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Live From New York
Taxpayers, Meet Your New Tenants
Rent control and the U.S. Treasury — a marriage made in Schumer heaven.
an 80-year-old black landlord who had just spent two weeks in jail for not providing heat to squatters in his building. Rent control, you see, doesn’t just involve forcing down rents. Along with it goes an elaborate set of anti-eviction laws so that landlords can’t evict their low-paying tenants, plus requirements that landlords provide all manner of services, whether they are collecting rent or not. By the time all this is in place, even illegal squatters have a bevy of rights.
The house-to-house warfare was so intense that New York had created special housing courts to handle the pandemonium. The rule in housing court – in Manhattan at least – was simple - “the tenant always wins.” One notorious housing court judge had even started his own rent strike, refusing to pay for his Gramercy Park apartment on the grounds that it had cockroaches and the floorboards squeaked.
What kept people living in such conditions was that it was impossible to find an apartment. Rent control had so decimated the market that people scanned the obituaries and trolled funeral homes looking for vacancies. Since that time things have improved. The city government finally released the 100,000 apartments it had confiscated from landlords — turning over large numbers to bureaucrats in its own Department of Housing Preservation and Development, another remarkable transfer of wealth. “Luxury decontrol” took away rent protections from tenants with incomes over $200,000 and rents higher than $2,000 — a strangely misplaced effort since the real winners are the people paying far less than $2,000. Zoning laws have been relaxed and some new construction revived. The sagging economy has lowered demand and basically the worst has passed — for now. Yet trench warfare continues in pockets of regulated housing throughout the city.
So why is this of interest to anyone outside New York? Well, through the magic of federal mortgage guarantees, the U.S. taxpayer will soon be shouldering the burden of subsidizing 25,000 regulated tenants in Stuyvesant Town and Peter Cooper Village, a city-within-a-city on the East Side of Manhattan that is New York’s biggest housing complex. Tishman Speyer Properties, one of the world’s largest real estate companies, inauspiciously bought the property in 2006, confident it could drive a wedge into New York rent regulations. It was the biggest real estate deal in American history. Four years later, it has discovered what every Polish-speaking landlord-janitor living in his basement apartment has known for decades – in New York the rent-controlled tenant always wins.
As a result, Fannie Mae and Freddie Mac — which have already burned through $111 billion of federal bailout money — are on the hook for another $2 billion. Fortunately, unlike the Big Bad Banks Obama keeps warning us about, Fannie and Freddie both have open access to the U.S. Treasury. And so they will able to sustain 25,000 middle class tenants — many of them owners of second homes far from New York — in apartments where they are often paying less than half the market rent.
How did this all come about? In any normal housing market, landlords are focused on attracting tenants, fixing up properties and maintaining a reasonable level of service. With rent control, however, you want to get rid of your tenants. The longer they stay, the further below market their rents sink. There is usually some kind of vacancy allowance, so the longest-lasting tenants have the best deals. That is why so many prominent personalities from the 1960s and 1970s (Mia Farrow, Mayor Ed Koch, Katrina vanden Heuvel, editor of the Nation) had rent-controlled apartments while anyone just arriving in the city would pay $700 a month to sleep on someone’s couch.
Deprived of any chance of evicting tenants, the only thing the landlord can do is reduce services. So another layer of law is necessary saying that if landlords don’t provide heat or make repairs, the tenant doesn’t have to pay rent. Now the tenant has an interest in seeing things fall apart. One of the most common confrontations involved a rent-controlled tenant refusing admission to the repairman sent to fix the leaky sink. In the end, the tenant can just create his own violations — a missing smoke alarm, graffiti in the halls. “Paying rent in New York is really optional,” one landlord after another told me. “It’s lucky more people don’t know the law.”
The stories from this netherworld sometimes sounded like chronicles from the Spanish Inquisition. One Chinese woman, whose property-owning family had been murdered by the Communists, had been running an apartment house in Harlem. After one tenant refused to pay rent for two years, she finally got an order of eviction. The tenant responded by firebombing her office. She took him to criminal court. The judge looked at the case and said, “This isn’t a criminal case, it’s a housing matter.” Back they went to housing court. The housing judge overturned the eviction. For firebombing her office, the tenant got to keep his apartment. “I think I’m going back to China,” she told me. “Over there they just kill you and get it over with. Here they torture you first.”
You’d think Tishman Speyer might have been a little circumspect walking into this maelstrom. (I would have sent a copy of my book if they asked.) Instead, as owners of Rockefeller Center, the Chrysler Building, and office towers from London to Rio de Janeiro, the company naively assumed it could handle the ropes. Bad mistake.
Stuyvesant Town and Peter Cooper Village epitomize the triumph of rent-regulated tenants over their landlords. Built right after World War II by Metropolitan Life, Stuyvesant Town has 8,700 apartments in 35 buildings while Peter Cooper Village, slightly more upscale, consists of 2,500 apartments in 21 buildings. In 1947, rents ranged from $50 in Stuyvesant to $91 per month in Peter Cooper. On the day the doors opened there were 100,000 applicants.
Unfortunately, 1947 also happened to be the year New York City made wartime rent controls permanent. The two complexes qualified. City officials felt guilty about blindsiding Met Life so they set up a special board that would supposedly allow small rent increases, but this was quickly overridden by tenant pressures. Met Life never built in New York again.
By the 1980s tenants were paying rents 30 years out of date. Waiting lists stretched out 22 years in Stuyvesant Town, 100 years for Peter Cooper Village. (If rent-controlled tenants don’t leave feet first, they usually pass the apartment on to relatives.) In one fascinating development, rents in Stuyvesant Town had ended up higher, illustrating an iron law of price controls — affluent people usually get the most benefits. The wealthier Peter Cooper residents had been able to stay in their apartments longer and manipulate the law more to their advantage.
The two complexes also became the epicenter of another rent-control phenomenon — tenants subletting their apartments at market prices. A 1983 Met Life survey found 40 percent of the apartments occupied by illegal subtenants. The prime tenants had usually moved to upstate New York or Florida, using their illegal rent earnings to buy second homes or as retirement income. When Met Life tried to crack down, residents raised the roof. “The issue,” complained one tenant-landlord in Town and Village, “is whether big corporate landlords should be the only ones allowed to make money in the rental business.”
Apparently misled by an overconfident legal staff, Tishman Speyer bought out Met Life for $5.4 billion and dutifully began trying to enforce luxury decontrol and evict illegal subletters. By 2009 they had shoehorned 4,000 of the 11,000 units out of rent regulations. In reporting this protracted struggle, the New York Times discovered one tenant who had amassed a valuable art collection with the savings from his below-market rent.
Then in October it all came to an end. The New York State Court of Appeals, the state’s highest court, ruled that the whole decontrol effort was illegal. Back in 1993, Met Life had accepted a property tax exemption in exchange for making major renovations. Although the law is ambiguous, the Court ruled the exemption precluded the owner from taking apartments out of rent regulations. In a typical outcome, Tishman was told to refund $200 million in “illegally collected rents.” At that point, Tishman threw in the towel. The biggest real estate deal in history became the biggest real estate default in history.
Letter to the Editor View all comments (66) | Leave a comment
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Bill Hussein O'Stalin| 2.3.10 @ 7:17AM
Anyone who buys properties in areas where the rents are controlled gets what they deserve. Just another Bolshevik plot.
Melvin| 2.3.10 @ 8:02AM
This is exactly why many Citizens of New York and New Jersey are deserting those two vermin infested sinking ships.
Now they are moving to warmer environs down South and are unfortunately trying to turn many areas in North Carolina, and South Carolina into mini me versions of New York City and Hoboken. The term one recent New York City refugee put it, "You guys are so backward, and primitive down here."
One Dominica entrepreneur from New York City opened a restaurant, and I got to give the owner credit he remodeled an old former Golden Corral and made the old place look really nice, but stupid New Yorkers (City) being stupid New Yorkers didn't even give the place being open one month before Hispanics from New York City started shooting at patrons coming out of the
restaurant.
Maybe upstate New Yorkers are right in when they don't consider New York City being part of the state of New York.
Bruce | 2.3.10 @ 12:00PM
FYI, Melvin - the same goes for the Long Island area with regards to our attitude towards NYC. Unfortunately some of those same visigoths who are turning areas of the south into NYC suburbs have done the same by moving from Brooklyn and Queens to Long Island. The island is quickly becoming another suburb of the city, and because the Dems have killed our housing market - many of us older lifelong islanders can't sell our homes to get the hell out of here to God's country.
I go south on vacation (and recently bought property in expectation of the day..) BECAUSE I like things more "primitive." Friendly people, relaxed way of life, less guvmint intrusion.
sestamibi| 2.3.10 @ 1:41PM
Melvin, sometimes it works the other way too. I grew up in NY, but back in 1975 when the city was going under (remember "Ford to City: Drop Dead"?) I was living in the midwest and had a joust with a co-worker at the time. I firmly advocated letting them go bankrupt while she said "oh no, NY is the nation's cultural center, etc. etc. We can't have that happen". Little did she know. . .
PJ| 2.3.10 @ 5:14PM
Melvin, Bruce,
Those ex-NYCers have been invading Connecticut & Vermont for yrs. Think big-mouth Howard Dean, who's originally from NYC.
Bill Hussin O'Stalin| 2.3.10 @ 8:07AM
By the way, this particular default is now being used as the poster child for one million homeowners whose homes have fallen below 75% of the original value.
After looking at this default their reasoning is why shouldn't the average citizen walk away from a deal when they see wealthy corporations drop the bad paper on the taxpayer?
Susan| 2.3.10 @ 8:45AM
For those not in the know, many of these so-called "rent-controlled" apartments pay more than $2500 per month for a one bedroom. I know, I lived there once and was on the list for one after Tishman stopped leasing in late October. I received a call with an offer in early January and the rent for a classic (ie: unrenovated) one-bedroom under rent control was $2689.
Tishman has spent the last five years turning over apartments like I change my coffee filters. That has made the price for "rent-controlled" apartments more than that of market-rate" apartments. Whatever else is said, this little enclave is no longer for the middle class.
KyMouse| 2.3.10 @ 9:37AM
From the Small World Department: I used to visit a family in Scotland who had an elderly female neighbor. She had rented the cottage in back of her house to a young man who soon stopped paying rent -- and began finding ways to get into her house to help himself to groceries and anything else he wanted.
Since she had rented the cottage in order to help make her ends meet, she needed to find a trustworthy tenant. But under the law, she couldn't throw him out unless SHE found another place for him to live. Guess what: Every place she found for him was unacceptable to him for some reason or another. The last I heard, which was some years ago, he was still there.
Pauline| 2.3.10 @ 9:42AM
It's called rent stabilization, *not* rent control. Rent control was done away with in 1973. Do your homework since you don't even know what you're talking about. You clearly don't live in NYC or know anything about the rental landscape.
Otis my man!| 2.3.10 @ 9:52AM
Hey Pauline, give me a break. What a typical New York parochial response. Do you work for the NYC housing dept?
I was born in the Bronx. Tucker hasn't even told the half of it.
Zork (the) Hun| 2.5.10 @ 12:09PM
Even if I would not know about the New York rental market, I do know sleaze and newspeak when I see it.
Slapping a new name on something does not change its essence. Rent Stabilization code IS rent control. OK, it's on steroids, but it is still rent control.
I am just wondering.....
Would it be possible to pass an "Arrogance control law" aimed specifically to New Yorkers like you?
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Meet Bill | Jessica Alba Celebrity Monitor links to this page. Here’s an excerpt:
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Oldefarte| 2.3.10 @ 11:45AM
This is just another form of real estate socialism known as 'AFFORDABLE HOMES' [that is with the American taxpayer footing the bill]!!!!!
Pingback| 2.3.10 @ 12:20PM
Ithaca Considers Restricting Public Smoking | The Cornell Daily Sun | Smoking Health links to this page. Here’s an excerpt:
Appleby| 2.3.10 @ 12:40PM
We had the same thing here in Toronto when I first moved up here. Immigrants had to have a job and a bank account BEFORE they could rent an apartment, since it was impossible to get them out if they didn't live up to the contract. And the guy at the place that rented post boxes to the public told me that there were two ways to get a decent apartment in town: know someone who was moving out, and slipping "key money" (bribes) to the landlord. I got an apartment that was my definition of a slum, until rent control was loosened (in a socialist country government never lets go) and although the apartments here are tiny compared to anything I had back home, there are enough of them now so the complexes are offering deals to desirable tenants to encourage us to move in.
Oh, and we do have a nice socialist touch here in that it is illegal to refuse pets or charge extra for people that have them. In the States I paid $300+ deposit per pet for my cats.
KyMouse| 2.3.10 @ 2:08PM
I know what you mean, Appleby. I got the itch to live in New York for a couple of years back in the early 1980s, and a friend helped me get the Brooklyn apartment she was vacating. If it had been anywhere else, I wouldn't have dreamed of living in it -- a crummy studio apartment on the ground floor, with a window still broken from where someone had broken in and stolen my friend's rifle (she was an Olympic-caliber sharpshooter). When our landlady refused to pay the electric bill for the common areas, we tenants had to string Christmas lights in the windowless hall, so we could see where we were going. When the lights blinked on, we took a step...it was like playing "Mother, May I." Only not fun. Kinda spooky.
And since I had the ground floor front apartment, I was treated to the sight (and smell) of men urinating on the sidewalk outside. Feh.
the wise old bear| 2.6.10 @ 1:45PM
And all this time I thought the sight and smell of public urination was all part of the charm in progressive cities like New York and San Francisco. Right along with the defecation in public fountains and addicts barfing wherever.
Pingback| 2.3.10 @ 12:44PM
The American Spectator : Taxpayers, Meet Your New Tenants New just to Me links to this page. Here’s an excerpt:
Ginger Grant| 2.3.10 @ 5:39PM
Real estate socialism?
Let's get rid of the mortgage interest deduction and deduction for real estate taxes the same time we repeal the rent stabilisation laws.
It should not go both ways boys and girls!
landlord6| 2.4.10 @ 12:43PM
what does paying taxes on paid taxes have to do with you not paying market rent?????
the wise ol' bear| 2.6.10 @ 1:47PM
Just ignore it. More wealth envy, that's all.
Jane| 2.3.10 @ 5:55PM
Rent control rules still apply to tenants previous to the 1973 rent stabilization laws. Check NYC Rent Guidelines for rules.
Pingback| 2.3.10 @ 7:40PM
Business Risk – Investment Options – Investment Risk | Finance & Money | Investment F links to this page. Here’s an excerpt:
paul| 2.3.10 @ 9:07PM
Stuvanst (st) is now in bankruptsey - up scale rents planned. I know about rent controlls in dallas during wwii - we were evicted every 6 months.
BHG| 2.3.10 @ 9:57PM
The French passed la loi Quillot in 1982 to regulate relations (rent control) between tenants and landlords. Result? Property owners recuperated their properties for "personal use.
Quillot, a socialist co-authored a book entitled Cent Ans d'Habit Social: une utopie réaliste (1989)Translation: A Hundred of Public Housing: A Realistic Utopia.
Odd that - all those public housing dwellers burning all those cars. One can only imagine the state of these new, publicly owned apartments after a few years. They are going to be rented by welfare recipients aka friends of Obama. Bankers?
MNL| 2.4.10 @ 2:28AM
Another result of the French Quillot law is over 125,000 empty flats just in Paris. The owners simply refuse to rent them out, tenants are too much bother, decoration costs are high, the added income tax is unwelcome. I rent out a room (cash only) in my place, but I will not accept a French lodger. All they do is cry, oh the great injustice of a small room and where's the state aid (CAF) . Plus they're lousy cooks. The best lodgers are the Japanese, by a mile.
Pingback| 2.4.10 @ 3:31AM
Rebellion News links to this page. Here’s an excerpt:
Flipside| 2.4.10 @ 6:01AM
....Charles Rangel thanks you NY. suckers
http://www.nytimes.com/2008/07......html?_r=1
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What to Do If You Can’t Afford Health Insurance | National Health Insurance Informati links to this page. Here’s an excerpt:
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Welcome to Share the Wealth
コピー スーパー | 2.5.10 @ 12:18PM
very helpfully!
shipley130| 2.5.10 @ 9:18PM
I was wondering about the statement that rent control no longer exists in NYC. Not that I take my information from shows like Sex In The City, but I recall an episode where it is mentioned that Carrie's apartment is rent controlled. Why would they put that in the script if not true? It would make the show look stupid. I wish blogs would take off comments that are untrue.
Ichabod83| 2.6.10 @ 10:22AM
As one bright economist used to say about rent control, "It's the best way to destroy a city, other than bombing."
Hilary| 2.7.10 @ 3:36AM
Everyone is entitled to food, shelter and medicine. Even poor people. If you don't like the idea of squatters, then I trust you support strengthening rental assistance programs for low-income citizens. You wouldn't prefer masses of homeless people, would you?
likwidshoe| 2.7.10 @ 5:05AM
Hilary: you're not entitled to anything other than the PURSUIT of those things.
You have no right to someone else's labor and time.
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explosion proof light | 11.15.10 @ 9:01AM
Obama's stage props, the guys with the white jackets, are here to take you away, to the funny farm, where everything will be alright.
Converse | 8.12.11 @ 4:01AM
is good