A Four-Year Rent Freeze in New York City Will Do More Harm than Good

New York has practiced several forms of rent control for roughly the last 100 years with mixed results. The practice of rent control finds very little support among economists, and it is generally agreed that managed rental markets do not perform as well as market-driven rental markets. It is well settled among economists that rent control leads to: 

• Slowing of the construction of additional rental units
• Unsatisfactory maintenance of rental units under regulation
• Reduction of tax revenues
• Increased administration costs
• Reduction in tenant mobility leading to a reduction in economic opportunity
• Development of “gray-market” activities producing hidden costs.[1]

In practice, New York has managed rents for these units through its Rent Guidelines Board (RGB) with annual rent increases being determined based on several factors including operating and maintenance costs, financing costs, and tenant affordability, among others. These factors would be considered and the RGB would then provide allowable one- and two-year rent increases.

The current mayoral administration is proposing these annual rent increases be pegged to zero regardless of these factors for the next four years. This proposal would require New York landlords to freeze their rents but continue to face rising operational costs.  

Under this scenario, it is reasonable to assume that all the negative outcomes of rent control will continue at a magnified level. Property condition, management services, and property values would decline significantly as owners seek to minimize loss and exit the property ownership market.[2]  Thus, affordability in the New York housing market would be bought at the price of substandard housing. 

Managed housing has always been a bad idea. From the factory-owned housing complexes in the early 1900s in the U.S. to the Kommunalka apartments in the former Soviet Union, managed housing has produced substandard outcomes for tenants living in these systems. There should be no difference in this case, frozen rents in NYC will almost certainly produce more harm than good for tenants with negative outcomes extending far beyond the current administration’s tenure.

The proposal to freeze rents, however, is not within the unilateral authority of the mayor’s office. This responsibility falls to the RGB, whose members have staggered terms, and operate independent of the mayor’s direct authority.[3]  Hopefully, cooler heads will prevail and take the proposal to freeze rents for the next four years off the table.

Contact: Ken Johnson, Ph.D.
Christie Kirkland Walker Chair of Real Estate
University of Mississippi
khjohns3@olemiss.edu 

Endnotes

[1] Among many others, see The High Cost of Rent Control.

[2] It is not clear who will be the purchasers of these units.  Prices would have to be deeply discounted to find buyers.  Perhaps, the city would step in at some point and become the largest owner of rent-stabilized properties with operation and maintenance costs falling to the citizens of New York.

[3] Members of the New York City Rent Guidelines Board are technically independent of the mayor’s office.  However, the mayor exercises considerable influence through the staggered appointment process.