The Case Against Rent Control

An Upper West Side landlord challenges a New York City institution

The handsome five-story brownstone located at 32 West 76th Street in Manhattan doesn’t look like it belongs at the center of a contentious legal struggle. But that impression changes when you learn about the recent activities of its owner, 68-year-old James D. Harmon Jr.

Harmon, a former federal prosecutor who once served as chief counsel to President Ronald Reagan’s Commission on Organized Crime, has filed a powerful legal challenge asking the U.S. Supreme Court to strike down New York City’s four-decades-old rent stabilization law. At first, New York officials thought so little of Harmon’s challenge that they waived their right to file an opposing brief with the Supreme Court. But those officials got a rude awakening when the Supreme Court asked them to respond to Harmon’s petition anyway, signaling that somebody at the Court took the legal challenge seriously.

Does the case against rent control have merit?

According to the Fifth Amendment to the U.S. Constitution, “private property [shall not] be taken for public use without just compensation.” This provision, known as the Takings Clause, is typically associated with the government’s power of eminent domain, which involves the state seizing private property, compensating the owner with funds drawn from the public treasury, and then putting that property to what government officials allege to be a public use.

But the Supreme Court has also said that government regulations may sometimes count as a taking, which means that they too require the payment of just compensation. As Justice Oliver Wendell Holmes remarked in the 1922 case of Pennsylvania Coal Company v. Mahon, “while property may be regulated to a certain extent, if regulation goes too far it will be recognized as a taking.” How far is too far? In the 2010 case of Stop the Beach Renourishment, Inc. v. Florida, the Supreme Court declared that at a minimum, “it is a taking when a state regulation forces a property owner to submit to a permanent physical occupation.”

New York City’s rent stabilization law (RSL) meets that test. In Harmon’s case, three of the six rental units in his building—which has been in the possession of his family since 1949, when his immigrant grandparents first bought it—feature rent-stabilized tenants whose occupancy can only be described as both physical and permanent.

Not only do these rent regulated tenants pay government-set rates that are 59 percent below-market, they have the option of remaining in their apartments for life. Harmon essentially has no choice but to keep renewing their respective leases every few years. The tenants even have the right to name their own successors to the apartments. Under the terms of the RSL, a family member who has lived two years or more in a rent stabilized unit may take over the lease, which they then get to retain for life.

And these three tenants aren’t exactly hard luck cases. As The Wall Street Journal has reported, one of Harmon’s rent-stabilized units is inhabited by “a vice president at Manhattan-based WTW Associates, a boutique executive search firm,” who pays around $1,000 a month in rent to Harmon “and owns a second home near the shore in Southampton, where she spends weekends gardening and playing tennis.”

For its part, New York argues that this state of affairs does not amount to a “permanent physical occupation” because of the Supreme Court’s 1992 decision in Yee v. City of Escondido. At issue in that case was a California rent control ordinance for mobile home parks. According to the Supreme Court brief filed last week by Jonathan Kimmel, the chair of the New York City Rent Guidelines Board, New York’s rent stabilization law is perfectly constitutional because “the Court in Yee sustained rent controls and tenant renewal rights more restrictive than those in the RSL.” If the statute in Yee passed constitutional muster, New York argues, the RSL is in the clear.

The problem with that argument is that the Supreme Court specifically stated that its ruling in Yee was limited to the “unusual economic relationship between [mobile] park owners and mobile home owners.” In other words, New York is apparently relying on a critical misreading of the 1992 precedent. The Supreme Court should take this opportunity to correct the city’s error.

Moreover, it’s far from clear that the California statute is actually more restrictive than New York’s RSL. As the Supreme Court noted in Yee, California at least gave the property owners a way out. As Justice Sandra Day O’Connor’s majority opinion put it, “the Mobilehome Residency Law provides that a park owner who wishes to change the use of his land may evict his tenants, albeit with six or twelve months notice.”

James Harmon has no such option. His land is zoned residential—it may be put to no other lawful use. Nor may he evict his tenants and demolish their individual units, thereby removing that portion of his property from the rental market, since doing so would trigger a legal requirement forcing him to pay the displaced tenants a stipend of $5,000 and provide them with “an equivalent or superior housing accommodation at the same or lower regulated rent in a closely proximate area to the building.”

That last requirement is particularly risible. As any New Yorker could tell you, there are no one-bedroom apartments—rent regulated or otherwise—available for $1,000 a month in Harmon’s attractive Upper West Side neighborhood, which is located less than a block from Central Park. Harmon couldn’t relocate those tenants under the terms of the RSL if his very life depended on it. For all practical purposes, city officials are forcing Harmon “to submit to a permanent physical occupation” of his property.

If New York wants to maintain or increase its supply of affordable housing, it has plenty of other options that don’t violate the text of the Fifth Amendment, such as constructing new low-income apartment buildings or providing direct rent subsidies to the poor. Either way, there’s no legal justification for taking Harmon’s property without paying him just compensation.

The Supreme Court should take the case.

Damon W. Root is a senior editor at Reason magazine.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • ||

    The court is willing to allow Obama to force everyone to buy stuff, I'm sure they'll allow New York to keep on forcing its price controls.

  • No Gambol Zoning Regulations||

    Officer, am I free to gambol about plain and forest?

    MARX: NO!
    MISES: NO!

    Agricultural City-Statists, their answer is always the same.

  • GOV'T FOR ME, NOT FOR THEE||

    We love government regulations in our favor. Just not those that aren't in our favor.

    Go pack sand, Non-State society!

    ~Fibertarian City-Statist Hordes

  • ||

    Society, will I live beyond forty winters?

    NON-AGRARIAN NOMADS: NO!!

  • More romantic notions, John?||

    "The earliest visible populations of prehistory nonetheless do surprisingly well if we compare them to the actual record of human history rather than to our romantic images of civilized progress."

    Health and the Rise of Civilization
    Mark Nathan Cohen
    Yale University Press
    www.primitivism.com/health-civilization.htm

  • Sevo||

    Yep, so long as cherry-pick the data, we can show poor people (like the primitives) still die early:
    http://en.wikipedia.org/wiki/F.....Capita.png

  • The dishonesty of Sevo||

    Dr. Cohen isn't "cherrypicking" data. But you are.

    Agriculture is widely recognized as causing a huge loss in lifespan for 1000's of years, and we have only got back to our natural lifespan within the last several decades.

    http://en.wikipedia.org/wiki/Life_expectancy

    Even if your bullshit cherrypicking was valid, you're only arguing a utilitarian viewpoint held by leftists.

    Didn't think of that, didja, shithead?

  • ||

    "Agriculture is widely recognized as causing a huge loss in lifespan for 1000's of years, "

    From YOUR link

    http://en.wikipedia.org/wiki/Life_expectancy

    Bronze Age and Iron Age[11] 26
    Classical Greece[12] 28
    Classical Rome[12] 28
    Pre-Columbian North America[13] 25-30
    Medieval Islamic Caliphate[14] 35+
    Early Modern Britain[11][18] 25-40
    Current world average[21] 67.2 2010 est.

    You so mad you can't even see your own link proves you're a liar.

    BWAHAHAHAAHAH

    What kind of fucking idiot posts a link that proves they lie? Hoe fucking stupid are you?

    BWAHAHAHAAHAHAHAHAHAHAHAHAHAHH

    Now get mad and reply, like I tell you to.

  • anon||

    40?

    Try 24.

  • try 2x agricultural ||

    if you want to honestly assess longevity

    But even if your bullshit cherrypicking was valid, you're only arguing a utilitarian viewpoint held by leftists.

    Didn't think of that, didja, shithead?

  • Brother Grimm||

    Why always the plains and forests? Why not the deserts and tundras? Or the beaches and marshes? Huh? What do you have against them? RACIST BASTARD!!

  • T||

    I don't think racist is quite right, but I'm not sure what the correct term would be. Can I get a ruling from the judges?

  • Brother Grimm||

    No, racist works. Everybody's racist these days.

  • Emperor Wears No Clothes||

    You and all Indians are free to fuck off and die.

  • ||

    That reminds me of a poem...

    http://www.youtube.com/watch?v=rBHicyqMML4

  • ||

    But think of all the poor millionaires whop would be forced to pay fair market rents.

  • ||

    "whop"?

    stupid keyboard.

  • ||

    I blame your unconscious racism.

  • Realist||

    It's spelled WOP. It means without papers. Italians are not a race.

  • ||

    it's a joke - remember those?

  • Ice Nine||

    It's spelled h-u-m-o-r.

    Oh, and WOP doesn't mean "without papers".

  • Ice Nine||

    for Realist

  • ||

    It's spelled WOP. It means without papers.

    No, it means "guinea" or "dago." Sheesh!

  • ||

    As in, "Well isn't that just like a wop: bringing a knife to a gun fight! Get outta here, ya dago bastard!"

  • Emperor Wears No Clothes||

    I thought it meant spic.

  • ||

    If Hispanics get to be a race, so do Italians. Fair's fair.

  • KW6||

    No, WOP is the sound made by a Huey helicopter blade as it makes half a revolution.

  • Tom||

    God I love paying $1600 a month for a friggin' studio, just because it's in a decent part of Manhattan...too bad the million strong army of rent-stabilized tenants will never go down without a long, drawn out fight

  • Dylan||

    Go west young man.

  • ||

    doing so would trigger a legal requirement forcing him to pay the displaced tenants a stipend of $5,000 and provide them with “an equivalent or superior housing accommodation at the same or lower regulated rent in a closely proximate area to the building.”

    Magic wand not included.

  • ||

    That part is simply bizarre. They are paying him $1k in rent but he would owe them 5 times that in a stipend, PLUS rent?!

  • OuterSunsetLocal ||

    My parents own a couple buildings here in SF. Actually, banks own most them, they own maybe 20%. Due to SF rent control laws, which are almost as bad as NYC's, they have two tenants who are paying significantly less than market value. Both of these tenants earn well north of 100k per year, and both own houses. Actually one guy owns two houses and only uses the apartment for visiting friends or when he wants to stay in the City for the evening.

    At the very least they should be able to claim these people as dependents on their taxes to recoup some of the lost funds.

  • OuterSunsetLocal ||

    Faye Dunaway has a rent controlled apartment in Manhattan. I'm trying to think of the other star that has one there too.

  • ||

    Celebrities who have or have had rent controlled apartments:
    * Bianca Jagger
    * Carly Simon
    * Cyndi Lauper
    * Ed Koch
    * Mia Farrow
    It's a really pristine case of perverse incentives. If you've got to rent below market, it makes sense to do so to landmark tenants, rather then the great unwashed.

  • anon||

    But you guys don't understand

    If we don't control the rent, WHO WILL!?!?!?

    /sarc

  • ||

    It's not rent control; it's people control.

  • ||

    Prediction; If the Supreme Court even TAKES the case, the schweeming of establishment liberals will be audible on the far side of the planet.

  • Emperor Wears No Clothes||

    To avoid getting jammed by parasites such as Mia Farrow, couldn't landlords sign leases of one year and one year only? And keep rotating tenants?

  • myfriend123||

    Nice article.

  • ||

    Very interesting article, one note is that the tenants who sign a valid lease in this situation have no recourse under the current law. The NY assembly needs to pass S8082-2009 to help keep these innocent tenants in their homes.

    Please help innocent tenants stay in their apartments, sign and share the petition. Thanks for your help.
    http://www.change.org/petition.....-evictions

  • Ekim||

    Rather than yet more central planning of prices via rent control, it would be best to eliminate the central bank's printing press. Bank planning of prices is distorting the economy, and misallocating capital. Rent control is an attempt to compensate for super inflation in rent. A limited form of wage and price controls that failed in the past to compensate for excessive printing. Better to just get rid of the source of inflation in the first place, and let the free market set prices. This allows accurate supply/demand information back into prices.

    The printing press introduces counter productive divers weights and measures into the economy.

  • ||

    There's something called high-income rent deregulation, which if his tenants were really that rich these "poor" victim landlords can apply for.

  • STAYPELICAN||

    Pelican Suites have much more space than the average hotel can provide. Our properties normally offer separate, multiple bedrooms, full kitchens and more than one bathroom. Visit us at http://www.pelicancanada.com/north_york_suites

  • edwhite||

    Whitehall Suites offer furnished apartments in Toronto for weekly and monthly rental.
    http://www.whitehallsuites.com

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