The rent-controlled apartment market in NYC is crazy
This is the sort of thing you get:
An unemployed Upper West Side woman using Airbnb to rent out rooms in her huge Central Park West apartment has been ordered to stop doing it by a Manhattan judge.
Supreme Court Justice Carol Edmead said in a decision that Noelle Penraat, 62, appears to have made a substantial income over the past two years through Airbnb and that’s a violation of both rent control and zoning laws.
Penraat, a photographer who has been mostly unemployed since 2006, said in a court affidavit that she was forced to use Airbnb to pay her $4,477 monthly rent and other mounting bills.
Penraat qualified for rent control because the apartment had been owned by her father (who was, by the way, a Dutch architect who during the war saved “406 Dutch Jews from the Nazis by smuggling them from the Netherlands to France where the Resistance got them out through Spain”). She inherited the rent-controlled apartment.
This is much the way rent control works in NY, or in San Francisco as far as I know (the two big centers of rent control in the US). It seems arbitrary in the sense that it’s based on when you first got the apartment. It hamstrings landlords and pits them against tenants. It encourages tenants to cling to apartments and discourages turnover. And it distorts the market by artificially lowering some rents and forcing landlords to raise the rates even higher on the others.
Penraat’s apartment, by the way, was not only rent-controlled but her rent was also subsidized by a special program for the elderly who make less than 50K a year. The unemployed Penraat apparently made considerably more than that, but only through the mechanism of renting her rooms out to strangers. The apartment itself, a four-bedroom deal on the Upper West Side, was probably mighty nice—that’s is extraordinarily spacious by New York standards.
Note that, despite rent control, the rent was about four and a half thousand a month. With the small subsidy from the elderly program, Penraat was apparently paying about $4,200 a month. That’s quite a chunk of change, about $50,000 a year just for rent. And remember, that’s for a rent-controlled apartment. Without rent control, estimates are that her digs would cost about four times as much.
If you’re curious, here are the rather complex rules governing rent control and rent stabilization (two different programs) in New York. You will note that rent control only affects about 2% of units in the city, but rent stabilization affects about 40%. New York City, of course, involves five boroughs that have wide differences in the housing stock they offer; I couldn’t find a borough-by-borough breakdown in order to isolate the situation in Manhattan from the others (my guess is that the percentage of apartments under rent control are somewhat higher in Manhattan than in most of the other boroughs).
Here’s an article that talks specifically about Manhattan rent stabilization (the far more common and less extreme program) and its effect on the rental market:
And in Manhattan, the price gap between a rent-stabilized and a market-rate unit has never been greater, according to a study released this spring by the Furman Center for Real Estate and Urban Policy at New York University.
Even before the spike in market-rate rents over the past year, rent-stabilized rates were, on average, $1,245 a month cheaper.
“The competition for a $4,000 one-bedroom is now fierce,” said Yuval Greenblatt, a vice president of Prudential Douglas Elliman. “So you can imagine how strong competition is for something below market value.”
The study also found that, despite the widespread impression that stabilized apartments are meant to provide affordable housing (and they certainly keep housing prices stable for hundreds of thousands of people), many of those fortunate enough to land one in recent years have been relatively well off.
Like most liberal programs, it doesn’t quite do what it supposedly set out to do, does it?
We certainly would do well to be wary of underestimating the capacity of good ol’ human ingenuity to “game” virtually any program, government or otherwise, to the point where it quite unintentionally mocks — unintended by the designers and administrators of the program, certainly not unintended by the “gamers” — the motivation and purpose of the program.
Or perhaps it does exactly what it was set out to do, like marriage divorce courts, pitting one class against another, while a third faction profits.
I can’t imagine paying $50,000 a year for rent let alone $200,000. I hope rent in NYC is tax deductible. One would hope that rents are much more reasonable further out.
Usually it is better to let the free market set rates. One could argue that New York has an interest in maintaining some lower rents to support the middle class citizens who do the physical work needed to maintain a city. However, that’s probably not what is going on however.
Off topic, but I am sending you a donation via paypal. Happy merry whatever to you and all who visit this wonderful blog. Now, time to get back to paying attention to the grandchildern.
Class integration is an expensive exercise. Especially in a high-density population center.
parker:
Thanks so much!!
Every well meaning liberal plan that has unintended consequences is usually explained away by saying “Well they meant well”. I’m so tired of hearing this excuse. When will the media wing of the Democrat party ever turn the light on these failed programs? I’m tired of the Dems “meaning well” with my money
Ok, I have a question.
First, I know nothing about New York never having been closer than some freeway to the north where, stuck in a traffic jam heading west, I thought I caught a glimpse of it way off to the south. Maybe.
But it would seem to me that with all of the decaying areas, there must be some of them that are technically – in terms of basic infrastructure and location – ripe for gentrification or the construction of new condominiums.
Of course like anywhere, social and political pressures may come to bear. Many, as I have witnessed elsewhere, would prefer to camp in the ruins of something once viable and vital, rather than have/allow someone else to freely rebuild and enjoy.
Then there is speculation in vacant properties and …
And I might have answered my own question.
Yet with all the truly wealthy people in NY, one would think that it could be done. Unless you “just have” to be on Manhattan.
DNW
Gentrification has been going on for quite some time. A cousin has been living in SoHo [South of Houston, as in “howston”] for 4 decades. She and her husband were one of the gentrification pioneers, a process that is now well advanced in SoHo. Ditto a lot of Brooklyn, where another cousin lives.
Construction is a more thorny issue,given the immense number of regulations that NYC imposes on construction. The last time I was in SoHo, I saw a number of construction projects- probably the first such in that neighborhood in a century. Unfortunately, some of the construction cost me. A parking lot which used to cost me $10 a day had been changed to a parking garage which charged $30-$40 a day.
I can’t speak to NY, but as a realtor in Shaky Town on the Left Coast I deal with it all the time. We have it in three municipalities out here: the incorporated City of Los Angeles, the People’s Republic of Santa Monica and Beverly Hills. It is fully crazy making and extremely destructive. Because the rents are controlled and the tenants so puffed up with rights not a few landlords have lost their properties because the rents are insufficient to cover the cost of maintaining their buildings which then get cited and condemned. While other properties have risen in value older rental properties have stagnated because long term rents can’t be raised or the tenants let go.
Short of carpet bombing rent control is the best way to destroy a city.
Here in San Francisco it has proved disastrous also. We are also the home city of Airbnb and they are getting regulated here increasingly. I think they want people who use them to pay hotel tax, which I guess is all well and good if you use your apartment like a hotel. And, it is frustrating for landlords who make little or nothing on a place due to rent control to see their tenants making money from Airbnb. But people do want to make money on their places… and I can’t blame them for that either. It is all kind of nuts.
In any case, rent control means well but does keep some rents artificially very low and the landlords make up for it by overcharging for the other apartments. I can’t really blame them if they have units paying 1980’s prices, say — $400.00 for a studio and so an empty studio will be charged $2300.00. It is also a situation of not much building going on in the city since there has been so much regulation regarding building. That is changing now, but what is being built looks to be luxury apartments and what they say is “affordable” housing is still very expensive. We are actually more expensive than NYC now which is insane. It is not an accident that both of these extremely expensive cities have rent control and so many rights for tenants. It all does backfire.
Everyone I know is worried about being evicted from their apartment since landlords are finding ways to evict long time tenants so they can sell the building or convert to condos and sell. Still, it is very hard for them to evict. There are all kinds of laws about it. They have to PAY to get people, tenants — to leave. Sometimes quite a bit. Renters are often offered at least 10K a piece to move out of a place and they stay and get more. Sometimes thousands more. That’s the law BTW, if you want someone out, and you don’t have a reason like they aren’t paying rent — (and sometimes even then) – you have to pay them. Fact is, it is very hard to get people out of an apartment in SF, they can get lots of time, if nothing else – to leave – sometimes a year. So again, we have a weird situation where people who are tenants have lots of rights not even imagined in other parts of the country and they also are having to pay extremely high rent.
Many in SF don’t get it that the crazy rent control and building regulation is part of their dilemma. Though a few are waking up. Part of it is just naked self interest — I mean, they don’t want things to change because it benefits them in the short term. However, then, they can never ever move from the rent controlled apartment and often, the landlord does very little to maintain it so they are in a dilapidated apartment for the rest of their lives. Not really a good way to live.
I never really took advantage of the rent control and stayed anywhere for very long. Though I certainly took advantage of certain tenant rights. But even so, I was too restless to stay anywhere for a long time and I feel that was a good thing. I am glad I am not feeling trapped in a $400.00 studio that I moved into in 1979! Even so, I can’t stay in SF probably long term because the rents are insanely high and frankly, even the most affluent of my friends feel they can’t stay if they lose their rent controlled apartments. I certainly can’t buy here, unless I become a mega millionaire. Very sad for all the long term San Franciscans but it really is the insane rent control/building regulation and other housing policies that did this. Of course, they just want to make new regulations that are more restrictive instead of changing these.
If they do get rid of rent control, it will be like lancing a wound and there will be a bloodbath of people who will suffer. It may be necessary but I hate to see the immediate outcry. Things are already tense enough here.