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Wednesday, June 22, 2005

More on affordable housing

I don't often post others people's comments but today I make an exception. My good friend Ted Morgan wrote an outstanding comment about the affordable housing post I wrote last week. Ted is also my friend that I visited for a week early this month that I wrote about here. Ted and I spent a lot of time talking about his new home and his difficulties with a rent-controlled tenant. I remarked at one point that as it relates to housing, New York City has taken traditional ideas of justice and turned them upside-down.

Ted is also one of the most thoughtful guys I know, so I hope that I can get more contributions from him in the future.

As someone who has a rent-controlled tenant living in my home in NYC, let me opine. I'm biased, of course--I desperately want this woman who has not paid rent in 14 months to leave. I'm willing to pay her well into six figures to just pack her things and go, but she refuses. A lawsuit I launched against her has just failed, so she's here to stay. But enough about my problems.

Rent control is, in general, madness. It is an attempt to repeal the laws of supply and demand--sort of like trying to repeal the law of gravity. Price controls result in scarcity every time. It benefits a distinct group--rent controlled lease holders--at the expense of everyone else. It dramatically limits the size and quality of the NYC housing stock. It disproportionately harms the young (especially young families) and immigrants. It benefits the wealthy and well-connected (like former Mayor Koch).

It requires a vast bureaucracy to regulate the smallest decisions made by landlords through multiple city and state agencies. Thousands of employees decide what colors of paint are acceptable, and how big the stains on a carpet must be before it must be replaced. There are inspectors to determine which plaster cracks much be repaired and which can be deferred. The wattage of lights bulbs in my entryway are decided for me.

The bottom line is that rent control makes housing more expensive by reducing supply. In the long run, it has been a disaster for the city, and is the single most important reason that NYC rents are so high. It is also fundamentally unfair. There is no good reason that the current group should benefit at the expense of everyone else. Indeed, there is often a very bad reason such as bribes, called "key money", and connections to large institutional landlords.

And there is something else I am just coming to realize right now. Rent control poisons the lives even of its beneficiaries, as does welfare. The pressure to pay the rent is a very positive force in many people's lives. Insulate someone from this, and personal responsibility and initiative suffer. Anyone who gets something for nothing comes to rely on it, and eventually to feel they own it and deserve it. My tenant is a miserable person. She has stayed in a job that she hates and pays a pittance for 23 years. She never married, never travelled, never learned new skills, never changed anything in her life for the positive. And let's be honest, most of us don't do these things until we have too. Now my tenant is a bitter person desperately clinging to a horribly dirty, very small fourth floor walk-up studio where she is not welcome. Now I don't blame rent control for all her problems, but her life would be much different, probably much better, without it.

There is no one left willing to defend rent control as good, fair public policy. It has become a pure power play--a special interest vying for a transfer of the city's resources to themselves. Even the prestigous Furman Institute for Real Estate (a liberal NYU think tank here in Manhattan) has abandoned rent control. Even Boston has quietly ended their program. We can only hope New York does the same.

The whole "affordable housing" discussion is interesting. I believe affordable housing is a huge issue. But most people who speak of "affordable housing" really want "subsidized housing". I would say this applies to 99% of mentions in the media. Forcing one group (like landlords through rent control or taxpayers through housing projects) to pay for another group's housing is, in the end, counterproductive.

The cost of housing is set by market forces at the intersection of supply and demand. We have very few ways to affect housing demand, and we probably wouldn't want to if we could. So supply is the key, and there are lots of ways to encourage development. Re-zoning, reduction of red tape, lower real property transfer and mortgage taxes, etc. would encourage development and increase supply. But in New York, public policy is to do the exact opposite. Developers are constrained in many ways, and there is a reflexive anti-development bias among policy makers.

So the key to "affordable housing" is to increase supply.

One more thought: there seems to be a widespread belief that people should get to live in any neighborhood they choose or have lived in in the past, even if they can't afford it. I would love to live in TriBeCa, maybe right next to Robert DeNiro. But I can't afford it. Ten years ago I could have afforded it. Is that unfair? I don't think so. Many people who could have once lived in Harlem or did live in Harlem are getting priced out. Is that unfair? My answer is no.

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