Government Control Of Markets Produce Bad Outcomes

For many years, I was a property manager and owner in the New York City residential real estate market.

Beginning in the 1970s, I became an expert in the labyrinth of rent control and rent stabilization laws and regulations. Unfortunately, trying to be a good landlord when people are paying almost nothing for their units is very difficult.

Even by the prices of 50 years ago, rent of less than $250 for an eight-room apartment in a doorman building on Broadway on the Upper West Side was ludicrous. The tenant in that apartment was the majority leader of the N.Y. State Senate. The legislature are the ones who vote on these issues. Throughout my career, I knew several lawmakers that had such interests. It does make one cynical.

The real problem with all rent controls is that they disproportionately help tenants who are already in place. It is a well-known fact that once someone is lucky enough to rent one of these apartments, they do everything not to vacate. Tenants marry, have children, and then become seniors and still never move from their one-bedroom apartments.

A real-life example is my ex-wife who grew up in a two-bedroom apartment in New York City’s Chelsea neighborhood with her parents. When we married, she moved out. After a decade, her mother passed away. Her father eventually remarried, and his new wife and her daughters moved into the apartment. My former father-in-law passed, and the apartment remained in the family with his wife and one of her daughters still as tenants. When she retired, she moved out of the city. Her daughter remained and eventually married and had a child.

During this entire time, because of the intricacies of rent control, there was never a legal vacancy. The controlled rent remained only…increasing as statutorily required. The apartment did not have an official changeover even though the original occupants had ceased living there years before. From the early 1960s until after the turn of this century, the rent was kept lower than the market by thousands of dollars every month.

The state, by declaring an emergency in housing, has perpetually kept some form of residential rent control imposed on the private market since World War II. What has been the outcome? Some lucky tenants have hit the jackpot but for most others the rents continue to be too high.

Instead of addressing the shortage of housing in New York by allowing the market to build more, the state has decided to continue trying to control rents without any thought of expenses. This failed semi-socialist answer to the housing crisis is taking on new life throughout the nation as more and more states and local governments enact such laws. Rent controls have been shown to depress the building of new housing and ultimately lead to economic inequality.

Several times the U.S. Supreme Court has refused to take up rent control cases. As recently as February 2024, the court refused to hear two New York cases (74 Pinehurst LLC vs. New York and 335–7 LLC vs. City of New York.) In both cases, the owners argued that rent control was supposed to be a short-term solution to a severe housing shortage. The laws, as imposed, “grant tenants a perpetual option to their leases, transforming term leases into government-mandated life estates.”

The plaintiffs’ argument goes further to state that New York has expropriated the property. In the past, rent control laws have been upheld on the grounds that they are a form of regulation not an unjust taking without compensation by the government. This was not the outcome that was expected by a conservative court that has recently ruled extensively for private property rights.

What politicians hear in places like New York that have rent controls is that the votes are with the tenants not the owners. Once instituted, rent controls become very difficult to do away with. Where does that leave owners of real property especially small landlords?

I guess one could argue that if the controls produced more housing at cheaper rents, then the outcome for the common good could be worth it. However, what history has shown is that the condition of existing housing deteriorates because of lack of money for maintenance. And there is a reluctance to build new housing for fear of further government interference.

The only solution for more housing is to permit more building. If artificial barriers like rent controls and exclusionary zoning are removed, developers will be incentivized to build as much as the market could absorb. Free markets are the key.

That doesn’t mean there isn’t a need for government programs to help those who can’t pay market rents. Remember in all these rent control schemes, the tenant’s income is never a determinant. It is always about tenant longevity.

The government has created an irrational housing market.