Today's Walls Street Journal has an article on the possible foreclosure of the Dunbar Apartments located between 149th and 150th Street. Constructed back in 1929 as a super block cooperative building that provided home ownership for African Americans, the Dunbar Apartments switched to rental in 1936 during the financially tough Depression years. More recently, the Pinnacle group purchased the entire 550-unit complex at the height of the real estate market for $94 million back in 2005 and now is having a hard time paying back its debt to Lehman Brothers. As with other developers that have bought large blocks of affordable housing in recent years, Pinnacle has also been accused of trying to deregulate units to increase rents and revenue. Read more in the Wall Street Journal:
LINK. Photo by Emilio Guerra via Flickr
This is extraordinarily sad news(Piss! woke up to all sorts of bad news today; the death of E. Taylor, the bombing in Jersulem, more snow) and demonstrates how very important it is to strengthen the rent regulation (rent stabilisation & rent control) laws.
ReplyDeleteA decent, habitable place to live is a right not a privilege and its high time our elected officials and those in the real-estate industry realize this. I can understand that the current economic climate stimulates one to do all sorts of things in order to survive, but deregulation is not one of them. It's a sad commentary on our society that those who need affordable housing and those who have it must fight constantly in order to keep it. The denial of affordable housing to those who need it is just wrong and god damn those who would do away with it!
"A decent, habitable place to live is a right not a privilege". - Greg.
ReplyDeleteRomantic notion on its face, however real world?
2 Years ago The Center for an Urban Future showed that New York City is hands-down the most expensive place to live in the country (A New Yorker would have to make $123,322 a year to have the same standard of living as someone making $50,000 in Houston. In Manhattan, a $60,000 salary is equivalent to someone making $26,092 in Atlanta).
http://articles.nydailynews.com/2009-02-05/news/17916262_1_new-yorkers-urban-future-expensive-urban-area
No. No one has a 'right' to live in the most expensive city in the country. It's this entitlement culture that accounts for the lion's share of Harlem's problems...
HH: Agreed, and the reality is that NYC's patchwork of rent stabilization, tenant regulation, and other "affordable" housing programs are together a big factor in why housing is so expensive in the first place.
ReplyDeleteThese things ensure that the market for housing is extremely inefficient -- a huge percentage of the housing stock is either occupied semi-permanently by folks hunkered down under grandfathered terms, or is held off the market by owners for economically rational reasons.
Thus, only a very small portion of the built environment is ever exposed to market demand -- and the price is bid up accordingly.
Deregulation would be a bloodbath initially, but prices would fall to a significantly lower equilibrium overall.
Couldn't agree more with HH and CBR.
ReplyDeleteCBR, UG, and HH - NYC has a miniscule vacancy rate (1% to 3%) - landlords will never drop prices overall even if there is an end to rent regulation - they don't need to. The pricing equilibrium is a myth the landlords perpetuate in the media knowing that free market fanatics will lap it up. Many "studies" related to this come from the Rent Stabilization Association - "The largest trade association in New York City representing 25000 property owners/agents."
ReplyDeleteBut you may get your way since NYC loses more and more stabilized/controlled units every year through luxury decontrol, owner occupancy, and buyouts. The NY Times reports, "The number of rent-stabilized apartments in the city continues to fall. About 10,000 such units were lost in 2009..."
The vast majority of rent stabilized apartments are not the mythical $400 3bdrs but small apartments that have seen increase after increase and are now anywhere from $1000 to $2500 and up. The only people still living in the really cheap apartments are older people who have been in place for 20 or 30 years which makes them elderly or of advancing age - surely they deserve some protection from the rabid free marketers.
And remember landlords of rent regulated apartments get rent increases every one or two years as designated by the RGB; there has never been a freeze or a reduction so they are hardly suffering. Many of the landlords bought their buildings for next to nothing - especially the tenement landlords.
And finally the anger people feel towards people in rent stabilized apartments is truthfully only directed at those who live in the best parts of Manhattan. Do you really think that anyone cares if someone is living in a big cheap stabilized apartment in some burned out section of the Bronx? No. And do you think the landlord would get a high rent for that apartment anyway? No.
I could go on but suffice it to say that rent regulation is far more complicated and complex than what an Econ 101 class, a NYT or WSJ business article, or your own biases would lead you to believe.
Scott -- I'm not free-market "fanatic" on this subject (or any other), but I do think that the low vacancy rate you cite has more than a little to do with NYC's patchwork of regulations and programs, and the extent to which they have made the overall market for housing sclerotic and inefficient.
ReplyDeleteWhether it is a matter of offering additional spaces for rental or of transacting real estate between owners, there are some very significant economic hurdles that have to be cleared -- and this contributes to the degree of "stickiness" we see in residency patterns. There are plenty of people who would consider moving (and thus put themselves and their current environs back into the marketplace) if some of these hurdles and effective disincentives were removed.
The low vacancy rate is in part a symptom of just how little of the housing stock can even be considered as part of the current property or rental markets -- and to the extent that only a small fraction is exposed to demand, the effects on price level will be quite predictable.
I am aware of the degree of complexity in rent regulation -- in fact what I am suggesting is that complexity is a big part of the problem. Please note that although I favor eliminating these programs and regulations more or less completely, I am not suggesting that we shouldn't help the kinds of people you are pointing to. There are plenty of folks that certainly need, and indeed deserve, the help. Others perhaps do not, but many of the existing mechanisms are effectively blind to such distinctions.
A far better approach would be to decouple the various forms of government assistance / protection from any association with buildings (and segments of buildings), and instead attach it to people in need. Ideally this would take the form of a single, means-tested voucher program for housing.
Also bear in mind that a good option for transition (and one I would support) would be to require owners/landlords to pay out a large percentage of economic value of decontrol, etc. directly to the tenant in question -- with the government providing a streamlined mechanism for achieving large-scale buyouts along those lines.
ReplyDeleteIf the process were handled correctly (i.e., by dint of appropriate legal/regulatory safeguards), incumbent tenants would end up with the financial means to remain in their homes if they wish to -- but would also have significantly greater freedom to move elsewhere if they would actually prefer it (once they have realized the true economic value of their incumbency). Thus a significantly broader housing market would emerge almost overnight.
I hope you will further note that what I am outlining here would *not* be enthusiastically backed by the real estate industry -- insofar as: 1) they would be required to directly bear a significant cost to achieve deregulation; and 2) any "real" deregulation would likewise threaten their existing pricing power by flooding the market with new supply.
Personally, I'm flabbergasted by the rents in neighborhoods south of Harlem. http://www.tregny.com/manhattan_rental_market_report It costs, on average, it costs over $97,000/year to live in a 2 bedroom doorman building in SoHo! Other parts of Manhattan are nearly as bad. Harlem is substantially lower, but honestly I don't think in 10 years it'll be pretty much the same as places like the financial district. There's only so much room in Manhattan. I strongly support rent control and rent stabilization. Rent control is a punishment for what the landlords did in the early 70s - they earned it, they have to live with it. Rent stabilization is fair IMHO. Once someone has established their life in a neighborhood they should know that they can stay indefinitely with moderate rent increases. That's what gives neighborhoods stability. People who want total rent deregulation want to gut the soul out of Harlem - 'cause that's where the biggest changes will come in the next few years. If you're renting, now is the time to buy - preferably a townhouse with rental income to help make the place affordable. But even a coop/condo is a good investment - you're basically locking in at a particular price and are assured of only having moderate increases in carrying charges (much like rent stabilization). Either that or be prepared to pay $100,000/year for your apartment in 10 years...
ReplyDeleteAs usual, the cheese stands alone!
ReplyDeleteCBR - There will always be demand and prices will never go down. NYC is still primarily a city of renters, not owners, and regulation provides much needed stability. You speak of "means testing," well, public housing is completely full with a 130,000 person wait list. The wait list for new section 8 vouchers also stands at 130,000. So that is quite a lot of "means tested" people right there. If rent regulation is taken away those numbers will swell. The city and state politicians know this and know that it is important to keep people in their homes. If you are on this blog then I assume you live in Harlem and know that there are many buildings here, pre-war and tenement, that are full of rent regulated tenants, many of whom have been in place for decades. Do you want them out so that Harlem will be "nicer?" Where do you want those people to go?
ReplyDeletePerhaps I shouldn't have prodded so many sacred cows here, but even in my devil's advocacy I am not talking about "pushing people out" through deregulation.
ReplyDeleteTo the extent that there are many people (in Harlem and elsewhere) who currently benefit from various forms of housing support, stabilization, etc., we should monetize that support (and pay it out to them directly) as part of the deregulation process. The objective would be to make the housing market as fluid as possible, while at the same time providing incumbents with the means to stay where they are if that is what they choose to do going forward.
What I'm driving at here is that we should stop chasing after the enigma of "affordable housing" (the inevitable result of which is the dysfunctional, unaffordable, and unfair system we currently have) and instead focus on helping people better afford housing.
The proposal I am outlining here would open up as much of the potential supply as possible. A big part of that would be giving people greater freedom to move -- even (indeed especially) if they feel they are net beneficiaries under the current regime. By annuitizing or otherwise paying out that net benefit to them directly, they could take it with them wherever they go. If they do want to stay, their position would likely be even more secure than it is now.
At the risk of making the social costs of these benefits more explicit (and thus potentially more assailable later on), the recognition and monetization of benefits people already receive would make any transitional process far less rough.
Of course, if policymakers really want to make housing more "affordable" in the urban center (i.e. drive down prices and rents), they should pursue policies that would increase the relative desirability of suburban living and commuting for all population segments (e.g., reduced services, higher taxes, less policing, etc.). Likewise, they should be looking at specific measures that promote family planning, limit immigration, and reduce economic activity in the city.
In case it's not obvious, the above paragraph is more than a little tongue-in-cheek, and is meant to highlight the more fundamental distinctions and meanings behind terms like "affordable," "inexpensive," and "desirable."
Unless we address these questions and more deeply address the tensions between the idea of "housing (in a highly desirable locale) as a human right" on the one hand, and "housing as a social Darwinist free-for-all" on the other, I'm concerned that all the well-intentioned talk and efforts on affordable housing is tending to just make matters worse for a lot of people.
Boston and Cambridge abolished rent regulations about 10 years ago. What happened? Rents soared and so did condo coversions. The market was flooded with new apartments, mosly luxgury condos. None are afordable and rents have only climbed upward. There's been no "setteling" to a disirable moderate norm...
ReplyDelete