Analysis

'Vital for tenants' or 'textbook' bad policy: How rent control works in NYC

Ontario's provincial government announced this week its plans to expand rent control. But in comparable places like New York, experts offer differing views on the positive or negative impact such regulations have had on the housing market.

New York's system of rent regulation is a mix of rent-controlled and rent-stabilized units

In 2015, New York tenant groups protested against a deal that would extend rent regulations for four years, but continue to allow for the deregulation of rents on apartments that become vacant. (Bebeto Matthews/Associated Press)

Before Ontario's provincial government announced its plans to expand rent control, some economists were already sounding alarm bells about imposing the controversial policy.

In response to some Toronto tenants who say their rents have doubled, the government on Thursday unveiled its Fair Housing Plan. It included the closing of a loophole that exempted rental units built after 1991 from rent control. 

In a report released weeks before, CIBC economist Benjamin Tal had slammed the idea, arguing that such regulations only discourage developers from building rental properties.

"If history is a guide, such policy will mostly hurt the people it's trying to protect," Tal wrote.

Look no further than New York City to observe the ramifications of a failed policy, he said. The housing market there is constantly under-supplied, he said, and the share of rent-controlled units that are in poor maintenance is almost four times higher than seen among uncontrolled units.

Achieved 'near opposite of its goals'

The city "should be featured in any economics textbook as an example of public policy that achieved the near opposite of its goals," Tal wrote. 

According to a recent study, the average rent for a vacant one-bedroom apartment in New York is $4,900 Cdn per month. (Seth Wenig/Associated Press)

Rent regulations in New York have also dried up rental supply by spurring developers to convert rental units into condos, says Harvard University economics professor Edward Glaeser.

"A lot of the nicest buildings, the prewar buildings in Manhattan built originally as rentals, when rent control comes in...they figure out a way to take them off the rental market and switch them over to cooperatives and condominiums."

"You are basically ensuring that anyone who builds is going to want to build for the condo market instead of this highly regulated rental market."

CBC Toronto tells you everything you need to know about the so-called "1991 loophole," which allows some landlords to hike rents by huge amounts while others are subject to strict controls. 1:56

Glaeser said it's difficult to estimate what effect rent regulation has had on development, but suggested it has had a chilling effect on new construction.

"Why you'd want to have a targeted policy that essentially pushes builders and existing properties to withdraw rental units from the market and switch them over to something else — that seems like a very hard thing to justify."

But housing rights advocate Jenny Laurie believes rent regulations in New York have played a "vital role" in preserving affordable housing.

'A great benefit' for tenants

"We're very happy to have rent regulations in the NYC," she said. "We think they are a great benefit, particularly for low- and moderate-income tenants."

At initial glance, it would seem such controls have had little effect on New York rental rates.  According to a recent study by RentCafe,  a U.S.-based online service that helps people find apartments, the average price for a one-bedroom apartment in NYC is $4,900 Cdn per month. In comparison, the average rent for a one-bedroom Toronto apartment of just under 1,000 square feet is about $1,600 per month.

But those New York rents are for vacant apartments and don't necessarily give a complete picture of the current rents paid by those who for years have been living in rent-regulated units.

 "If you've been living in your apartment for 10 years and it's rent stabilized, your rent is well below what the asking rent would be for a vacant apartment," Laurie said.

CIBC World Markets economist Benjamin Tal says rent control can have unintended consequences 6:40

This is why New Yorkers will cling to such apartments, which are nearly impossible to find.

New York's system of rent regulation is a mix of rent-controlled and rent-stabilized units. While rent-controlled units were plentiful back in the '50s, numbering around two million, their stock has dwindled down to roughly 27,000 apartments. Now most of the apartments that are regulated, a little over a million, fall under rent-stabilization guidelines.

Tenants (or their legal successors) of residential buildings constructed before February 1947 who have been living in their apartment continuously since before July 1, 1971 fall under rent-control regulations. Rent stabilization applies to units built between Feb.1, 1947 and Jan.1, 1974.

Landlords get around rent control

Rate increases for both rent-controlled and rent-stabilized units are regulated, although rent hike allowances are calculated differently.

But loopholes in the regulations have enabled landlords to circumvent the regulated limits and drastically spike up the rents. In 1994, New York City Council voted to implement "vacancy decontrol" which allowed vacant apartments that had been rented for $2,000 or more to be deregulated.

"Some observers say rents went over two grand a month in neighbourhoods of the city where you hadn't seen that level before," Laurie said.

Some argue that rent regulations have had a chilling effect on rental unit development in New York. (Mark Lennihan/Associated Press)

In parts of the Bronx or in Queens, where rents had been pretty stable, speculator landlords bought up groups of buildings and started pushing to get the rents over the deregulation limit, she said.

"It is a problem that there are more deregulated apartments, particularly in those neighbourhoods." 

Meanwhile, according to New York University's Furman Centre for Real Estate and Urban Policy, between 2002 and 2014, the number of rent-stabilized units affordable to low-income households fell 27 per cent, a net loss of 233,931 units.

Dennis Keating, former director of the urban planning, design and development program at Cleveland State University, said he doubts rent regulations have had much of an impact on construction. But they have provided limited protection to tenants, until they reach a certain rent level.

"Then you're no longer protected. So it has weaknesses from the tenant perspective in terms of vacancy policies."

Keating agreed with Tal that there is an "enormous" disincentive to move from these rent-regulated apartments, which ends up limiting supply to the extent that tenants stay put.

Most people expect their rent to go up each year, but two Toronto tenants saw their rent legally increased by 100 per cent 2:41

And that exacerbates the essential unfairness of rent controls, Glaeser said. Someone, rich or poor,  has just been lucky enough to snag one of these apartments at a much cheaper rate in a beautiful location.

'Pro-insider strategy'

"It's not like anyone else can get that apartment for the same price," he said. "It rewards current renters at the expense of future renters. In no sense is it a pro-poor-people strategy. It's a pro-insider strategy."

And politically, it's difficult to reverse. Glaeser said it's impossible to imagine New York ever getting rid of the policy.

"​Once you have it, you have such a built-in constituency for it, it sticks around forever."

About the Author

Mark Gollom

Reporter

Mark Gollom is a Toronto-based reporter with CBC News. He covers Canadian and U.S. politics and current affairs.