The Ecology of Housing Destruction, by Peter D. Salins, New York: New York University Press, for the International Center for Economic Policy Studies, 1980, 155 pp., $10.00.
The South Bronx is a term in the vocabulary of every American who watches TV, reads newspapers and magazines, or pays the least bit of attention to contemporary politics. More than a symbol, the term evokes real images of burning buildings, piles of rubble, and vast areas of utter destruction matched only by the World War II photographs of Dresden and London after the blitz.
The best estimates indicate that over 200,000 apartments were lost from the New York housing stock in the period from 1960 to 1975. The destruction was not confined to the Bronx; Brooklyn, parts of Manhattan, and even Queens account for some of the loss.
Why have hundreds of thousands of housing units been destroyed, with hundreds of thousands more "in process"? The standard explanation for those of us far removed from the scene is all too simple: rent controls! After all, New York City has had rent control in a variety of forms since 1943. Approximately 402,000 apartments are still rent-controlled; another 552,000 have moved from controlled status to "rent-stabilized" status since the passage of legislation in 1974. Still another 320,000 units (built subsequent to 1947) are "stabilized" without ever having been "controlled." All told, two-thirds of the housing stock in New York City is subject to one form of price regulation or another. Our knowledge of the workings and effects of rent controls in other times and places would seem sufficient to enable us to blame the South Bronx syndrome on the workings of rent controls and regulation.
Prof. Peter D. Salins argues that there is more to it; rent control is one of several forces that interrelate to produce the destructive dynamics we observe in New York. Salins refers to this as the "ecology of destruction" and lists the major components as follows: (1) the public assistance (welfare) system, especially with respect to the administration of its program of shelter allowances; (2) the complex, multilayered system of rent regulation and its impact on the market for housing; (3) the system of adjudicating landlord-tenant disputes, especially in its treatment of code-violation complaints; and (4) the dynamics of the ownership sector of the real estate market, especially as it operates on marginal rental property.
It is virtually impossible to do justice to Salins's book within the confines of a brief review. The feedback among the several programs can be very complicated, and an appreciation of the full story can be obtained only by reading his well-written analyses and scenarios, each of which is based on well-established facts.
Here is an abbreviated example of one of those scenarios. As of 1978, 242,000 New York welfare families received stipends to cover the full costs of their shelter rents. This stipend is a check that is tied to shelter costs and, in principle, is an in-kind subsidy that the welfare family cannot spend as it pleases. New York also has a housing court that adjudicates disputes among landlords and tenants apart from the traditional legal system. Over time, these courts have come to side with tenants in a crucial way: The courts authorize or condone the withholding of rent from landlords in the event of alleged violations of the building codes.
In a typical scenario, the tenant withholds the shelter allowance rent check from the landlord, cashes it himself, contests eviction, and simultaneously claims there are building code violations in the units. Tenants can and do willfully and consciously create code violations to justify withholding of rent (which they then spend on other things).
The legal process takes time in the housing court. Once a violation has been removed, the court condones a "negotiated" settlement for the rent in arrears, and the landlord frequently never collects the rent. If the landlord does prevail and the tenant is evicted, the welfare department provides a moving allowance, will help find a new apartment for the tenant, and may even raise the shelter allowance. Because of rent regulation, the rents in many "better" neighborhoods are below market levels and are attractive to the welfare tenant.
Salins argues that the shelter allowance combined with the housing courts provide strong incentives for the tenants to move frequently, to withhold rents, and to cause or contribute to the physical deterioration of the units they presently occupy. As they leave, vacancy rates rise, capital values of buildings fall, and, acting in their own self-interests, landlords in marginal properties are encouraged to postpone maintenance, default on taxes, and generally arrange their affairs so as to maximize short-run profits. Ultimately, the building is abandoned and leaves the housing stock, or the units may be shifted to city ownership by default.
Salins's prescription for change includes the replacing of rent-specific housing allowances with outright grants that allow welfare families to spend their money as they please, elimination of all forms of rent regulations for apartments as they are vacated, and modification of the adjudicatory system so as to divorce considerations of housing maintenance and code violations from those of rent delinquency and to ensure that all proven rent-delinquent tenants can be evicted.
In summary, I give the Salins book very high marks on both depth and breadth of analysis. I cannot recall a clearer documentation of the unintended consequences of government intervention in a market. The perplexing question is: How bad must the results get, and how long must they endure, before the visible hand of public intervention withdraws? Is the pathology of government intervention so deterministic that the patient must die before the treatment is abandoned?
M. Bruce Johnson is a professor of economics at the University of California at Santa Barbara, research director for the Pacific Institute for Public Policy Research, and the editor of the Institute's forthcoming book, Resolving the Housing Crisis.