Opponents of New York Citys regime of rent regulation often point to cases of millionaire movie stars and corporate executives who live in luxury apartments at outrageously low rents. At first glance, this may seem a relatively minor outrage: wealthy landlords being forced to subsidize their wealthy tenants.
But most people arent aware that the amount of rent collected annually in an apartment building affects the amount of real property tax the owner is required to pay the city. If apartment rents are kept at below-market levels by rent regulation, the city will collect fewer tax dollars from the landlords.
A study by the accounting firm KPMG Peat Marwick examined what would happen if rent-regulated apartments occupied by families whose incomes exceed $20,000 were decontrolled. The study found that assessed values of real property in New York would rise by $4 billion and property tax collections would go up by $370 million a year.
I am not recommending that tenants with incomes of $20,000 or more be subject to decontrol. But in 1989 I introduced a bill in the New York State Legislature that would have deregulated apartments renting for more than $2,000 a month or occupied by tenants making more than $ 100,000 a year. Apartments in both categories would have continued to rent at their regulated rates until the lease terms expired, so that families would have time to negotiate new leases or find other apartments. (My bill was approved by the Senate but not the Assembly.)
New York City bureaucrats objected that it would be impractical to develop a system for tracking rent and income. But the advent of computerization means the process could easily be automated. City, state, and federal agencies already certify the income of families living in formally subsidized housing; at least 400,000 New York City residents are currently subjected to such income verification. The city estimates the process costs less than $5 per family—clearly much less than the cost of subsidizing the wealthy under rent regulation.
The value of this subsidy is enormous. A 1989 study by Henry Pollakowski of Harvards Joint Center for Housing Studies found that the average regulated rent in Manhattans better neighborhoods was between $362 and $432 a month lower than market rents. Citywide, the average rent-regulation discount was a mere $44 a month.
The cost of this subsidy, as I have noted, is borne not only by landlords but also by the city as a whole in the form of lower property tax revenues. The city must make up for this shortfall either by raising taxes elsewhere, by cutting municipal services, or by asking Albany for more aid. The tatter alternative is particularly galling to my constituents: While the state is sacrificing to meet its own revenue requirements, it is unconscionable that upstaters, suffering themselves from higher property and school taxes, must bear the burden of New York Citys failure to decontrol luxury apartments. It is equally appalling that poor and middle-income New York City residents are asked to subsidize cheap rents for their wealthy neighbors.