Rent Controls: Who’s “Subsidizing” Whom?

One of the most common arguments opponents of rent regulation use is the claim that it forces landlords and market-rate tenants to “subsidize” people who pay below market rate.

Why, they ask, should younger, newer renters pay $3,000 a month when older, more established tenants are paying $800? Without rent controls, they say, the burden of covering building costs would be spread more evenly between market-rate and rent-stabilized tenants.

The Court of Appeals used this argument in its March decision upholding the Rent Guidelines Board’s surcharge on long-term, low-rent tenants. If the RGB’s percentage increases are uniform, it said, “the increases must be set at a level that allows landlords to make larger profits on the apartments that get larger increases, and to use those profits to pay the costs for the lower-rent apartments. In other words, tenants paying higher rents must subsidize those paying lower rents.”

This argument might be seductive to the uninformed, but it’s absurd. Weakening rent regulations would not lower rents for market-rate tenants. It would just raise rents and eliminate protections for everyone.

Newer tenants pay higher rents—and market-rate tenants have no rights to renew their leases—solely because of the loopholes put into the rent-regulation laws at the behest of the real-estate lobby. These loopholes, most importantly vacancy decontrol, disproportionately affect vacant apartments and thus newer, younger tenants.

Market-rate tenants who demand that rent regulations be weakened because their rents are too high are like hemophiliacs demanding to be treated with leeches. Or perhaps like younger workers getting the short end of a two-tier contract and demanding that labor unions be abolished because they resent being paid less than the longtime union members.

There are other versions of this argument. Every year at the RGB meetings, the owner representatives complain that property owners are being forced to subsidize tenants. They say that landlords are unfairly burdened with the cost of compensating for other people’s inadequate incomes, and that it’s the government’s job to cover this subsidy.

That argument is more theatrical than serious. If government housing subsidies replaced rent control, it would require a titanic and astronomically costly expansion of the Section 8 program, one that would cover people well up into the middle class. The real-estate lobby has not been advocating for such massive housing subsidies—nor for the tax increases on the rich that would be needed to pay for them.

A third version is the claim that by reducing landlords’ incomes, rent regulations also reduce the amount of property taxes collected by the city and state. This may be technically correct, but the social costs of grossly inflated rents are far greater.

Who does the city of New York exist for? Does it exist so the highest bidders for well-located land can get rich off everyone else who wants to be here, or does it exist for the benefit of all the people who live here and contribute to the city’s functioning and spirit?

This is what rent regulations are about. There is a limited amount of land and housing available in the city, and rent regulations are an attempt to ensure that property owners do not exploit that shortage to gouge the people who live here. They are an attempt to limit housing costs, so those costs bear a rational relationship to what people earn.

The reality is that tenants and business owners in New York are actually subsidizing landlords. We are subsidizing a handful of real-estate multimillionaires whose property values are immensely enhanced by the taxpayer-funded infrastructure of public transportation, water supply, roads and bridges, education, police and firefighters, and more. In fact, the Bloomberg administration openly planned the extension of the #7 train to 11th Avenue to facilitate luxury high-rise development on Midtown’s far west side, at a time when subway and bus service was being cut all over the city.

Real-estate owners also benefit from the social infrastructure of one of the world’s major cities—but they want no limits on what they can charge people to use their property.