Governor Cuomo has announced his support for ending “vacancy decontrol,” a move that will maintain existing rent-regulation rules forever. He may also seek to repeal the Urstadt Law, which gives ultimate say over local rent regulation to the state. The call to hand control over rents to local government sounds appealing on its face. But it would amount to a deeply misguided policy failure, with disastrous consequences. I know, because I’m the Urstadt for whom the law is named.
In the early 1970s, when I worked for Governor Nelson Rockefeller as the State Commissioner of Housing and Community Renewal, he tasked me with finding a way to limit the damage done to New York’s inventory of apartments by rent regulations. These rules were—and remain—an anachronistic legacy of World War Two, when a “housing emergency” created a shortage of apartments, and prompted the federal government to restrict rent increases.
Three decades later, the rents for many New York City apartments still remained legally frozen at Depression Era-levels. By the 1970s, New York’s economy was on the skids, and more than 800,000 residents (almost all of them middle-class wage earners) were fleeing to the suburbs. The rent-control regime, combined with this flight, helped create vast, concentrated pockets of poverty in places like northern Manhattan, the South Bronx, and large areas of Brooklyn, which were hemorrhaging middle-class residents.
Under ordinary circumstances, the natural economics of the marketplace would have mitigated the problem. Where housing was in short supply (for example, on the Upper East Side of Manhattan), rising prices would have motivated people in search of apartments to look in other neighborhoods, where vacant housing was now plentiful, such as in Harlem or the South Bronx. And landlords in these marginal areas would have been incentivized to improve their buildings, financed by the higher rent they would have been able to charge as demand rose in newly gentrifying areas.
But under the dysfunctional systems of rent control and rent stabilization (less-stringent regulation enacted by the city in 1969), the laws of supply and demand went out the window. Since landlords in fashionable districts couldn’t raise their rents, tenants with means had no reason to look elsewhere. And landlords in less-desirable areas, similarly restrained, could not hope to attract new, more affluent tenants. What emerged was a de facto regime of economic and racial segregation, in which affluent, largely white districts became ever-more upscale, while formerly working-class areas became zones of entrenched poverty.
Landlords who owned properties in such impoverished areas had to watch their buildings continue to decline in cash flow and value, both of which (in many cases) dropped to zero, and soon dipped into negative territory. But as the upside disappeared, property owners had no access to relief from fixed costs like maintenance, utilities, and taxes, which continued to rise. The results were grimly predictable—thousands of buildings wound up abandoned by their owners, who could not afford to pay even the taxes on the properties. Between 1965 and 1968, New York City lost 100,000 housing units to abandonment, while the number of abandoned buildings throughout the five boroughs between 1961 and 1968 climbed from 1,000 to 7,000. This vicious circle often worsened when owners recognized that tax foreclosure was imminent, leading them to cease investing in their properties entirely, by halting services and repairs. Arsonists, some probably hired by landlords desperate for insurance settlements, burned scores more buildings.
During the 1970s, New York City took ownership (through tax foreclosures) of more than 60,000 apartments in vacant buildings, and another 40,000 units in buildings at least partially occupied. On a single stretch of West 140th Street in Upper Manhattan, landlords had abandoned 22 out of 36 apartment buildings. The city agency responsible for these units, the Department of Housing Preservation and Development, became the second-largest landlord in the five boroughs, trailing only the New York City Housing Authority, which was (and remains) the largest residential landlord in the United States. During this period, seven different census tracts in the Bronx lost more than 97 percent of their buildings to fire and abandonment, while another 44 tracts (out of 289 in the borough) lost more than 50 percent. As the city took possession of tens of thousands of homes, it became legally and financially responsible for their upkeep and the well-being of their residents. The total cost to the taxpayers for this slow-motion catastrophe would eventually surpass $10 billion, plus hundreds of millions more in lost tax revenue that went uncollected on the abandoned buildings.
With Rockefeller’s blessing, I resolved to do something about this crisis. In early 1971, collaborating with my colleague, attorney Lewis Bart Stone, I drafted an amendment to the state’s rent-control statutes ordering that, when a rent-regulated apartment became vacant, the unit would, depending on a range of criteria, either revert to rent stabilization or become entirely unregulated. This struck me as the most generous possible compromise, preserving the rent that existing tenants paid (without requiring them to prove genuine financial need for the subsidy they were receiving), but allowing the landlord to recoup some value once that tenant left, by charging market rent.
To prevent New York City from circumventing the new law (which the Lindsay Administration threatened to do), we drafted a second bill that would assign oversight of rent-regulated apartments to the state, just as Albany had authority over rent-controlled units. This was dubbed the “Urstadt Law,” which, though meant as an insult, I considered a badge of honor. The Vacancy Decontrol Act and the Urstadt Law helped spark the resurgence of New York City in the 1980s. Without those laws in place, the upswings in New York real estate would have started later and fizzled sooner, or in some cases, would never have happened at all. The residential renaissance in previously moribund areas like Tribeca, Harlem, and Williamsburg would have been stillborn if property owners had to operate under antiquated laws that froze the rents they could collect at levels set when Franklin Roosevelt was president.
Throughout the 1970s, heating oil costs rose by 430 percent, while rents hardly budged; as a result, the city suffered housing abandonment at the rate of 40,000 units per year. By the early 1980s, this had fallen to 23,000 apartments annually, and then 13,000 by the middle of the decade. The cataclysm predicted by housing Cassandras did not come to pass. New York is still a city of renters (with leased units comprising 63 percent of all households), and nearly half of these 2.1 million units (about 44 percent) are still subject to rent regulation that preserves affordability, along with other rights.
Yet we have also turned a corner. The perverse incentives that the old system imposed on landlords have been largely mitigated. With the market freer, New York’s inventory of housing is finally growing again. And that does more good for everybody (rich and poor alike) than any government solution can possibly accomplish; if you doubt this, please sign up for a tour of a New York City Housing Authority apartment.
There is also a hidden, ironic lesson here. In the decades since the Urstadt Law was enacted, dozens of elected officials from both parties have quietly thanked me for the political cover it has provided them. (Many of these same officeholders have also fulminated in public against the outrageous injustice of the law that bears my name.) Nearly every annual session of the state legislature since 1971 has seen the introduction of a proposed new bill to repeal the Urstadt Law. And every one has failed to pass.
This year appears to be different. Democratic control of every corner of state government has removed checks on the forces that want to return New York City to the days of frozen rents. If they get their way, incentives for apartment repair and rehabilitation will disappear, and existing housing stock will again deteriorate. New inventory of housing for middle-income people will fall, as developers avoid a highly-regulated rental environment. Before the era of rent regulation, private interests developed miles of high-quality housing for working people across south Brooklyn, Queens, and the Bronx. Markets have solved New York City’s housing problems in the past, and they should be allowed to keep doing so.
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