New York Landlords Feeling Empty — Here’s Why

Sometimes you wonder, why do the legislators do the opposite of what we know works. Is it because they don’t read economy papers from the 90s?

Economists have formed the consensus that rent regulation is bad for housing supply

When 93% of economists agree (which is very rare for economists!) that rent stabilization is a bad idea, as it only helps current tenants in a limited way but casts long term negative effect on housing supply, legislators simply ignored the data and went ahead with more and more rent regulation, or what they called “tenant protection”. The 2019 Tenant Protection Act in New York is exactly that. And what happened lately is that landlords would rather leave apartments vacant instead of repairing them and renting them out. This obviously only makes the housing shortage worse.

Landlords would rather let the apartment sit there vacant

The average monthly rent in the United States increased by 14.1% from December 2018 to December 2019. This is largely because of inflation; as prices for goods and services increase, landlords are able to increase their rents as well. Additionally, the mortgage payment for homebuyers has increased by 21.6% over the same period, driven by both rising prices and interest rates. As a result, more people are choosing to rent rather than buy, which drives up demand and leads to even higher rents. These increases are likely to continue throughout 2022 as mortgage rates continue to rise.

Rent has been increasing nationwide, but it’s especially bad in rent-regulated New York City, where landlords are struggling to keep up with repair costs and inflation. The city’s rent stabilization laws limit how much rent can be increased each year, and also how much landlords can recoup from tenants for major repairs or renovations. With these strict limits in place, many landlords are finding it simply doesn’t make economic sense to repair and rent out their units. As a result, we’re seeing more and more apartments sitting vacant, exacerbating the city’s already severe housing shortage.

Three reasons why rent regulation won’t work

It’s been confirmed that rent regulation often produce negative impact to the rental housing market in the long run because of three reasons:

1. The developers have less incentive to build as they cannot make enough profit renting it out. As the number of housing unit decreases, rent for those units goes up, making it increasingly difficult for low and moderate income tenants to find affordable housing. Plus, rent-regulated units become less well maintained over time as landlords have less incentive to repair them. All of these lead to long term housing supply shortage.
2. Rent regulated building owners are inclined to be more strict about screening their tenants to manage the risks, hence making it harder for low-income people to get access to the rental apartments .
3. Rent stabilization makes the housing resource allocation random and unfair. The rent for a rent stabilized unit does not reflect the quality of the unit or how desirable the location is, making it difficult for those who truly need affordable housing to find it. Also, it’s more difficult for rent regulated apartment dwellers to move out and start fresh somewhere else, as they have to give up the “cheap” rent. An elder person having three bedroom apartment may not want to leave because the rent increase is minimal although he/she no longer needs the space after the children grew up and moved out.

It’s time to rethink the policy

The pathway to hell is paved with good intentions.

Sometimes good intention does not mean good work. Rent regulation is a perfect example of how bad policy can be kept around for decades, simply because it’s politically popular. To certain extent, the legislators reflect what the people want. And if we the people do not think about long term, nor would our legislators. Rent stabilization might have been well intentioned when it was first introduced, but the negative effects of rent stabilization on the housing market are clear, and they’re only getting worse. It’s time for rent stabilization to go.

Let the market work. Look at basic supply and demand. When the demand increases, the answer is not to put more restriction. It’s to increase the supply. While we all agree that we need more affordable housing, rent stabilization is simply not the answer. In fact, it’s part of the problem. It’s time for rent stabilization to go.