August 27, 2007
Rent WarsI sublet. Being chosen as the one fit to take care of a stranger’s prize possession, their home, is not easy. I’ve taken care of their pets, helped with moves, stored their boxes and, when told, avoided the landlord. Most have been fair. However, I recently subleased an apartment from a woman in Brooklyn. She asked me to take care of her cats, find and send important mail to her, and store her stuff in the second room. After two glasses of wine I agreed. I paid her $1970.00 a month.
Everything felt fine at first, even after I saw a notice which listed her rent at almost half my bill. She later accepted a permanent teaching position, and, at the same time, renewed her original lease. She said she did so because she liked the extra income. I started to feel uncomfortable and gave notice that I was leaving. So she asked me to show it to a couple with a baby, desperate for a place. It was one too many times. I told her that her contract violates New York state law. At most, she was allowed to charge a 10% surcharge if the apartment is fully furnished with the her furniture, not 160%. I told her that statute was in her lease that she'd signed. And that this needs to be resolved quickly.
An apology was how she proposed to resolve the problem. I have done nothing since. I wonder if another sub-tenant is being hurt, and how I could help. Note, the landlord is also hurt, essentially locked into the original tenant’s rent while she collects. In addition, the value of the owner's rent-controlled apartment can drop considerably if the tenant or their family stays many years. This law was being abused by the very tenant that it meant to protect. However, if I report the tenant, the landlord will likely terminate the lease and evict the sub-tenant. The current sub-tenant may be on the streets again.
Even Hollywood found something to exploit in rent control. Rent Control (2002) begins with two young actors arriving to the city, fresh out of Iowa. The couple can only find affordable housing by moving in with Holly's eccentric Aunt Agatha, and her 15 cats, in her rent-controlled, spacious 1-bedroom apartment. After weeks of fruitless apartment-hunting, they find Agatha's dead body on the kitchen floor, on a diet pill overdose. So they pretend Agatha is still alive, to keep the rent-controlled apartment, remain in, and still have a chance to succeed as actors. A more humorous example of the conflicts this regulation can create.
Rent control had an even more chaotic start. They were first adopted in response to WWII-era shortages in the United States. It was one of many price controls introduced during the dismal and alarming period between the attack on Pearl Harbor in 1941 and America's turn to a full wartime economy in 1943. Together with rubber, gasoline, coffee and shoes, the housing market was seen as another thing that needed to be rationed or, at a minimum, regulated. By 1947 all these controls were phased out, except on housing, which later got another boost following Richard Nixon's 1971 wage and price controls.
Like New York, rent controls remain in effect in some cities with large tenant populations, such as San Francisco, and Washington, DC. Smaller communities and towns in California and New Jersey can also have rent control. The laws have been adopted for mobile home parks, since residents own their homes but rent the land. The high cost of moving homes, makes mobile home owners even more vulnerable to excessive price increases. In recent years, rent control in some cities has been ended by state ballot.
The argument for rent control says “that a housing shortage cannot be immediately made up, no matter how high rents are allowed to rise” However, many economists say that it overlooks one consequence. If landlords are allowed to raise rents to reflect inflation and the true conditions of supply and demand, individual tenants will economize by taking less space opening more accommodations to others. The same amount of housing will shelter more people, until the shortage is relieved.
Economic arguments against the law say that rent control discriminates in favor of those who already occupy houses or apartments in a particular city or region at the expense of those who find themselves on the outside. Since supply is perpetually low, landlords do not have to worry about tenants leaving. Unless the landlord thinks that punitive action will be taken against them for doing so, they might let building maintenance deteriorate in order to mitigate the lower rental income.
Rent control also sets people against one another. Rent-protected New Yorkers become prisoners of their bargain apartments, knowing that such a great deal is rare. They may become increasingly threatened by the new tenants as they try to protect their homes. Less lucky tenants could also harbor resentment, as one man said "It just brings out these terrible thoughts that you wouldn't otherwise have. You see these 80-year-olds in the elevator and you think; would you just die already?"
However, advocates of controls say that the rental market suffers from information asymmetries and high transaction costs. A landlord likely has much more information about a home than a prospective tenant can reasonably detect. Furthermore, once the tenant has moved in, the costs of moving again are very high. A dishonest landlord can hide defects and, if the tenant complains, threaten to raise the rent at the end of the lease. With rent control, tenants can be certain that hidden defects be repaired to comply with code requirements, without fearing retaliatory rent increases. Rent regulation may thus compensate somewhat for inefficiencies of the housing market.
To this day New York City remains deeply divided on the law. As Paul Krugman puts it, “bitter relations between tenants and landlords, with an arms race between ever-more ingenious strategies to force tenants out… and constantly proliferating regulations designed to block those strategies”. The law has flaws, such as keeping families trapped in apartments too small for their needs, while others abuse the system, subleasing their rent controlled apartments at much higher rates. The law gives little incentive for landlords to pay for building maintanance. However, informational asymmetries and high moving costs cut tenant's bargaining power, so that state regulation has value. Fixing rent laws will not be an easy decision, but, at least many of the current problems are what supply-and-demand analysis predicts.
Posted by Beth Ann at 10:27 AM | Permalink