Are you ready for this? Approximately half of the housing inventory in all of New York City is rent-stabilized. Yes, that’s correct. But before you put your shoes on and start hitting the pavement, your chances of actually getting one aren’t super-great at the moment.
“It’s roughly half of the housing stock that is subject to some sort of rent regulation,” says Schleider. “But if you’re looking for one, it might not seem like that, since the apartments that are subject to stabilization have tenants who aren’t moving out, because if they did it would be impossible for them to find something comparably priced.”
Yes, you read that right, half of the NYC housing inventory is artificially priced below the market to whatever lucky tenants are stabilized; 61% if you count rentals only and not tenant-owned units. And if you haven’t lived there since the ’80s or somehow lucked your way into one, your high NYC rent is subsidizing the low rents of stabilized tenants. Which is precisely why “the rent is too damn high”.
How, you ask? Some form of rent stabilization has been around since the 1940s, when FDR enacted rent controls during WWII. Currently, landlords receive (or have received) a J-51 or 421-a tax abatement if they have stabilized tenants. Obviously, these tax abatements come from the city’s budget, in the form of less property tax income. The benefit goes directly to all tenants of stabilized units, in the form of below market rents. Bear in mind, the stabilized units are all in NYC’s low-price rental market (below $2,700/mo).
To be fair, stabilized units often have not been renovated in many years. And while the difference between stabilized and market rents in the least desirable neighborhoods can be low as $200/mo, a typical building will usually see a renovated unit with the same floorplan priced at least twice as high as what a stabilized tenant pays, and sometimes over triple the price. It shouldn’t surprise you that most of the tax abatement dollars go to high-price neighborhoods – that’s where the discrepancy in rents is greatest between stabilized and market tenants.
The tax breaks often don’t cover the loss in potential revenue to landlords, and obviously cover nothing once they expire, though a stabilized tenant can remain until he/she leaves or is able to be evicted by the landlord. This gives landlords every incentive possible to game the system to collect tax abatements. Once the abatement expires (or even before, if the landlord is fraudulent), the landlord will do his best to boot the tenant, renovate the unit, and re-rent it at the market rate.
Stated otherwise, between 50-61% of the available housing inventory is rented below market, leaving the other 39-50% of the tenants to bid against each other for any available housing. So if you’re one of the many tenants who just moved to NYC and have been wondering why “the rent is too damn high”, now you know why; your high rent is subsidizing that stabilized tenant down the hall from you, who probably pays less than half your rent bill.
You should already know Jimmy McMillan is the reason why I keep saying “the rent is too damn high”. Remember that guy? The guy who founded “The Rent Is Too Damn High” political party and ran for mayor on that platform?
It turns out that not only is he a joker, he’s a hypocrite; he lives in a rent-stabilized apartment himself, far below the market rate, and had ANOTHER rent-stabilized unit in his name for his son. He was eventually evicted from his 2nd unit when his son enlisted in the Army and he was unable to establish residency there; who knows if he was actually renting it to his son, or accepting cash under the table for someone else to live there. If he was actually honest, he would run on this platform: “My rent is too damn low, and market tenants’ rent is too damn high because of it!”
In 1997, the Cato Institute examined the differences between the rental markets in Philadelphia and NYC. Though the study is quite dated, the same market dynamics exist today, and are probably even more extrapolated, due to the appreciation of market rents vs. the comparably tiny increases meted out on stabilized tenants. You can clearly see the difference between the median rent and the median advertised rent in the two cities. While Philadelphia’s median advertised rent was nearly identical to its true median rent, NYC’s advertised rent was about 2.5 times greater than its true median rent. This is due to the apartments at the low end being occupied by stabilized tenants at an artificially cheap rate, who would not be able to find anything in the same price range were they to move. This leaves the market tenants to bid the remaining apartments to the realm of unaffordability. This is especially detrimental to those who are not lucky enough to be stabilized, but in the market for an affordable rent; that “market” is locked down by existing stabilized tenants and the tax breaks their landlords get for having them as residents.
See the difference between a market-rate only city and one with rent controls?
What would be a fair system? It should be obvious: deregulating all apartments in NYC, and actually forcing the stabilized tenants to compete against the market and pay a fair rate like the rest of NYC renters. Stabilized tenants would have the choice to either 1) pay the higher, fair-market rate, or 2) move and find a fair-priced alternative. Let’s say half would stay and half would go, to keep the example simple. If the city’s market rental inventory increased by 50% or more overnight, the extra supply would cause market rents to plummet, especially at the low end – just imagine how market tenants would react to an abundance of cheaper apartments suddenly becoming available.
What are the chances of a full rent-deregulation ever happening? As close to zero as you can get. This is especially true in NYC, due to the high percentage of transient residents. If at least 50% of the tenants are in stabilized units, they will always easily have the votes to keep their rents low. If the politicians went against them, they’d simply vote them out and put in others who would retroactively put the old system back in place. As it is, every single year, when the politicians vote on whatever small percentage (2-4%) the already-below-market stabilized tenants will be increased…
…said stabilized tenants break out the pitchforks and come out of the woodwork to protest it. Imagine how they would react to a deregulation campaign. You’d probably have a better chance at winning the powerball jackpot, at 292 million to 1 odds, than ever seeing a successful NYC rent deregulation.
So if you’re the latest sucker moving to NYC looking for a cheap place to live, and you’re wondering why “the rent is too damn high” for your 350 sqft studio? Now you know why; your high rent and high taxes are just paying for the guy’s stabilized 2 bedroom down the hall, that he probably still rents for less than you.