New Yorkers have rent control in their blood. Recently, the Daily News referred to something as being "as much a part of New Yorkers as eggcreams, Coney Island, and rent control." Consequently, you can't tell New Yorkers that there is a world out there where apartments can be found by reading the newspaper or hunting "for rent" signs in the window. They all know such things don't exist.
For 45 years now, New Yorkers have had rent control. As a result, the city's vacancy rate stands at 2.5 percent—as opposed to 8.5 percent nationally. About 50,000 homeless people walk the streets, sleeping on sidewalks and subway grates, filling Grand Central Station. New Yorkers—even those who can't find apartments themselves—feel this is all the fault of landlords and clamor for more rent controls.
Six months ago on the "Morton Downey, Jr. Show," I bet anyone in New York $1,000 that they could go to Chicago and find an apartment within 48 hours. So far nobody has taken me up on it. That's because New Yorkers already know it's not possible. Apartments are things that you inherit from deceased relatives or get by paying $5,000 bribes to strangers or friends.
Still, this unfamiliarity with the real world is only half the story. I would bet that even if New Yorkers could be convinced that a free market would make apartments reasonably cheap and plentiful, most people still wouldn't accept the bargain. After all, what would be the challenge of living in New York if apartments were easy to find? How would we separate those arrivistes from the Midwest paying $2,000 a month for one-bedroom flats from second-and third-generation "old-wealth" tenants still paying only $800 for luxury seven-room apartments?
How much below market you pay for your apartment in New York is the principal measure of how long you've been around and how much you're "in the know." Mayor Koch himself pays only $351.64 for his rent-controlled apartment in Greenwich Village. State assemblyman Alexander "Pete" Grannis, chairman of the housing committee and an outspoken advocate of rent control, pays $771.72 for a large four-room apartment on the Upper East Side. State senator Marty Conner pays $469.59 for three bedrooms in affluent Brooklyn Heights. Rent control's "best deals" are still clustered in the most affluent areas of Manhattan—Greenwich Village and the Upper East and West sides.
By contrast, I know a recent college graduate who has spent two years paying $200 a month to sleep on a friend's couch while trying to find her own place. I know another college graduate who is paying $300 to live in a pantry and considers himself lucky. As one defeated apartment hunter told the New York Times recently: "I knew it was going to be difficult, but I didn't realize it would be impossible."
Still, if you hang in there for a few years—sleep on couches, sublet from friends—you may eventually hit the jackpot. For example, I know another woman in her 30s who lucked into a rent-stabilized apartment six years ago in a gentrifying neighborhood. It wasn't such a great deal—only $100 below market—but it is now $300 below market and the tenant upstairs just sold her lease for $11,000 (illegal, of course, but who cares?). For her and many others, living with rent control is a long-term investment that can eventually pay off handsomely.
As a result, trying to discourage people about rent control is like trying to dissuade them from playing the lottery. How can you say they're throwing their money away when there's a new $50,000 winner every week?
That's the way it seems at first blush, at least. But underneath this roulette wheel lies the slow, inexorable decay of a city under rent control. Landlords are, after all, the custodians of a city's most precious resource—its building stock. They must preserve and renew this infrastructure, using their own money. When a regulatory system discourages or prevents them from doing this, both the quantity and the quality of a city's real estate inevitably decline.
But that's not all. What is little recognized is that landlords also play a very crucial role in maintaining a city's civility. Landlords are informal policemen who uphold standards of behavior and resolve disputes between tenants and their neighbors. Their major responsibility is to make the majority of their tenants happy. When they are tied up in regulations, however, the quality of life begins to decay as well.
One old-time New York landlord sums it up in a recollection from the 1930s. "I remember going out one morning," he said, "and seeing a policeman who lived on my block with his things all packed on the sidewalk. 'What happened?' I asked him. 'Oh, I got a little drunk and acted up last Saturday and my landlord threw me out.' Of course back in those days it was no trouble to find a new apartment. People used to move every year just because there was a law saying the new landlord had to give you a paint job. The guy probably had another apartment that afternoon. But at least landlords had control over their tenants in those days. It was easier to keep bad people from getting out of hand."
It doesn't work that way anymore. The deterioration of social behavior is just one more unanticipated outcome of a regulated housing market. Rent control is eating away at New York's social fabric in other ways, as well.
Three years ago, Inc. magazine published an article ranking New York "one of the worst big American cities for starting a small retail or manufacturing business." This year, Inc. ranked New York 79th among small-business centers, after such hotspots as Jackson, Mississippi, and Toledo, Ohio.
A big reason: "escalating commercial rents," concluded Joel Kotkin, author of the 1986 report. Unfortunately, Kotkin, like so many others, proposes commercial rent control as a solution. The proposition has long been before the New York city council but has stalled because Mayor Edward Koch—in a fit of sanity—has opposed it.
Why should commercial rents be so high in New York? The major reason once again turns out to be rent control. Housing regulations have led to the abandonment of 50,000 buildings over the past 15 years. Countless numbers of these were what tax assessors used to call "taxpayers"—multistory apartment houses with commercial stores at street level. When low residential rents drove these buildings into bankruptcy, the commercial space went, too.
Residential rent controls also force landlords to squeeze every last dollar out of their commercial tenants. Under normal circumstances, landlords are "turnover minimizers rather than profit maximizers," observes Anthony Downs of the Brookings Institution, one of the nation's chief real estate experts. Once they get good tenants they tend to keep them rather than risk newcomers at higher rents.
Rent control deprives landlords of this luxury. Forced to lose money on their residential units, landlords must gamble wildly in trying to land that one big high-paying commercial tenant. Thus, even in the midst of a rising market, landlords have kept prime stores empty for years, waiting for a tenant who will pay ultra-high rents.
On the other hand, you might actually expect residential rent regulations to increase the supply of commercial spaces. This is because landlords should be anxious to convert some apartments to commercial use in order to get them out of rent control. In fact, there are now thousands and thousands of second-floor apartments in Manhattan that would work very well as stores or offices. The Mayor's Study Commission on Small Retail Business—set up to consider commercial rent control—called the conversion of second-floor spaces the most promising strategy for increasing the supply of stores and offices and lowering commercial rents.
Yet it can't be done. City officials are so acutely aware of landlords' desire to escape rent control that they fight conversions at every turn.
Let me give you an example. James Lioi owns a six-unit apartment building on Waverly Place in Greenwich Village. One of his tenants, supermodel Lauren Hutton, pays only $450 for a mahogany-festooned, rent-controlled artist's chalet in the back yard that is probably worth $1,800. (Hutton and her husband, the lease-holding tenant, also have another rent-controlled apartment in the neighborhood, plus a home in California and a 30-acre property on Long Island.)
In 1985, Lioi rented an unused, below-grade apartment in the front of the building to Josef Palterman, a Russian immigrant, who wanted to open a dry cleaners. The building department gave him a permit. Palterman spent $17,000—his life savings—to furnish the shop. Two months after it opened, building department officials came around and told him he would have to close it. They had made a mistake: the apartment wasn't zoned for commercial use after all.
Lioi went to court and showed that the space had been a Mexican restaurant in the 1950s and had long been used as a commercial space. He also discovered that the crusade against the shop was being led by a second-floor tenant who has a very cheap rent-stabilized apartment. Rent stabilization only applies to buildings with six or more units, and the tenant apparently feared Lioi's conversion of the basement apartment was the beginning of an attempt to take the building out from under rent regulations.
Lioi hadn't considered this possibility. He also quickly found that the law doesn't allow a landlord to remove his building from rent stabilization by converting apartments to commercial use-something the city attorneys themselves didn't know. Nevertheless, the tenant continued her campaign, rousing neighborhood opposition to "the shop on Waverly Street." Palterman, caught in the middle, said he wished he'd never left the Soviet Union.
The story of a Soviet refugee about to lose his life savings made the papers, and soon Palterman was being represented by none other than William Kunstler. Still, the city forged ahead. When I asked Gary Shaffer, the corporation counsel, whence the city's zeal, he replied: "We have a real housing shortage in this city because landlords are constantly converting residences to commercial space to collect more rent. In order to protect the tenants, we have to stop them." He said he was hoping to turn Lioi and Palterman against each other, so that Lioi would be forced to reimburse Palterman his $17,000.
Not until public sentiment came down firmly on Palterman's side—and Lioi had spent $20,000 in legal fees—did the city finally drop the suit. "What seemed to infuriate them [the officials] most was finding a landlord and a tenant on the same side of the issue," said Lioi. "It was like forcing a group of racists to consent to a mixed marriage."
So it goes in case after case. Rent control has not only wrecked the housing market but has driven up prices of commercial space as well. As usual, the solution to the problems of government regulation is more government regulation. What starts as a deceptively simple effort to "control prices" ends as massive government micromanagement of the whole real estate market.
Rent control also encourages the drug trade. Restrictions on police searches being what they are, it is certainly easy enough to carry on a street corner drug business. But it is much safer to set up a "crack house." Dealing with large sums of money usually leaves sidewalk drug merchants open to robbery and worse. Many drug dens, on the other hand, feature a heavily reinforced door with only a small slot where the buyer can insert his money and hope his drugs appear.
Landlords are terrified of having drug dealers gain a foothold in their apartments. "You can lose a whole building overnight," says Aeolus Green, a small Harlem landlord who fought off a drug invasion a few years ago. "The buyers start coming at all hours of the night, they keep the tenants awake, threaten them in the halls. The first time I found drug dealers in my building I went down there and ran them out with a baseball bat."
Unfortunately, any New York landlord who tries to keep dealers out of his building will quickly find himself running afoul of that city's strict eviction laws. Contrary to the workings of the normal housing market, rent control gives a landlord an incentive to get rid of tenants. Rent-control ordinances always include "vacancy allowances," which permit the landlord to charge any new tenant a higher legal rent than an existing tenant. (New York landlords have been known to hire anyone from rock bands to professional thugs to drive tenants out of low-rent apartments.)
Consequently, it becomes necessary to pass elaborate anti-eviction laws. But this only produces a new round of consequences. Although the laws protect good tenants, they also protect bad ones. Now the guy on the third floor can blast his stereo all night with the supreme confidence that nobody can do a thing about it.
In the end, drug dealers have emerged as perhaps the principal beneficiaries of New York's anti-eviction laws. The Rev. Dale Hanson, an activist pastor at St. Luke's Lutheran Church in Hell's Kitchen, has a crack den/whorehouse right next to his West 46th Street church. "Six months ago the landlord tried to empty the building," he recalls. "Within two weeks the city housing department was in court defending the drug dealers. I think the housing department does more to protect the drug trade in my neighborhood that the drug dealers do for themselves."
Jacqueline Abrams and her husband, Charles, own three buildings on Manhattan's Upper West Side. A few years ago, a tenant asked if he could rent a hall closet to store some wines. They consented. Several months later, two strange men showed up at the Abramses' door with guns drawn. They turned out to be FBI agents. The tenant, it seemed, was a fugitive in several states and had just been arrested in Minnesota on another drug charge. The FBI figured the Abramses were part of the operation, since the tenant's drugs were stored in their closet.
After finally convincing the FBI that the drugs belonged to the tenant, the Abramses went to housing court to have the tenant evicted. By the time the case finally came before a judge, they hadn't heard from him in six months. Nevertheless, on the day of the trial he finally appeared, wearing a trenchcoat in 95-degree weather. He was out on bail again and still wanted the apartment—even though he would be sentenced the next day.
"The judge asked us why we wanted him out of the apartment," recalls Mrs. Abrams. "We said, 'He hasn't paid rent in six months.' The judge said to us, 'How can you expect this man to pay rent? He's been incarcerated all this time.'" Instead, the judge told the Abramses and the tenant to "step out into the corridor and discuss the matter"—a euphemism for settling on the bribe that landlords almost always have to pay tenants to vacate regulated apartments. "When we got outside we told him we weren't paying him anything. He pulled back his raincoat and showed us a sawed-off shotgun holstered into his raincoat. His lawyer was standing right there. He said he wanted $25,000. We finally gave him $5,000. I wrote the check right there. All this happened right in the corridor of the housing court, with his lawyer standing right there."
Abrams says the experience, plus many others like it, has finally made her and her husband decide to get out of the housing business. "It's a nightmare," she says. "I could go to Russia and be treated better than this. Who needs it?"
Under such circumstances, it wasn't surprising last June when Manhattan District Attorney Robert Morgenthau announced that "landlords who refuse to evict drug dealers" are the biggest single problem in stemming New York's drug tide. Typically, Morgenthau announced that he would solve the problem by imposing huge fines on landlords. What Morgenthau did not yet realize is that the city's housing bureaucracy—the whole rent control system—is the origin of the problem.
The situation is so bad that the city government itself has now become New York's most active drug landlord. The Department of Housing Preservation and Development (HPD) owns 30,000 apartment units taken from landlords forced out by rent controls. HPD is so gingerly about breaking its own eviction laws that, as Catie Marshall, spokeswoman for HPD, put it, "We don't evict anyone unless we catch them dealing drugs and convict them twice in the same year."
Not surprisingly, of the 11 buildings targeted for immediate action by District Attorney Morgenthau, 7 were owned by the city itself. In one notorious drug haven on West 89th Street—the subject of a cover story in New York magazine—HPD has spent $250,000 on armed guards over the last three years to keep order around two large drug operations.
In another building just a few blocks away, Nikki Oritz, a 41-year-old tenant who had tried to drive drug dealers from her city-owned building, was shot dead as she swept the front hallway. The two murderers said later they were paid $300 to do the job. That's about right for New York. The word on the street is that the reward is $600 for killing a landlord or superintendent who tries to evict or interfere with drug dealers.
Perhaps the final thing to go under rent control is something that might be called the "quality of life." You can see this best on the Lower East Side, an area where the concept of private ownership has almost completely broken down.
The Lower East Side has been host to a whole succession of immigrants, from Ukrainian and Latvian refugees to the Puerto Ricans and hippy migrants of the '60s. The area's numerous public housing projects dominate its politics, and Miriam Friedlander, the 70-year-old former Communist Party member who represents the district on the city council, has vowed that no more city-owned buildings in her district will fall into private hands.
In the 1970s, the city government began a program that made it possible for neighborhood organizations to take over buildings from their private owners. Since that time dozens of "neighborhood preservation companies" (NPCs) have sprung up—all operating with generous helpings of state, federal, and city funds. They organize rent strikes, drive off the landlords, and then manage the buildings themselves, collecting rents and providing apartments for their members and associates. One of the most successful NPCs—Good Old Lower East Side (GOLES)—has seized control of over 20 buildings.
Neighborhood preservation companies have become so successful that rival organizations have divided the Lower East Side into zones to avoid stepping on each other's toes. Half-abandoned structures all over the Lower East Side are strung with banners proclaiming ownership ("This Building Belongs To The People—GOLES"), while warning off other predators.
In this atmosphere of house-to-house warfare, squatting in half-empty buildings—both private and city-owned—has become rampant. Tenant groups' dictum that "housing should be a free good" is taken literally by a growing tide of teenage suburban migrants. Their focal point has become Tompkins Square, a 10-acre patch of greenery where "skinheads" and other social outcasts congregate. Joining an already large battalion of the homeless (themselves victims of rent control), they turned Tompkins Square Park into a squalid, 24-hour party.
Doing drugs and playing loud radios, the denizens of Tompkins Square eventually exhausted the patience of neighboring citizens. One night last August the police were asked to clear the park. A riot ensued and the police, predictably, got the blame. Since then, the city has been going through a series of '60s-style self-flagellations.
Meanwhile, a free-floating army of squatters and skinheads has set up permanent vigil outside The Christadora, a former city warehouse recently renovated into condominiums after being empty for years. Shouting "Death to Yuppie Scum" and "Go Back to Westchester," the activists—many of whom recently migrated from Westchester—are trying to drive the homeowners out of "their neighborhood." The newspapers call it "class warfare" and fret about the "growing polarization between rich and poor." But the real confrontation is between those who believe in paying for housing and those who don't. In an environment where political gamesmanship and legalized racketeering have replaced the normal processes of exchange, taxpaying homeowners themselves ultimately become the "enemies of the people."
So that's what life is like under rent control. Some people probably think it couldn't happen to a nicer city. But they shouldn't feel too comfortable about it. Since 1970, almost every major city on the East and West coasts—Boston, Washington, Newark, San Francisco, Oakland, and Los Angeles—has adopted rent control. Berkeley and Santa Monica have ordinances so draconic that in less than a decade they have driven vacancies nearly down to zero.
Altogether, 200 municipalities around the country now have rent control, and others are toying with the idea all the time. It may not be long before this whole circus visits your town, as well.
Contributing Editor William Tucker is writing a book about housing and homelessness.