Many are aware of New York City’s real estate crisis. All indicators point towards this unruly predicament. For the first time since the Great Recession, third quarter market-rate rents in the city’s three most populous boroughs (Queens, Brooklyn and Manhattan) have sunk well below their levels from the year prior. Median rent in Manhattan is below $3000 for the first time in over 8 years. Vacancies are at an all-time high. In fact, this summer’s real estate market boom in Maine, where out-of-state sales went up 10% and home value rose by 18% according to the Daily Mail, has been accredited to the mass exodus of people from the Big Apple and to the work-from-home-friendly suburbia. Consequently, the state of real estate in New York City is far from good. However, every backpedal in the real estate market brings with it space for amelioration. So, how can the city utilize its current conditions in order to produce a fairer and more efficient housing market?
New York City landlords are competing for demand by offering free months on longer leases and less-than-listed rental rates (10% less than listed rate, at times) in an attempt to salvage what’s left of market demand. Whilst many tenants took advantage of rent drops and moved into more affordable housing units, the city’s housing system remains far from fair and/or efficient. Rents are dropping rapidly. Inventory is soaring. Yet, there’s a limited supply of affordable housing. This is why, as vacancies continue to spike and prices drop, city policy makers must reassess their approach to regulating the real estate market.
The plunge in rents and increase in housing supply without a correlated increase in affordable housing supply can largely be accredited to the city’s extensive rent control and stabilization laws. Over the past 15 years, New York City lost well over half a million affordable housing units in spite of increased regulation, which was intended to – contrarily – increase the number of affordable housing units. The low stock of affordable housing reflects the ineffectiveness of regulatory efforts at creating and maintaining an efficient real estate market. This comes as no surprise. In a heavily regulated market like this one, where prices are kept low artificially, investors stray away. Rent control, therefore, disincentivizes private production of affordable housing units.
Should deregulation take place, particularly as prices trend downward, both tenants and landlords can benefit. Tenants are bound to see a greater supply of affordable housing units. Landlords would no longer go uncompensated for reduction in property value and would be incentivized to bring back many rent-stabilized apartments that were taken off the market in an effort to scale back on maintenance and modernization spending. In the long run, eliminating rent control would also give landlords the space to cover costs more effectively, and subsequently allocate greater spending towards maintenance; another advantage New York City tenants can cash in on.
Decades of rent stabilization have brought little change. Regulation has failed to square up to its purpose of providing enough affordable housing units. On top of that it’s discouraged the private production of affordable housing, which acts as yet another barrier to widespread access to affordable housing. Democrats controlling the New York Legislature are unlikely to support deregulation, though Democratic officials in other states, particularly California, have demonstrated increased opposition to rent control expansion despite an ongoing housing affordability crisis. Nevertheless, the reality is that American cities without rent control are the ones with revitalized, more efficient real estate markets, whereas cities with regulation bear little affordable housing units and face rising homelessness.
Political activist and candidate for governor Jimmy McMillan is renowned for his founding of the Rent Is Too Damn High Party in 2005; that’s 10 years ago. Today, 10 years-worth of rent control later, the rent is still too damn high. It’s time for a new, deregulatory approach to an age-old problem.