The Community Service Society of New York

11/18/2019 | Press release | Distributed by Public on 11/18/2019 14:47

Testimony: Strengthening Rent Control in Jersey City

Before the Jersey City Council

Thank you for this opportunity to comment on the issue of rent control in Jersey City. I am a housing policy analyst with The Community Service Society of New York (CSS), a 175-year-old non-profit organization that addresses some of the most urgent problems facing low-income New Yorkers and their communities, including the effects of the city's housing affordability crisis.

Rent regulation is a critical tool for low-income New Yorkers, mediating the severe power imbalance between tenants and landlords, which is exacerbated by tight housing markets. Well-crafted rent control ordinances offer protections from sudden rent increases, provide the right to a lease renewal, outline maintenance standards and limits on security deposits, and indirectly lead to more affordable rents for low-income tenants. On the neighborhood level, rent control acts as a counterbalance to gentrification and as a bulwark against displacement and homelessness, helping residents stay in their apartments. On a city level, it provides the groundwork for other programs like Right to Counsel in housing court and makes affordable housing subsidies more efficient.

NYC's Rent Regulation: Who benefits?

The Community Service Society has long advocated for stronger rent regulation because of its importance for low-income New Yorkers. As illustrated in the chart below, 365,000 low-income households live in rent regulated apartments in New York City, twice the number who live in public and subsidized housing combined.

Low-income households, by housing type (2017)

Source: CSS Analysis of 2017 New York City Housing Vacancy Survey (HVS).

Rent regulation, similar to antitrust laws and other forms of consumer protections, are especially important for low-income people, but benefit moderate-income households as well. They differ from-but often complement-affordable housing subsidy programs. For example, by mediating rent levels, rent regulation makes tenant-based subsidies like Section 8 vouchers more effective and bolsters the success of the Right to Counsel law, by extending legally enforceable protections to tenants. In addition, by controlling the market, rent regulation reduces real estate speculation. This creates more opportunity for non-profit and community developers to compete for land parcels and makes models like community land trusts much more viable.

While rent regulation is not a housing subsidy program, it does keep citywide rents lower overall. The median rent for rent stabilized apartments in New York City rose from $1,237 in 2014 (April 2017 dollars) to $1,269 in 2017, an increase in 2.6 percent above inflation. Median rents in unregulated apartments rose from $1,546 to $1,700, or 10 percent above inflation.

Rent Law Loopholes

In June 2019, New York State strengthened its rent regulation system with the passage of the Housing Stability and Tenant Protection Act of 2019 (HSTPA). This law represents a historic strengthening of a key lifeline for low-income communities, doing away with the main mechanisms for driving up regulated rents and deregulating apartments. Legislative decisions in the 1990s and the early 2000s weakened New York's rent regulation, encouraging tenant harassment and allowing for sudden and permanent rent hikes. Loopholes like the vacancy bonus, preferential rents, Major Capital Improvements (MCI) and Individual Apartment Improvements (IAIs) provisions allowed landlords to raise rents quickly with minimal oversight, while vacancy deregulation permanently removed units from rent regulation.

When combined, these loopholes went well beyond what is needed to incentivize the cost of maintaining a building. They made tenant turnover financially beneficial to landlords, creating an incentive for harassment and fraud. On a broader scale, the rent law loopholes undermined neighborhood-level stability, especially in gentrifying areas. Rent regulated apartments became increasingly unaffordable for new renters, while squeezing existing tenants. CSS research showed that increases during vacancy accounted for 62 percent of all rent-stabilized rent increases above inflation and that the typical share of income that low-income tenants spent on rent went up from 40 percent in 2002 to 52 percent in 2017.

Further, New York City lost 291,000 rent regulated units to deregulation between 1994 and 2018.

HSTPA put an end to the wave of unaffordable increases and regulated unit loss by eliminating vacancy decontrol and the vacancy bonus and curtailing individual apartment improvement and major capital improvement increases to a level that is in line with the normal rate of return for other investments.

Rent regulation & abandonment

A common concern among policymakers is the relationship between rent regulation, property decline, and abandonment. Pro-landlord lobbying groups in New York City and beyond often conjure up the specter of abandonment in the 1970s when critiquing rent control.

The actual causes for the nationwide decline of cities in the 1970s were much more complex. Over the course of the twentieth century, lending institutions and government policy steered investment into racially-exclusive suburban housing development, while redlining urban neighborhoods across the U.S. This devastated and devalued black and Latinx neighborhoods across the country, both in cities that had rent regulation like New York and Oakland, and those that did not, like St. Louis and Chicago. In the 1970s and 1980s, global economic restructuring and federal austerity intensified urban decline, further lowering property values. As early as 1982, empirically-informed evidence emerged debunking the dubious causal relationship between abandonment and rent regulation. Peter Marcuse illustrated that 'abandonment takes place, and as severely, in cities without rent control as in cities with it.' 1

In the contemporary housing market, New Jersey is the best place to examine the impacts of rent control policies, because the state has a range of municipalities with and without rent control. Using a sample of 161 communities in New Jersey, a 2015 study tested the impact of rent control (both its presence and its relative strictness) on housing quality and foreclosure rates (as a proxy for abandonment). It did not find significant impact on the two variables when controlling for apartment size, income, race, and median rents.2

Rent regulation & housing supply

Another dominant argument against rent regulation is that it introduces restrictions to the supply side of the rental market, lowering vacancy rates and driving up rents. Economists J.W. Mason and Mark Paul argue that housing is not a regular market good that is possible to analyze with an 'economics 101 model.' Housing supply, in tight urban markets in particular, is inelastic, not responding much to changes in price. Instead, supply is more closely associated with zoning and infrastructure capacity. The value of a property is largely derived from an owner's exclusive control over a parcel of land, rather than the cost of housing production. While a tenant rents cover the cost of operation and maintenance of a building, a good portion of the payment compensates the owner for simply owning a property. In New York City, landlords of stabilized buildings spent about 59-65 cents out of every revenue dollar on operations and maintenance. J.W. Mason and Mark Paul argue that 'since none of these monopoly rents are a return on the production of new housing, removing them via rent control will not affect the housing supply.' (See here for J.W. Mason's testimony to the Jersey City Council).

Critics argue that landlords under pressure from rent control remove units from the rental stock, reducing the overall supply of housing, thus driving up rents. A 2018 study of the San Francisco rental market found that landlords exploited loopholes to remove units from rent control by demolishing them or converting them to condos, causing an overall decline in the number of rental units in the city.3 This study has been used extensively in the political arena as an argument against stronger rent control measures in California. The finding that landlords will exploit rent control loopholes to generate a profit in a gentrifying real estate market is undoubtedly true. However, the source of the problem that reduces the supply of the rental housing stock are the loopholes, rather than rent control. In San Francisco, groups like Tenants Together are campaigning to close the loophole that allows landlords to evict tenants and remove units from the rental housing stock.

If we accept the argument that regulation restricts supply thus causing rents to rise, then we can assume that the removal of rent regulation would cause rental prices to stabilize or even decrease. When Massachusetts outlawed rent control in 1994, the removal of rent regulation did not stabilize the rental markets in Boston and Cambridge. Instead, rents rose quickly in both formerly regulated and never regulated units. The overall rise in property values also encouraged condo conversions, permanently removing units from the rental market.

A study of the rental housing market in Cambridge showed that the removal of rent control resulted in a $1.8 billion increase in property values between 1994 and 2004, with never regulated properties accounting for more than half of the increased value.4 Since the value of a rental building is measured by its rent rolls, this increase was a result of higher rents. In Cambridge, inflation-adjusted advertised rents for a two-bedroom apartment went up from $1,163 in 1996 to $1,700 in 2003. In neighboring Boston rents went up from $882 in 1995 to $1,600 in 2003.5

[1] Peter Marcuse, 1982, 'Housing abandonment: Does rent control make a difference,' Report, Washington, D. C., Conference on Alternative State and Local Policies.

[2] Joshua D. Ambrosius, John I. Gilderbloom, William J. Steele, Wesley L. Meares, Dennis Keating, 'Forty years of rent control: Reexamining New Jersey's moderate local policies after the Great Recession,' Cities 49, 2015.

[3] Rebecca Diamond, Timothy McQuade, and Franklin Qian, 'The effects of rent control expansion on tenants, landlords, and inequality: Evidence from San Francisco,' Working Paper, National Bureau of Economic Research, January 2018.

[4] David H. Autor, Christopher J. Palmer, and Parag A. Pathak, 'Housing market spillovers: Evidence from the end of rent control in Cambridge, Massachusetts,' Working Paper, National Bureau of Economic Research, June 2012.

[5] David W. Chen, 'When rent control just vanishes; Both sides of debate cite Boston's example,' The New York Times, June 15, 2003.