How Not to Solve New York’s Housing Woes

City Journal ^ | 26 August 2002 | Steve Malanga

[jackbob]

Very good discussion - all of you. The significant question as I see it, is not raised in the article or discussion. Is it a good to impede progress, by manipulating the law of supply and demand, so as to protect longtime neighborhood renters from being forced to move and change their children's schools, due to increased rents?

[tcostell]

I agree with you, ... this is the big question that Economics asks. "Should one group of people be made to pay the costs of something which is a benefit to others?"

There is no "problems with solutions", like they say so often on the left, only trade-offs. Someone will benefit, and someone will pay the cost of that benefit.

That doesn't necessarily mean that it's always wrong to do so. Only that both sides of the question should be considered.

And I'm very pleased that the question has been raised here.

As for me, I say displace. The costs to fixing housing pricing are much higher in terms of reduced quality of life, than anyone has addressed here.

Apart from those undocumented costs, there are decades of data available to how fixed housing costs raised overall housing costs and reduced availability in New York. I can personally remember acres of abandoned buildings in Queens (which by the way are all re-occupied since rent controls have been grandfathered away) because the landlord couldn't justify the costs of occupation.

And in spite of the nonsense said earlier, there is not an endless supply of people willing to pay X to live in the south Bronx. They will only pay X for housing which meets their expectations of the value of X, so supply and demand will (of course) work in New York, as it does everywhere. Manhattan is an island, and Staten Island obviously is an island. Even Brooklyn and Queens are on the Island of "Long Island". But the problem of limited floorspace was solved with the invention of the elevator, so supply of housing has continued to expand in New York City, even though the space available has (for the most part) not.

But the argument over fixed housing costs is moot. It has been settled by history. And history has sided against Keynes, and with Hayek.

Government economic controls don't work the way they are intended. And that obvious if you judge them by their result instead of their intent.

[firebrand]

But as even Malanga pointed out, all the other incentives or nonincentives in New York are very important. In addition, not mentioned was interest rates. When rates are low, people build. In fact, there is quite a bit of rental building going on in the city right now.

There are many factors governing what out-of-towners are willing to pay for rent, also, such as going salaries, the state of the economy in general, and demographics (large graduating classes cause rentals to go up).

As for the schools: The situation is that NYC (and Washington) has an elite worker class, served by minorities. Because NY is a magnet city, the influx of very qualified college grads is constant. Why should an employer (absent federal laws, of course) hire a poorly prepared high school grad when she can hire an Ivy Leaguer? Thus the kids have nowhere to go but service jobs, to make sure the elite have their packages delivered, their tables bused, etc. Having nowhere to go tends to stifle incentive to do well in school. Even graduates of the city colleges (open admission until recently, with remedial classes) are poorly prepared in comparison with someone from New Trier High School.

[firebrand]

Very few of the rent-regulated tenants got their apartments through political connections--a minute percentage not even worth mentioning. Most got them by staying put in their communities while they raised their children. That is how the regulations are supposed to work. The apartment regulations are meant to foster stability in neighborhoods and most important in people's lives, and prevent chaotic upheavals due to exorbitant rent increases.

[firebrand]

We are talking Manhattan when we talk rent controls. That's where the huge majority of rent-regulated apartments are. The South Bronx is where East Siders and residents of Little Italy would have to move if rent controls were abolished---out of neighborhoods in which their familes have lived for generations and where they have lived for decades. Not everyone in NY is upwardly mobile.

During the 1997 crisis in rent protections, someone coined the phrase "economic cleansing." That is what a lot of people would like.

Also, New York is an island but that has nothing to do with it. It is also made of granite, so massive foundations are not necessary in order to build skyscrapers. Mother Nature has already supplied the foundation. That is why NYC looks the way it does. Theoretically, there is unlimited housing here, as opposed to places where the height of buildings is regulated, like Fire Island and Aspen.

[tcostell]

Actually, ... only you are talking Manhattan when you talk rent controls. And in your last post you argue both for and against them, revealing some of the inherent fallacies in your argument.

If you said that the people who live in the less desirable Manhattan neighborhoods would be so inconvenienced as to justify the cost that everyone else must pay for rent control, I would say you have a valid point. But complaining that east siders would have to move to the South Bronx is nonsense, because as soon as those respectable if somewhat less wealthy people made that move, those neighborhoods would become respectable if somewhat less wealthy, and cease to be the cesspools that they are now.

As for your mention of the endless supply of new housing in Manhattan, don’t you imagine that might offset your alleged endless demand mentioned in other posts?

As I said earlier, history has already declared subsidized housing an abysmal economic failure. And arguing against it, is like arguing against the tide. It does no good, sometimes annoys others, and only makes you look like you don't know what your talking about.

[tcostell]

As for the schools: The situation is that NYC (and Washington) has an elite worker class, served by minorities...

do you mean to tell me that you really believe the problem with the New York City schools is that there are no opportunities in New York?! Why then do you have all of those out of towners heading to New York City, for the view of Brooklyn?

Honestly, I've never heard a more ridiculous statement in my life.

[shrinkermd]

I wonder if it is moral or right to take from the land lord by government law what is rightfully the landlord's income or property? What gives the government the right to take a private citizen's property simply to please another person or persons? Rent control seemingly is just another form of theft albeit one that is widly popular with those that benefit.

[firebrand]

I am afraid you are the one who is ridiculous. Read what I said. NYC draws the best and the brightest, and the most achievement-oriented. They pour into this place like the screaming mobs in a Japanese monster movie and proceed to compete ferociously for everything--from places in line to the most desirable jobs. You cannot even talk about anything within the earshot of strangers without their trying to one-up you, loudly, in their conversation. It is, in fact, what many non-New Yorkers hate about New York. You should try living here for a few decades, as I have. And if you don't believe me, read E. B. White. The average high school or city college graduate from our schools doesn't have a prayer against these wolves.

[firebrand]

The great majority of rent-regulated apartments are in Manhattan.

And I'm not arguing against them. Where TF did I do that?

When you say "the cost everyone else must pay for rent control," you show not only that you were ignorant before this thread started but also that you haven't learned anything from it, or at least answered my point that no, not everyone pays for it. Not even the landlords pay for it, being the only class of businesspeople who get a guaranteed increase every year, no matter what the economy is doing.

As for the neighborhoods, if you think all that has to happen for a brand-new neighborhoods to exist is for disparate people to move there from all over the place, you really know nothing about neighborhoods.

And I never said there was an unlimited supply of housing. It does not keep up with demand, forcing housing costs higher, and that is because it is limited by factors other than the existence of rent regulations.

Once again, for the thread-reading-impaired, NO ONE IS SUBSIDIZING THESE RENTALS. There is a reason why the housing court in NYC is so pro-tenant, and that is the rapacious landlords who would ship their mother to the heart of the most crime-ridden slum if they could get market rate for her apartment.

I'm a little tired of repeating myself, so I'm going to try to stay off this thread and get some work done.

[firebrand]

You are correct that the government, as a matter of principle, should not take property from a private citizen. I was wondering when the constitutional argument was going to appear.

There are mitigating factors to all constitutional principles, however. The government does not have the right to feed the starving either, according to the Constitution, or to subsidize college education. Sometimes compassion and humanity win out over the draconian application of principle. I don't believe in totally unregulated capitalism. It's too severe. I believe in having as few regulations as possible.

[tcostell]

NO ONE IS SUBSIDIZING THESE RENTALS.

Your humanities degree is showing.

I get really tired of educating people in basic economics, but your known well, and not a DU disrupter so I'll go over it for you very slowly.

Everyone subsidizes rent controlled apartments. That's the way economics works. The cost of everything else is higher (in this case, all other housing), to make the cost of the rent controlled apartments artificially lower. To believe otherwise is like trying to deny the law of gravity.

The landlords pay for it because their rent increases are set at a maximum, but their costs are not. It also reduces the number of uncontrolled apartments available, allowing them to make up the difference lost on the rent controlled spaces by charging more on the uncontrolled ones. (That pesky law of supply and demand again,... I assure you, it does work in Manahattan)

We haven't seen anything like that in New York in a few years, but what exactly do you think happens when a landlord is guaranteed no more than a 4% per year increase, and the union laborers he’s required to hire demand a 9% increase in wages? What happens when all of the costs associated with being a landlord outpace the fixed increases?

And by the way, there isn't a single landlord anywhere in this country anyway, that is ever guaranteed an increase in rent. If the people move away, and there is no-one else to rent the place, where is his increase then? (OK, I promised I'd go slow,... he doesn't get one.)

The arguments you make only make sense if you specifically ignore some other part of the machine. Not only are you arguing like a socialist, but your spouting the classic, "hate the rich" (rapacious landlords) argument.

(By the way, I'm having a little bit of trouble with the idea that a well known freeper is pointing at the New York State court system and saying "See?! If they do it the way they do, it must be the right way." I guess if you live long enough you really do see everything.)

Tell me you have a rent controlled place and that you want to keep it that way, and I'll say fine. Tell me you would rather have everyone else pay extra to preserve the character of the community, and I'll say fine. Tell me that you have pretty much any personal stake in the idea of rent control and I'll admit that you have a valid point. Just because I value preserving the integrity of the community less than you doesn't mean I'm right, so if you point is focused on how we value these non-quantitative assets, I’ll happily concede.

But trying to tell me that no one subsidizes rent control is like telling me that the sky is red. You're insisting that something regarded as a basic fact by anyone with a little knowledge of contemporary economics is not true. Your trying to insist that virtually all of the economic community has been fooled into believing that these silly “free markets” are good for us. And I think you had better re-think your position.

You might also want to read “Free to Choose” by Milton Friedman, or virtually anything by Thomas Sowell. If you don’t believe the things I say, maybe you’ll be willing to let them show you the error of your ways.

[tcostell]

I lived in Manhattan for 16 years and moved out 3 years ago. There is nowhere in the world that offers more opportunity to the bright and hard working, and less to the dimitted and slow. It doesn't matter where you go to high school.

[jackbob]

...your spouting the classic, "hate the rich" (rapacious landlords) argument.

Classic? I don't agree. Sure it is the most commonly propagated. But many writers dating back to Frederick Bastiat, all the way to Angus Black (author of "Radical Economics" I think 1972), and on to Milton Friedman, as well as Thomas Sowell (both of who you named), have written about how these arguments have aided the rich in getting richer, weakening the middle class and further crippling the poor.

A wealthy land lord is always in a position to profit off any system. While a middle class property developer or landlord faces absolute devastation if a few elements in a plan fail. Unexpected costs have to result price increases. The rich don't have to worry about such costs, they just move some capitol around to make up the difference, and still get their alloted price increases. That is not the case for budget strapped single property developer or owner.

There are lots of "hate the rich" free enterprisers out there, who view all these anti-progressive policies as being designed to aid the rich in the name of helping the poor.

I wonder, are New Yorkers (the natives) so backward, that they actually think it better to have work done by the less competent, so long as it is done by long time natives? It seems to me that any progressive thinking individual always wants the best, regardless of where they are from.

[jackbob]

That last question of mine in #34, should be directed to firebrand.

[tcostell]

If your point is that housing price controls have the most negative affect upon the smaller landlords, I would agree with you only in that increased capitalization typically improves the margin of error for a business. The actual effect on all parties is the same when expressed in any sort of quantitatively objective terms, but the larger landlord will be less likely delivered into insolvency. (If you have 10 dollars in the bank you can lose $5 per month for 2 months then you are in receivership, if you have $100 you can continue to lose for another 18 months.)

But the truth of the argument is, we should both know better than to try and educate someone who believes that the law of supply and demand is somehow suspended at the Hudson river, and magically resumes again in Long Island City.

And FYI, I still work in Manhattan, I only moved out because of the birth of my daughter and the abysmal schools, so I feel qualified to continue to comment on the natives. I can assure you that the residents always want as high a quality as can be delivered for the price, and that applies to everything. The arguments that Firebrand is making are far more typical of the political left with all it’s inherent hypocrisy and contradiction, and are not shared by any of the people I know who continue to call Manhattan home.

[AndyJackson]

I lived in San Francisco for a number of years and watched the same debate. The problem is very very complicated and one's normal notion of free market economics does not work very well because supply and demand are both very inelastic.

When you have a housing market driven by 20-something year olds trying to get to the top of corporations, law firms and banks and brokerage houses, prices are capped at the total combined salaries of about a half-dozen yuppies sharing a 2 bedroom apartment. It is not a family friendly environment and long term social stability does not result.

You can endlessly describe as socialists or communists those who believe that it is ok to engage in a bit of social engineering in order to encourage family stability.

But the problem is really complex, there is no free-market anyway because of all sorts of other political social and economic factors, and the freemarketeers are as self-deluded as the communists who want everything given to the poor.

[secretagent]

I don't know what you mean by an inelastic supply of housing in San Francisco. I 'll guess you mean that government intervention has already skewed the market with zoning laws and building codes.