Posted on 09/05/2002 3:08:39 PM PDT by shrinkermd
Democratic gubernatorial hopeful Carl McCalls housing development plan is hopeless. | 26 August 2002
The Democratic gubernatorial primary in New York State has lacked substantive ideas; the candidates bland platforms neither inspire support nor engender much criticism. Given Carl McCalls recent proposal for sparking new housing development in Gotham (and throughout the state), maybe thats a good thing. McCall has tried to position himself as a centrist, but his housing scheme is practically Soviet: it calls for new government entitlements that, if put into effect, would further depress Gothams already painfully anemic housing market.
McCalls housing scheme hinges on expanding New York Citys rent control regime so that it once again covers the wealthy, rolling back a 1997 change in housing regulations that ended rent control for Gotham tenants who earn more than $175,000 a yearor whose apartments rent for more than $2,000 a month. McCall argues that the 1997 rule, known as luxury decontrol, is hurting New Yorkers by reducing the number of apartments under rent regulations and thus driving up rents.
In fact, luxury decontrol is exactly the kind of reform necessary to spur long-term housing development in the city. Rent control for the rich snuffs out potential new construction, because wealthy tenants, whod have the money to buy or lease newly built housing, instead stay put in their deeply discounted apartments. Why should they move and give up such a great deal, even if their apartments might be bigger than they need or less state-of-the-art than theyd ideally like? Better to keep the cheap apartment in the city and use the monthly savings to pay off a mortgage in the Hamptons.
This lack of demand from prosperous but subsidized tenants is one reason why housing construction in New York, which averaged 35,000 units a year in the 1930s, before rent control went into effect, now averages a measly 10,000 units a year. Its also why only 28 percent of Gothamites own their own homes, less than half the national average. McCalls proposal would just set these patterns in concrete.
To solve the very problem that rent control helps createa lack of investment in new housingMcCall wants government to bankroll more housing development. Hed try to get the feds to guarantee investments by pension funds in subsidized housing construction, and he calls for more government partnerships at all levels with nonprofit housing groupswho of course go gaga over them, because the subsidy money goes through their hands. But theyre bad ideas. Investments in subsidized housing rarely pay off for pension funds. And subsidized housing is a lousy way to get sustained new housing construction, since it doesnt generate additional capital through profits for new housing investment. Instead, each new project requires new subsidiesif government funds are available. If theyre not, no new housing.
Aside from helping him win political support from housing advocates, whove now endorsed him, McCalls proposals leave untouched the real causes of New Yorks lethargic housing market. They dont address the citys tortuous zoning and building codes, its hefty taxes and fees, its construction union featherbedding, and organized crimes heavy influence on the construction industryall of which help make housing construction up to 40 percent more expensive in New York than in any other U.S. city. New Yorks housing woes wont improve until someone tackles some of these problems and sets the market free.
Ummm, Pataki hasn't suggested this yet, has he?
In truth, wealthy tenants in rent-regulated apartments are a tiny minority, as are cheaters. The vast majority are honest hardworking people whose lives would be thrown into chaos were they to be forced to move from neighborhoods and buildings where they have lived for decades, and yank their kids into a different school.
At least Malanga mentions all the right reasons that more housing is not built. But it has nothing at all to do with rent regulation, since new buildings are not regulated.
Moreover, the simple rules of supply and demand do not work in NYC, where there is a constant stream of newcomers from out of town eager to bring all the rents up to where market rents are now, should rent regulations cease. The idea of any rents coming down, to NY'ers who've been around for a while, is preposterous.
All envy sucks. Envy of the poor by the rich sucks the chrome off a ten-ton diesel.
He didn't go nearly that far. He did detail how that the wealthy in rent-controlled apts get a government subsidy, which strikes many as especially unfair.
In truth, wealthy tenants in rent-regulated apartments are a tiny minority, as are cheaters. The vast majority are honest hardworking people whose lives would be thrown into chaos were they to be forced to move from neighborhoods and buildings where they have lived for decades, and yank their kids into a different school.
Many with a government subsidy get used to it and consider it natural. And it makes them quiet when others get their pork.
At least Malanga mentions all the right reasons that more housing is not built. But it has nothing at all to do with rent regulation, since new buildings are not regulated.
I think I see your point. But I also see the author's point that "rent control for the rich snuffs out potential new construction, because wealthy tenants, whod have the money to buy or lease newly built housing, instead stay put in their deeply discounted apartments." It seems to me that the increased demand coming from the newly unsubsidized tenants would lead to a proportionate increase in new housing.
Moreover, the simple rules of supply and demand do not work in NYC, where there is a constant stream of newcomers from out of town eager to bring all the rents up to where market rents are now, should rent regulations cease. The idea of any rents coming down, to NY'ers who've been around for a while, is preposterous.
Given a constant demand for housing in NYC, a smaller number of unregulated units should get a higher rent per unit. More units should get a lower rent per unit.
All envy sucks. Envy of the poor by the rich sucks the chrome off a ten-ton diesel.
Not envy to protest robbing x to benefit y.
I explained why pure supply-and-demand laws don't work here. It's the same reason the schools are so bad: No place for the kids to get hired when they graduate, because of the constant influx of highly qualified out-of-towners. So why should they bother to work hard?
And finally, no one is getting cheated, except in their own minds. Wealthy types like Malanga salivate at the thought of living in a cheap apartment, thinking of all the cash they'd save, but they're not actually getting cheated, because nothing would change if the rent regs ended. Or the only thing that would change is that unregulated tenants would stop feeling cheated.
The landlords are not getting cheated either: They have a guaranteed increase every year, even if their expenses have gone down, as they did this past year because of the warm winter. They had the chutzpah to claim hardship because of increased security costs. Show me one landlord who has increased security. The doormen are all out switching the cars from one side of the street to the other, sleeping, or mysteriously absent while the "Doorman Will Be Back in Five Minutes" sign grows cobwebs.
The rules of supply and demand work everywhere, at all times.
Anyone who says differently is abysmally ignorant of the most basic rules of economics.
L
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However, you failed to address the point of my comment.
The Law of Supply and Demand is immutable. It works always. It is also without mercy, as the citizens of New York have been shown.
Your original statement is wrong.
Just admit it, and move on. With any luck, you will learn something by acknowledging the error of your original statement.
You might as well argue that Newtonian physics don't apply to New York dear firebrand. While you can do it, I'll bet you wouldn't be willing to test your theorem standing while standing in front of a loaded .357 magnum.
Regards,
L
People claim that if only rent regulations were abolished, the law of supply and demand would result in prices evening out across the spectrum of apartment rents, with the lower ones (rent-regulated) going up and the high ones going down.
The situation in New York, however, is not
X - Y = Z,
but a virtually unlimited demand from people willing to pay X. Thus the equation will never result in Z, a happy middle ground determined by economic rules. Instead of there being X and Y, as there are now, or the hypothetical Z, there would be just X. Market rate as it now stands. For all. You can't have a stable formula when there is a virtually unlimited demand willing to step into the breach.
There is no government subsidy. In fact, people with rent-regulated apartments actually decrease their eligibility for government handouts, like college financial aid for instance.
I should have specified "effective subsidy" in the same sense that analysts will sometimes refer to tariffs and import quotas. The difference between the artificial price and the market price amounts to a subsidy of the beneficiary.
I explained why pure supply-and-demand laws don't work here. It's the same reason the schools are so bad: No place for the kids to get hired when they graduate, because of the constant influx of highly qualified out-of-towners. So why should they bother to work hard?
I lost you with the schools, and I can't say just how. Sorry.
I think I see your point now about housing from your reply to Lurker. You assume a demand for NYC housing at price range x, a demand always larger than any likely supply, and so we won't see any price drop upon deregulation. Looks plausible to me.
And finally, no one is getting cheated, except in their own minds. Wealthy types like Malanga salivate at the thought of living in a cheap apartment, thinking of all the cash they'd save, but they're not actually getting cheated, because nothing would change if the rent regs ended. Or the only thing that would change is that unregulated tenants would stop feeling cheated.
I don't know NYC at all, so I don't know what you might know about Malanga. I don't see in the article where he claims rents would drop upon repeal of rent control.
People find it unfair that the politically well-connected get benefits that others don't. It violates the idea of "equality under the law".
The landlords are not getting cheated either: They have a guaranteed increase every year, even if their expenses have gone down, as they did this past year because of the warm winter. They had the chutzpah to claim hardship because of increased security costs. Show me one landlord who has increased security. The doormen are all out switching the cars from one side of the street to the other, sleeping, or mysteriously absent while the "Doorman Will Be Back in Five Minutes" sign grows cobwebs.
Sounds like the landlords have learned to play the game as well, to at least limit their loss. Thus does politics flourish.
But the landlords can't have a guaranteed price above a certain point, unless the government cuts a check to them, like farmer subsidies. They have a guaranteed loss, limited a bit by their political clout.
The tenants get an effective welfare check in the difference between the market rent and their lower government restricted rent. That difference has to get paid for by other people, in this case the building owners, or so it seems to me.
As more and more housing is built, the supply level rises to meet the demand level, and prices level off and stabilize (and often drop).
Right now, there is an artifically low level of supply vis a vis the demand, because of rent control.
And no, you are probably not going to be paying as low as you would in any other city, but it will be lower overall eventually if rent control is scrapped.
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