Rethinking Rent Regulation

By Robert Knakal

One of the most prominent needs in the New York City real estate market is affordable housing.With the expected growth in our population over the next couple of decades, it is imperative that work-force housing exist. This is housing for police officers, firemen, teachers and the scores of other workers who make this city run. An insufficient supply of affordable housing for these folks is a critical issue for the economic well-being of the city that future local administrations will have to address.

Most of our elected officials continually, and inaccurately, refer to our rent-regulation system an “affordable housing” program. Rent control and rent stabilization do not create affordable units as options for our current work force.

In fact, rent regulation actually does just the opposite, as it reduces the number of options for new residents coming into the marketplace. There are 3.3 million dwelling units in NYC, but someone new coming into town looking for an apartment really has only 2.3 million “choices,” as 1 million units remain stuck in the rent-regulation system.

This constraint on supply means that market-level rents are artificially high due to the artificially low rents paid by folks who have been in apartments for a long time. Study after study shows that in the absence of price controls, market prices are lowered. Getting rid of rent regulation would mean more choice and lower rents for the overwhelming majority of New Yorkers. It would also mean lower property taxes for those in free-market properties, as currently regulated properties would begin to contribute an appropriate level of taxes.

No I haven’t lost my mind—I don’t expect rent regulation to go away anytime soon. But the program’s existence undeniably exacerbates the housing problems we have here. Until the nonregulated residents of New York realize that they are paying higher rents and higher property taxes than they should be because they are the ones subsidizing rent-regulated tenants, and they become vocal about it to local politicians, rent regulation isn’t going anywhere.

Another negative aspect of rent regulation is that the benefits of subsidized rent levels create motivation for occupants of these units not to move, regardless of whether the unit’s size is appropriate for them or not. Therefore, we have little old ladies living in three-bedroom apartments by themselves and families of four or five living in one- or two-bedroom apartments. This misallocation of our housing stock is not good for the city.

Furthermore, the fact that these rent subsidies are given out based on inertia rather than need, as there is no means testing on rent regulation, means that this program does not address the affordability issue.

So how does the city create the affordable work-force housing that is so desperately needed?

One idea would be to bring back the 421a program in its original form to create needed affordable units. Changes to this program were precipitated by elected officials who don’t fully understand the program.

Another idea is to create a citywide 421g-type program to incentivize the private sector to convert obsolete office buildings into affordable housing. There is an oversupply of office space presently, and removing some excess space would simultaneously strengthen the office-space market and create affordable housing.

Lastly, the city could stimulate the creation of additional affordable housing units by providing FAR bonuses. Giving FAR bonuses in ratios of 3 to 1, or 4 to 1, to developers doesn’t cost the city a dime. It just takes the political will to address those who will inevitably complain that larger buildings are blocking out the sun or are creating negative impacts on the quality of life.

If these no-cost incentives are created properly, it is very likely that affordable units will be created by the private sector, eliminating the need for the government to try to figure out how to provide these units and creating a more livable city.
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Robert Knakal is the chairman and founding partner of Massey Knakal Realty Services; in his career he has brokered the sale of more than 1,300 properties with a market value in excess of $9 billion.

Source: Commercial Observer

 

 

Can You Really Claim Two Rent Controlled Apartments?

In an item that belongs in the “Only in New York” column, the NY Post reports that a caretaker is laying claim to a deceased couple’s $291 per month, three bedroom, rent controlled apartment even though the caretaker resides in a $747 per month rent controlled studio in Gramercy Park.

You can’t blame the caretaker for trying to improve her situation – after all, if she is successful, she could legally rent out extra bedrooms for a tidy profit—but you would think her chances of success were slim. However, the City’s courts have ruled, in certain circumstances, that rent stabilized tenants may lay claim to more than one apartment so, you never know. This is New York City, after all.

                                                    – Jack Freund, Executive Vice President, Rent Stabilization Association 

(Views and opinions expressed are those of the author and do not necessarily reflect the policy or position of the RSA.)

 

Caretaker fights for $291-a-month rent-controlled pad

By LORENA MONGELLI and JENNIFER GOULD KEIL

An East Village woman claims she can take over a $291-per-month rent-controlled three-bedroom apartment because she tended to its two elderly inhabitants for four years — even though she’s not related to them.

Now the landlord is trying to boot her.

Margaret Hearn, 48, began living at 345 E. 12th St. in 2008, when she became a full-time caretaker for sisters Margaret and Josephine Ruta, whom she met at church.

Josephine died in March. Margaret died last year.

When Hearn returned from Josephine’s funeral, the apartment was padlocked. Her brother cut the lock, and she has moved in.

Margaret Hearn

Margaret Hearn

“I was emotional. I had just been to a funeral, and I felt I was losing it, and this happened,” Hearn said, adding the landlord “wants to remodel the apartment and charge more.”

Similar pads in the building go for $4,400 in rent.

Hearn — who also keeps a rent-controlled $747-a-month studio in Gramercy Park — says the landlord, 339-347 East 12th Street Investor LLC, filed to evict her in May 2012.

Phillip Wartell, a lawyer for the landlord, did not return calls.

 

Source: New York Post

New York Gets To Keep Its Broken Housing Market

http://blog.rsanyc.net/property-rights/wp-content/uploads/2012/05/wall-street-pit_logo.jpg

By  May 18, 2012, 8:00 AM

New York City has, without a doubt, the most dysfunctional housing market of any large city in America. A lot of New Yorkers like it that way – and it looks like they will be able to keep their broken system for the foreseeable future.

If you live someplace where normal forces of supply and demand govern housing, you may be surprised to learn that New York tenant advocates were quite pleased when Mayor Michael Bloomberg recently declared that his city is experiencing a housing emergency. This “emergency,” defined in this case as a vacancy rate in rental housing of less than 5 percent, has existed continuously since 1969.

In most other places, such a tight housing market would have long ago been brought into balance by some combination of rent increases and new construction. The two are related. Rent increases would prod some tenants to look for cheaper housing outside the five boroughs, and it would encourage more development of new housing stock by boosting economic returns for landlords.

But under New York’s 1969 Rent Stabilization Law, so long as the city continues to face a housing emergency, it can set maximum permissible rent increases for about 1 million apartments, according to The New York Times.

The Supreme Court recently declined to hear a case that challenged the constitutionality of the rent stabilization law. The court had, somewhat unexpectedly, asked for some additional information before ultimately deciding not to proceed with the case. This led to some brief speculation that the longstanding rent controls might be in danger. Continue reading

High Court Denies Certiorari in Rent Stabilization Case

By Brendan Pierson Contact All Articles

New York Law Journal

April 24, 2012

 

The U.S. Supreme Court announced on April 23 that it will not hear a lawsuit challenging the constitutionality of New York City’s rent-stabilization law.

The case, Harmon v. Kimmel, 11-496, was filed against the city in 2008 by James Harmon and his wife, Jeanne. The couple owns an Upper West Side brownstone with six apartments, of which three are rent stabilized. The Harmons argued that the 1969 rent-stabilization law, intended to respond to a housing shortage, was an unconstitutional taking of their property.

Southern District Judge Barbara Jones (See Profile) dismissed the case in February 2010, and Judges Amalya Kearse (See Profile), Robert Sack (See Profile) and Robert Katzmann (See Profile) of the U.S. Court of Appeals for the Second Circuit affirmed the dismissal in March 2011. The Supreme Court’s refusal to hear an appeal marks the end of the case.

“We are pleased that the Supreme Court will allow the existing court rulings dismissing this case to stand,” Alan Krams, senior counsel in the Appeals Division of the Corporation Counsel’s office, said in a press release. “Rent regulation in New York City has a long history, and the Court properly left it to elected state and city officials to decide its future.”

James Harmon said in an e-mail that the Harmon family was disappointed in the court’s denial of cert. “We still believe that the Constitution does not allow the government to force us to take strangers into our home at our expense for life. Even our grandchildren have been barred from living with us. That is not our America.”

“We are deeply disappointed that the United States Supreme Court did not accept what we believe to be relevant and legitimate property rights concerns of all New York City rent-regulated property owners, who have endured 70 years of rent regulation in one form or another,” Joseph Strasburg, president of the Rent Stabilization Association, which filed an amicus brief on the Harmons’ side, said in a press release.

 

Source: New York Law Journal.

NYC Rent Control: US Supreme Court Won’t Hear Harmon V. Kimmel

WASHINGTON — The Supreme Court won’t hear an appeal that seeks to end rent stabilization laws in New York City.

The high court on Monday refused to hear an appeal from James and Jeanne Harmon, who have lost earlier court attempts to get rent stabilization laws thrown out.

The Harmons' building in the Upper West Side.

The Harmons inherited a building with three rent-controlled apartments near Central Park on Manhattan’s Upper West Side. The Harmons say rent stabilization laws forces them to rent the apartments at rents 59 percent below market rate. They argue that by giving the tenants lifetime tenure with succession rights, the government has illegally taken their property.

A federal judge and the 2nd U.S. Circuit Court of Appeals in New York City threw out their lawsuit. The high court refused to review that decision.

 

Source: The Huffington Post.

Supreme Court Won’t Hear Challenge to New York Rent Control Regulations

 

Posted Apr 23, 2012 9:12 AM CDT
By Debra Cassens Weiss

 

The U.S. Supreme Court has refused to hear a challenge to New York’s rent control regulations.

A plaintiff in the Fifth Amendment case was James Harmon, a former prosecutor who runs a corporate investigations firm. The high court denied cert today, SCOTUSblog reports.

Harmon inherited his New York brownstone in the 1990s. One of his tenants who pays $1,000 in monthly rent also owns a home near the shore in Southampton.

 

Source: ABA Journal.

A Good Primer for the Economic Justification of the Harmon’s Case


REALITY CHECK

 

Want Cheaper Rent? End Rent Control

By Amanda Williams, 02/03/2012

The Supreme Court may have a chance this year to determine whether rent control is constitutional or whether it represents a “taking” without just compensation. A topic worthy of debate—but in my view, there are sound economic reasons rent control (like many government regulations), however well intentioned, is woefully misguided. To see why, let’s return briefly to Economics 101.

Anyone who took an economics class will likely have (possibly painful) flashbacks in examining Exhibit 1, which shows a generic supply and demand graph, with price and quantity on the x- and y-axes, respectively. Basic economic theory expects a supply curve to slope upward because the higher the price a good’s provider can obtain, the more he’s willing to supply. On the flip side, demand for most goods is downward sloping because, on average, consumers are less-inclined to consume higher quantities of a good the more it costs. The intersection of the two determines the price and quantity the market supports (commonly known as equilibrium).

Continue reading

Final Decision Barring the Harmons From Recovering a Rent Stabilized Property for Their Own Use, Based on a Technicality

 

HARMON v. MERVINE
2012 NY Slip Op 50134(U)

JAMES D. HARMON, JR. & JEANNE HARMON, Petitioners,

v.

CHERYL MERVINE, Respondent.

51685/10.
Civil Court of the City of New York, New York County.


Decided February 1, 2012.

Lester J. Figueroa, Esq.Borah Goldstein Altschuler et al., 377 Broadway, New York, NY 10013, (212) 431-1300.
Janet Ray Kalson, Esq.Himmelstein McConnell Gribben et al., 15 Maiden Lane, New York, NY 10038, (212) 349-3000.