Carpe Diem

Mayor Ed Koch (R.I.P.) and NYC’s rent control laws

According to economic theory (and supported by empirical evidence), rent control laws have many adverse consequences, including, among others, a) the inefficient use of housing space and much lower turnover of housing units, and b) long-term renters benefit signifcantly, but at the expense of newcomers.

One of the legacies of former NYC mayor Ed Koch (1924-2013) is that he provided a classic, textbook example (see Thomas Sowell’s Basic Economics book) of the adverse consequences and inefficiencies of rent control laws - he kept his $475 per month rent-controlled apartment in Greenwich Village for the entire 12 years (1978-1989) that he lived in Gracie Mansion, the official residence of NYC mayors. It was estimated that the market rent for his apartment was about $1,200 per month, so there was an incentive for Mayor Koch to leave his apartment vacant for 12 years, pay the below-market rent for more than a decade, and then move back into his apartment after leaving Gracie Mansion.

But leaving a Greenwich Village apartment vacant for 12 years, in a city with extremely high demand for rental housing, illustrates how the perverse incentives of rent control laws increase housing shortages and make fewer rental units available for newcomers. In the absence of rent control laws, it’s likely that Mayor Koch would have given up a market-priced $1,200 per month apartment for the 12 years he was living rent-free in Gracie Mansion, and that apartment would have then been available for somebody else. However, under a system of government price controls at rents that are mandated to be significantly below the market, a very valuable and highly desirable apartment sat vacant for more than a decade in NYC.

29 thoughts on “Mayor Ed Koch (R.I.P.) and NYC’s rent control laws

  1. Only one apartment? Piker.

    “While aggressive evictions are reducing the number of rent-stabilized apartments in New York, Representative Charles B. Rangel is enjoying four of them, including three adjacent units on the 16th floor overlooking Upper Manhattan in a building owned by one of New York’s premier real estate developers.

    Mr. Rangel, the powerful Democrat … who has a net worth of $566,000 to $1.2 million, according to Congressional disclosure records, paid a total rent of $3,894 monthly in 2007 for the four apartments at Lenox Terrace, a 1,700-unit luxury development of six towers, with doormen, that is described in real estate publications as Harlem’s most prestigious address.” — The New York Times

    “After Charlie Rangel, chair of the House committee that writes America’s tax laws, was “censured” by Congress for multiple infractions of, er, America’s tax laws, a Washington Times reporter invited him to imagine what punishment the “average American citizen” would have received had he done what the Congressman did. “Please,” Rangel told her. “I don’t deal in average American citizens.” — Mark Steyn

  2. I have to disagree.

    Considering how tight the housing market was, and the difficulty in finding a “quality” appartment in a good location, if the Mayor had an appartment he was happy with and could afford to hang on to it, as long as he intended to stay in the city once he finished his “temp job”, it makes perfect sense to me to do so.

    Now, I just wish the family had managed to hang onto some of the 160 acres we had along the East River back when the place was called New Amsterdam. ;-)

    • “I just wish the family had managed to hang onto some of the 160 acres we had along the East River back when the place was called New Amsterdam.” — Robert Bauer

      I just wish that someone would wrest control of a portion of the property that you currently own, while compensating you at below market rates. Maybe then you would wake up.

    • Robert, you miss the point entirely.

      If he had to pay the market rent, he is unlikely to have held on to his apartment because it is expensive to do so and has no benefit. After he was done with a “temporary” job that lasted 12 years (and such a “short stint” only because he was kicked to the curb), he could have rented another apartment at the market price. Rent control is precisely the reason that NYC has apartment shortage issues.

      • No, I don’t think so. The example is New York City, where it is notoriously difficult to find ANY kind of half-way reasonable housing, expensive or not.

        The Koch example:
        If you have a good place, and your rent is already below market value due to rent control, you’d be a fool to let it go if you knew you were going to want to go back in a few years, when you would likely find it extremely difficult to find a comparable replacement. That’s a no-brainer.

        Now remove the rent control part of the equation. If the difficulty and location factors remain the same, it only becomes little harder to make the decision to sell or not. But even at $1200 a month during that time period, I strongly suspect just having the assurance of having the old place back would be worth it. And a couple other factors may have come into play, such as storage of possessions not needed or wanted in the city supplied house (He’d otherwise have to pay for.), or having another place to put up guests in an extremely expensive city. I’m only guessing that he wasn’t allowed to sub-let apartment.

        Was a parking space included in the rent? Even at prices in ’89, a place to leave a personal vehicle would have gone a long way toward justifying a the higher rent for the place even if he didn’t use it for anything else.

        So, as far as the Mayor Koch example goes, I don’t think rent control or not would have made a difference one way or the other.

        “Inefficiencies” be damned! Unless you look at the complete picture, all the long-term costs and consequences, don’t talk about theoretical economic models. I remember the reason rent control was implemented, efficient or not. Do you?

        Yes, without rent control you would probably have more available apartments, but they’d be priced to a point where few of the original inhabitants could afford them. As it was, they were being forced out in droves as landlords raised rents on the existing units. It’s a little difficult for a city to live if the workers who keep it alive can’t live there… And that is what was happening. It’s still happening, just not quite as fast. With high real-estate prices, no one can afford to build more that is afordable by the average workers, so they won’t. Now all you can build (Or convert) are rental units and condos for the rich, and scacity keeps it as a seller’s market. Again, no incentive to build a large number of units, even if you could find the land.

        Would you want to live in a factory or office building? I don’t think most Americans would now days, and that’s essentially what the city would turn into…One big office/factory, with a few of the rich living there, the rest of the people working there having to commute in from outside and much farther away, and it would no longer be “their city and home”. I remember hearing that argument, and I think it still holds true.

        So, don’t just look at the numbers. You have to consider the cultural and psychological factors. Rent control was not a good solution, but it’s what would help deal with the major problem at the time. I think it was only meant to buy time until other solutions were found. The REAL problem it created was that it removed some of the incentives to find better solutions, and so, here we are.

        • “Yes, without rent control you would probably have more available apartments, but they’d be priced to a point where few of the original inhabitants could afford them.”

          Rent control makes the median rent much higher, not lower, than would appear in its absence.

        • Robert

          So, don’t just look at the numbers. You have to consider the cultural and psychological factors. Rent control was not a good solution, but it’s what would help deal with the major problem at the time. I think it was only meant to buy time until other solutions were found. The REAL problem it created was that it removed some of the incentives to find better solutions, and so, here we are.

          So, after all this time since rent controls were first imposed in 1943, what do you believe the real solutions are? Has no one found an actual solution in 70 years?

          Why, in your opinion were rents high in NYC to begin with? Does it have anything to do with supply and demand?

        • “Inefficiencies” be damned!

          Translation: Making people’s lives better be damned. I don’t give a flying fuck about the consequences and the poverty in which my preferred policies keep people.

          You’re an ignorant asshat.

          • That is not at all what I’m saying. The problem is that a free market would result in ALL housing in the city being priced out of the range of all but the most afluent inhabitants, and as leases came up for renewal, many residents would be forced out of their homes. There is and will never be incentive for developers and landlords to provide low-cost housing in New York City and it’s close environs. You seem to imply that the way to treat poverty is to move it out of the city and out of sight, imposing even more hardship, not fix the root problems.

            As for “ignorance”, your comment and language betray… you… Disagreement and conflicting thoughts/ideas are fine, and I’ve been known to disagree with Prof. Perry in the past. This is how we learn from each other and get different points of view.

            That is still no excuse for rude behavior or language. They’re hallmarks of someone not worth listening to, whether they are right or wrong.

          • Of course my comment reveals exactly what you meant, as efficient is defined as making one person’s life better, while making no other’s worse off. So when you say “‘Inefficiencies’ be damned”, you are saying its good policy to make someone’s life better at the expense of another.

            That you think ALL housing prices would rise only shows your weak understanding of free markets. Any fool knows the driving force behind sky rocketing costs are zoning laws (i.e., NOT free markets) and rent control laws. Rent control laws only apply to non-luxury rentals. Guess what happens when you make only luxury apts profitable.

            Your asininity is excuse enough for my rudeness. It’s poor form to comment on something when you don’t even understand the basics of economics, much less the purposefully used rent control laws to push out modestly priced housing from NY. But you then pile on with your ignorance and insensitivity towards low skill and low wage earners are what is completely inexcusable.

            Moron.

    • They never went away. I got one in 2010. People with good credit typically find getting credit on good terms relatively easy. The problem due to the CRA was forcing banks to give good credit deals to high risk buyers, then shifting the burden to tax payers.

  3. New Yorkers, through their rent regulation con game have prevented real estate developers from accessing a great reservoir of untapped developable land on which to build modern housing. That reservoir is the great numbers of tenement buildings in Manhattan and the rest of the city. These structures were designed and built as cheap housing mainly for lower income workers around 100 years ago. The rent regulation system is set up so that vacating these economically obsolete structures for redevelopment is so difficult as to dissuade developers from trying. If the laws were changed to allow the free market system to tear down and build new modern superior housing in their place vast numbers of apartments could be added to the Manhattan market. And this could be done with out making the tenants homeless.

    • I would love to see these areas redeveloped, but within a free market system, I don’t see a way of doing so and still keep rents at a level the current inhabitants can afford.

      What might work is including a requirement that a certain percentage of new development be rent-controlled units that tie rental rates to income.

      Locally we have some co-op townhouses that do this, with the typical residents being retirees and young families just starting out. They cost about half as much as the going apartment rental rates, and the co-ops gradually built up equity for the renters. This meant that there was an incentive to maintain the property and more of a sense of ownership. To move in, you had to pay the previous tenant’s equity, and when you moved out you got that back and the additional equity you’d built, subject to reductions for damage, or potentially getting even more for any improvements you’d made. This helped my wife and I save enough for a down-payment on a house back when you generally needed a large chunk of change available to even qualify for a mortgage and neither of us were making very much.

      • I would love to see these areas redeveloped, but
        within a free market system, I don’t see a way of doing so and still keep rents at a level the current inhabitants can afford.

        Why do you think people should be allowed to live at the expense of others?

        Your comments indicate that you lack an understanding of the basic economic law of supply and demand.

        • So, you would boot all of the current low-income residents from the city, as a strict supply/demand market would dictate. At which point, infrastructure support and services collapse. That might bring prices down again as it has in other struggling cities, but who would want to live there? Note that this was one of the scenarios rent control policy was trying to prevent.

          Yes, I understand the so-called law of supply and demand VERY well. I also understand control theory on feedback mechanisms, and I look at more inter-related factors than a pure economist ever does. Removing the controls would (probably) eventually stabilize the situation, but only if the city managed to survive the short-term extremes.

          • So, you would boot all of the current low-income residents from the city, as a strict supply/demand market would dictate.

            As I asked previously, why do you believe low income folks should live at the expense of others?

            You are, of course, welcome to subsidize anyone you wish with your own money, but it’s not reasonable to force others to do so.

            At which point, infrastructure support and services collapse. That might bring prices down again as it has in other struggling cities, but who would want to live there? Note that this was one of the scenarios rent control policy was trying to prevent.

            Collapse? How dramatic! I don’t think anyone recommends suddenly eliminating all rent controls, but rather phasing them out. If infrastructure support and services are dependent on rent control, then wealthy people in NY are currently being subsidized, and aren’t paying as much as they would for services if market prices prevailed. Is subsidizing the wealthy another of the goals of rent control?

            Yes, I understand the so-called law of supply and demand VERY well. I also understand control theory on feedback mechanisms, and I look at more inter-related factors than a pure economist ever does.

            Then you understand that price controls don’t work. Limiting the price that can be charged for rent causes demand to increase while supply decreases, creating a serious shortage of rental units – just what exists in NYC. And you also know that a freely floating price signal will tend to drive supply and demand toward equilibrium. That equilibrium price may be high or low, but it will provide the best match of supply and demand.

            Removing the controls would (probably) eventually stabilize the situation, but only if the city managed to survive the short-term extremes.

            Do you really believe that politicians or bureaucrats can better determine prices than the market? What do you suppose the current social engineering efforts in NYC are really accomplishing?

          • Since rent control increases median rents, how is removing rent control supposed to make housing less affordable?

  4. I think there is intimation in the article that Mayor Koch did something wrong. I lived a few blocks away from Gracie Mansion in the 1980′s during Mayor Koch’s terms and it was well known that he did not live there, that he used the mansion for large parties and such. He was known for preferring his apartment in the village. I was listening to the radio on Friday during tributes to the Mayor and one woman called in to say that she found the mayor’s phone number in the phone book, called him at his apartment in the village to complain about prostitutes on her block and Mayor Koch camed right over (in his sweatshirt) that Saturday to see the problem for himself.

      • Unless you understand that this isn’t really about Koch, but about the fact that rent control didn’t have the desired effect of making more housing available to low income people.

        • “rent control didn’t have the desired effect of making more housing available to low income people.”

          Ron, Rent Control as opposed to Rent Stabilzation is a vestige of WW II wage and price controls. It was never intended to make housing available to low income people. The Rent Control regime as well as the Rent Stabilization laws are basically a quid pro quo between tenant voters and politicians. Politicians cement their constituencies in place and get re-elected and tenants get bargain basement rents for life. That explains how this un-American but very New York con game perpetuates itself.

          • “Ron, Rent Control as opposed to Rent Stabilzation is a vestige of WW II wage and price controls. It was never intended to make housing available to low income people.”

            Indeed, it makes housing less available to low income people by raising median rents.

            The same happens with housing setasides. The remaining market units have a higher price than they would have if there were no setasides.

          • Thanks, Robert. It’s always easier to believe that politicians are slimy, lying parasites than that they are so incredibly stupid as to not understand the basic economic law of supply and demand.

  5. In New York City the system of controlling “rent regulated apartments” is a fascist one. It is a regime where a property “owner” may not:
    end a lease (and remove a “tenant”);
    charge a rent commensurate with the local market;
    modify a lease upon renewal;
    manage the property as he sees fit, within reason as the property owner;
    refuse to rent to persons receiving government rent subsidies;
    evict a tenant for damaging the property or for habitually not paying rent;
    keep the property’s Income Statement confidentially out of the government’s hands;
    An owner of a New York City rent regulated apartment building thinks he or she owns the property but the property is operated under complete control of the government just as in a fascist system.

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