets economist Benjamin Tal says rent control can have unintended consequences

This is why New Yorkers will cling to such apartments, which are nearly impossible to find.

New York's system of rent regulation is a mix of rent-controlled and rent-stabilized units. While rent-controlled units were plentiful back in the '50s, numbering around two million, their stockhasdwindled down to roughly 27,000 apartments.Now most of the apartments that are regulated, a little over a million, fall under rent-stabilization guidelines.

Tenants (or their legal successors)of residential buildings constructed before February 1947 who have been living in theirapartment continuously since before July 1, 1971 fall under rent-control regulations. Rent stabilization applies to unitsbuilt between Feb.1, 1947 and Jan.1, 1974.

Landlords get around rent control

Rate increases for both rent-controlled and rent-stabilized unitsare regulated, although rent hike allowances are calculated differently.

But loopholes in the regulations have enabled landlords to circumvent the regulated limits and drastically spike up the rents. In 1994, New York City Council voted to implement"vacancy decontrol" which allowed vacantapartments that had been rented for $2,000 or more to be deregulated.

"Some observers say rents went over two grand a month in neighbourhoods of the city where you hadn't seen that level before," Laurie said.

In parts of the Bronx orin Queens, where rents had been pretty stable, speculator landlords bought up groups of buildings and started pushing to get therents over the deregulationlimit, she said.

"It is a problem that there are more deregulated apartments, particularly in those neighbourhoods."

Meanwhile, according to New York University'sFurmanCentre for Real Estate and Urban Policy, between 2002 and 2014, the number of rent-stabilizedunits affordable to low-income households fell 27 per cent, a net loss of 233,931 units.

Dennis Keating,former director of the urban planning, design and development program at Cleveland State University, said he doubts rent regulations have had much of an impact on construction. But they have provided limited protection to tenants, until they reach a certain rent level.

"Then you're no longer protected. So it has weaknesses from the tenant perspective in terms of vacancy policies."

Keating agreed with Talthat there is an "enormous" disincentive to move from these rent-regulated apartments, which ends uplimiting supply to the extent that tenants stay put.

Toronto's out-of-control rent problem

8 years ago

Duration 2:41

Most people expect their rent to go up each year, but two Toronto tenants saw their rent legally increased by 100 per cent

And that exacerbates the essential unfairness of rent controls, Glaeser said. Someone, rich or poor, has just beenlucky enough to snag one of theseapartments at a much cheaper rate in a beautiful location.

'Pro-insider strategy'

"It's not like anyone else can get that apartment for the same price," he said. "It rewards current renters at theexpense of future renters.In nosenseis it a pro-poor-people strategy. It's a pro-insiderstrategy."

And politically, it's difficult to reverse. Glaeser said it's impossible to imagine New York ever getting rid of the policy.

"Once you have it, you havesuch a built-in constituencyfor it, it sticks around forever."