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The Mayor Who Froze the Rent

eye on the news

The Mayor Who Froze the Rent

Bill de Blasio takes out his frustrations with Albany on New York City’s landlords. June 30, 2015

On Monday, New York City’s Rent Guidelines Board voted to freeze rents for tenants with one-year leases on rent-stabilized apartments. This unprecedented gesture was met with acclaim from tenant advocates and grim disapprobation from property owners, whose water, fuel, and maintenance costs are not capped. The board is composed entirely of appointees of Mayor Bill de Blasio, who has made containment of prices in the rental market a central promise of his administration.

The decision to freeze rents stems directly from de Blasio’s legislative defeats in Albany last week. Chief among these was a mere one-year extension of mayoral control of city schools, which will force de Blasio to come hat-in-hand to Albany again in 2016. The legislature agreed to renew the city’s 46-year-old rent stabilization law for another four years but raised the threshold for removing rental units from regulation only from $2,500 to $2,700. Tenant advocates and de Blasio’s progressive allies had sought to get the threshold raised to $3,000. The compromise bill, styled the “Big Ugly” by Albany-watchers, also preserved the so-called “421-a” tax abatement providing an incentive for real-estate developers to build affordable units. De Blasio had sought reform of 421-a, which critics claim has cost the city $1.1 billion in lost tax revenue over the years.

Albany has a significant amount of policy control over New York City, and Cuomo has delighted in frustrating the progressive mayor’s agenda and ambitions. Their competitive relationship stems from de Blasio’s Clinton administration job as a regional Housing and Urban Development commissioner during Cuomo’s stint as HUD secretary. De Blasio’s mayoralty must be understood in the context of a one-time underling chafing against the power of his former boss. His frustration is starting to show. “I started with the hope of a very strong partnership. I have been disappointed at every turn,” de Blasio said Tuesday.

In a tacit acknowledgment that he had been outmaneuvered in Albany, de Blasio gave his appointees on the Rent Guidelines Board the nod to enact a one-year rent freeze. He then unleashed his ally, Council Member Jumaane Williams—chair of the Housing and Buildings Committee and a founding member of the Progressive Caucus that ascended to power in 2013—to issue a scathing press release:

Tonight’s vote sends a clear message that the City of New York is determined to provide relief for its residents, unlike Governor Cuomo and Albany who recently enacted detrimental rent laws that could eliminate approximately 90,000 affordable housing units due to deregulation over the next four years . . . . Even though Governor Cuomo completely and thoroughly let New York City tenants down, we’ve found solace tonight from one of the most unlikely of places: the RGB. Throughout the RGB’s history, the Board has always asked what the annual increase should be, not whether an increase was needed at all. This year was different, so for that I thank them.

Williams’s assumption, which speaks generally to the progressive view of markets, is that there is never a good reason for rents to rise.

Rent control and rent stabilization in New York City have distorted the housing market in perverse ways. In approximately one-quarter of the 1.1 million rent stabilized apartments in the city, tenants don’t actually pay the legally permitted maximum rent, because it exceeds the market rate in the area. In these cases, landlords are permitted to offer a lower “preferential rent” that reflects market prices, though the legal rent is recorded alongside the preferential rent and is notionally increased every year. When fortunes in these neighborhoods change and they become desirable, rents naturally increase. When that happens, landlords are entitled to switch their tenants from the “preferential” to the “regulated” rent. The increases can be sharp. In these cases, regulations intended to protect tenants actually ensure that they will suffer a sudden and dramatic rise in rent.

The reality of this absurd situation is that the entire housing market in New York City is deformed by a system of artificial caps that encourages people not to move, makes it unprofitable for property owners to improve their buildings, and drives up the cost of available inventory in order to subsidize and protect certain citizens.

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