Zohran Mamdani's Socialist Housing Plan Could Crash New York's Rickety Rental Market
The city has the nation’s most regulated housing sector and the largest stock of government-owned and subsidized housing, and yet progressives blame its real estate troubles on the free market.
Zohran Mamdani, a democratic socialist and the likely next mayor of New York City, believes the solution to Gotham's perpetual housing crisis is stringent price controls and massive government subsidies. His flair for making wonky policy fun and relatable helps to explain his popularity. In a TikTok video shot on the beach at Coney Island in January, Mamdani told viewers, "I'm freezing…your rent," before joyfully rushing into the frigid water in a suit and tie. The video goes on to elaborate on his popular call to halt rent increases for roughly a million regulated units.
What Mamdani doesn't understand (or chooses to ignore) is the extent to which the Big Apple's housing market is already drowning under the government's outsized role in setting rents, subsidizing construction, and serving as landlord for the roughly half a million New Yorkers who live in public housing.
New York housing is more socialist than not, which is why the sector has all the familiar characteristics of collectivism and central planning: rampant mismanagement, decay of public assets, misuse of scarce resources, and privilege for the select few.
Mamdani wants to extend this socialist-style regime by freezing regulated rents and implementing a $100 billion program to build 200,000 new, publicly subsidized, rent-regulated housing units. He details both ideas in the plan he calls Housing by and for New York.
Rent regulation and public housing have been around in New York in different forms for over a century, and they are policy disasters. They are the underlying cause of the city's perennial housing "crisis."
With public housing, a local housing authority owns and manages apartment buildings. New York's program, initiated by Mayor Fiorello La Guardia in the 1930s, is by far the nation's largest public housing system, providing shelter to an estimated 520,000 residents on 335 sites.
These buildings are falling apart, with an estimated $78 billion repair backlog, including "non-functioning smoke detectors, antiquated electrical components, damaged interiors, missing child guards…deteriorated roofs, deteriorated pumps, and leaking pipes," according to a recent report. The system for making repairs in New York public housing is rife with corruption. Heat and hot water service are routinely interrupted. The elevators, which are crucial in multistory buildings housing elderly residents, are constantly breaking down.
When public housing was created, it was assumed that the residents would be two-income, working families whose rents would cover upkeep. That plan failed as stable families opted for home-ownership. Today, only 2 percent of New York public housing households include two adults with children, and just a third of households report income from wages.
The perverse incentives of public housing help explain why the city is perennially plagued by shortages. According to data from the U.S. Department of Housing and Urban Development (HUD), fully 30 percent of the city's public housing residents are "overhoused," meaning single adults are living in 3- or 4-bedroom apartments. About 10 percent of residents have lived in their units for more than 40 years.
This problem also applies to rent-regulated units: Artificially cheap rents mean tenants don't vacate after their kids grow up and move out, leading to inefficient use of a limited stock.
When faced with high property taxes and underutilized space, on the other hand, the older owners of private homes often sell and downsize, making way for newcomers. This cycle, driven by market incentives, creates healthy and dynamic communities.
The "affordable housing" program championed by Mamdani will likely take the form of new private apartment buildings setting aside units for lower-income families, whose rents are subsidized by the federal government. These programs require developers to navigate extensive red tape, which adds cost and slows housing production. The system allocates units via lottery, so it's based on luck.
Similarly, rent-regulated units in Manhattan go to tenants lucky enough to get them, or, in some cases, inherit them from their parents or grandparents. Since New York lawmakers have made it so hard to evict tenants for nonpayment of rent, landlords are incentivized to pick high-earners to inhabit this scarce resource.
As mayor, Mamdani would select the members of the Rent Guidelines Board, which sets price increases on nearly 1 million apartments. According to Census data, turnover in rent-regulated units is half that of market-rate units, which is one of the reasons the city's overall turnover is 46 percent lower than the national average.
Suppose Mamdani wins and his appointees do his bidding, freezing the rent. In that case, thousands of small property owners, who are disproportionately minorities and striving immigrants, will have their rent rolls squeezed by a regulatory tourniquet. Landlords are widely demonized, but it's not an enviable job. A 99-year-old owner in the Washington Heights neighborhood was beaten savagely and robbed recently by someone pretending to meet to pay the rent in cash.
The tourniquet is already squeezing, thanks to a 2019 law that made New York's rent regulation laws far more stringent. Some 200,000 rent-regulated apartments, many in need of ongoing maintenance, don't generate enough income to cover basic operating expenses, according to Mark Willis of New York University's Furman Center. He also noted that "such rent shortfalls are likely to continue to grow over time, potentially exponentially, jeopardizing the long-run economic sustainability of these properties."
Price controls explain why New York is experiencing what I've called "shabbification." Buried in a table in the New York City's May 2022 Census Bureau Housing and Vacancy Survey is the fact that a third of rent-regulated units have rodents, which is nearly twice the rate of unregulated apartments. They also experience twice as many leaks, three times as many heating breakdowns, three times as many instances of mold, and twice as many toilet and elevator breakdowns.
About 23 percent of tenants in rent-stabilized units have lived in their apartments 20 years or more, compared to just 7 percent in unregulated units, according to a Furman Center study. More than twice as many rent-regulated residents are over age 65, and these units have fewer residents per household on average. In other words, rent regulation is enabling older New Yorkers, regardless of income, to age in place at artificially low rents.
Newcomers with ambition and creativity—but no trust fund—are locked out of the market.
A Mamdani rent freeze could turn the deterioration of the regulated housing stock into a full-blown crisis. Small owners, lacking financial reserves, will face rising property taxes and insurance costs. The prospect of abandonment could have echoes of the 1970s, when "the Bronx" was famously "burning" because desperate owners turned to arson to collect federally-backed insurance payouts that were worth more than their buildings.
The story of how the South Bronx came to resemble post-World War II Dresden is captured in a new book called Born in Flames: The Business of Arson and the Remaking of the American City by Temple University historian Bench Ansfield. Though it got a glowing review in The New York Times, the book's analysis is worthy of parody.
Ansfield correctly blames a 1968 federal program called Fair Access to Insurance Requirements (FAIR) for making Bronx buildings "most valuable after they went up in flames." In a free market, insurance companies wouldn't have underwritten nearly worthless structures at the center of an arson epidemic. But federal bureaucrats were risking other people's money, so they didn't care. The program incentivized landlords to burn down their buildings "not necessarily out of malice but out of calculated interest." In a bizarro twist, Ansfield characterizes this unintended consequence of government intervention as "a market-based financial remedy," referring to the arson wave as "a free market slum clearance program."
The author also casually dismisses another major factor in this tragic tale: The FAIR program set the borough ablaze, but it was another ill-conceived government intervention that turned these structures into ready tinder by depleting their value: rent regulation. Today's landlords aren't about to set their properties aflame, but the 2019 law has incentivized them to remove unprofitable units from the market and to allow their buildings to fall into disrepair.
How is it that a socialist like Mamdani takes stock of the New York City housing market's many problems and blames market failure? It's already the nation's most regulated housing market, with the largest stock of government-owned and subsidized housing in the country. Mamdani sees the solution as more of the same.
Rent regulation has turned New York into a Hunger Games version of musical chairs. When the record stops, grab the nearest seat and hang on. If Mamdani wins, the rickety wooden legs might collapse to the ground.
