This is reminiscent of New York's abominably badly-structured rent control system, which costs the vast majority of New Yorkers an immense amount in increased rent, and will probably never go away because there's a powerful asshole lobby that works overtime to keep it in place.
The idea of rent control isn't so bad. If done properly and fairly, it could make New York a lot better, but the insane legacy system is an unmitigated disaster. Since RC rents aren't even allowed to go up with inflation, there are a lot of people paying ~$200 for apartments that would rent for 10-15 times that. Technically, RC can only be passed within families, but the rules are broken all the time, and there's a common (if morbid) practice whereby people seeking rent control stalk obituaries and try to get themselves named as relatives of the deceased, usually in an arrangement involving paying "key money" to non-NYC resident legitimate relatives of this person. It has created a class of parasitic, law-breaking New Yorkers who will never leave, because they're locked in to an arrangement strictly better than ownership (landlord pays maintenance costs and taxes, which are higher than RC rent) and even if they only visit the city for 4 weeks out of the year, holding on to their RC apartment is cheaper than a hotel-- especially because they can sublet their RC apartments at market rent, which is also illegal but happens all the time.
Now, here's the kicker. The system was developed in 1947 to benefit working-class people. In 2012, almost all of the rent-control holders are upper-middle to upper-class people who have no legitimate claim to needing it. Unfortunately, they're well-connected to the city council and therefore, like cockroaches, will never leave. Disgusting.
You’re conflating “Rent Control” and “Rent Stabilization”.
Rent Control applies to apartments built prior to 1947 and only to tenants and their descendants who have lived in the apartment continuously. There are no new rent controlled apartments in NYC. When you hear of $200 three bedroom apartments in Manhattan, it they exist at all they're likely Rent Controlled vs. Stabilized.
Rent stabilization applies to apartments built roughly between 1947 and the mid-1970s. Rents can only be increased by a percentage determined each year by the NYC Rent Guidelines Board (http://www.housingnyc.com/html/resources/dhcr/dhcr1.html).
Tenants can be evicted from either style of apartment if the landlord can demonstrate that the unit is not the tenant's primary residence, amongst other reasons. While it is almost unheard of for a rent controlled tenant to be evicted, stabilized tenants get evicted all of the time. It is by no means easy.
Stabilized apartments can be removed from the rent stabilization program if the rent exceeds a certain amount, or if the tenant's household income exceeds a certain amount.
Typically landlords would love to eliminate RC/RS entirely, while tenant groups would like to see Rent Stabilization expand. The current vacancy rate in NYC is less than 3.something percent (http://cityroom.blogs.nytimes.com/2012/03/26/decades-old-hou...) so stabilization is unlikely to end any time soon.
[I own in NYC, I don't rent. Calling the million plus people who live in rent stabilized apartments "cockroaches" is itself pretty disgusting.]
This. I agree that the original rent control program was badly structured, but today, true rent-controlled apartments only account for 1.8% of all rental units in NYC (http://furmancenter.org/files/publications/HVS_Rent_Stabiliz...). And as the parent says, this number can only fall.
Rent-stabilization, on the other hand, is being expanded (the 2011 Rent Act increased the minimum rent for deregulation to $2500/month). It's less drastic than rent control and seems to at least have some effect on keeping rents low(er, this is NYC) without being open to such gaming effects as rent control.
However, there are always loopholes. When I moved into my Manhattan apartment, I was told before lease-signing that the rent would be less than the $2000/month ceiling (at the time) for rent control. However, upon lease signing, the rent on the lease was $2050 and there was an attached rider saying I would be paying a lower, "preferential" rent - the originally agreed upon amount - presumably to avoid rent-stabilization. Who knows if that would stand up in court, but as long as management companies can make the tenants believe it's not rent-stabilized, it doesn't really matter...
The idea that stabilization is "having some effect on keeping rents low(er)" seems questionable. There are effects that push in the other direction too. For instance, the fact that "stabilization" exists at all makes being a landlord less attractive. If people could bargain freely to any mutually-agreeable rent terms, developing new housing would be less risky so more apartments would tend to get developed, which would drive down the average rent. Stabilization can hold down prices in a few apartments, but tends to do so at the expense of higher prices (and lower-quality apartments) everywhere else.
There's plenty of new development going on, both condo and rental apartments. New rentals are typically required to set aside some percentage of units for specific income levels (so-called affordable housing). Condos typically trade in 421-A tax credits (where new developments get very reduced property taxes for some period of time, in return the developer must build some number of "affordable housing" units, but not necessarily in the same building or even neighborhood).
Stabilization and Control have definitely warped the market, but to date no one, on either side of the tenant/landlord divide, nor in politics has come up with a workable way to deregulate the market. It was thought that eventually the Stabilization would go away because, as we all know, no one wants to live in New York City and eventually the vacancy rate would go to 5% or more.
In practice the highest it's been since 1974 is in the low 4% range in the 1980s and very early 1990s.
Actually, I was talking about rent control and, yes, I know the difference between rent control and rent stabilization. I don't have a huge problem with the latter; it's a much better system. If RS were made uniform across the city, I wouldn't consider that such a bad thing.
Only about 2% of apartments are rent controlled, but when the vacancy rate in Manhattan is regularly below 1%, that makes a huge difference.
There's a fallacious argument people make that, if only 2% of people have RC apartments, they're only responsible for a +2% markup on New York rents. That implicitly assumes the demand elasticity for housing is exactly 1. Not so. This is a bad assumption. Consider the oil crisis of 1973, which established that a 5% drop in oil supply can cause prices to go up 5x or worse. The same happens with housing in urban areas: small discrepancies in availability can have huge effects on price.
Rent stabilization is a lot better and fairer because normal people actually have a chance of getting it, and because it's a more reasonable system. It would be even better if whatever schema were applied to New York were applied uniformly, but RS is a much better and fairer system than RC.
I maintain the position that RC does an extreme amount of damage. If the demand-elasticity for New York housing were 1, it wouldn't, but it's much higher.
Also, I have no problem calling rich people who exploit a system that was designed to help working-class people, at the expense of everyone else who has to pay these insanely high rents, "cockroaches", especially given that they usually break the law in doing so. My problem isn't with legitimate RC beneficiaries who couldn't afford to live in New York otherwise, and who probably comprise a small fraction of 2012 RC-holders, but with well-connected marketing directors making $200,000 per year and alimony socialites who pay $350/month for prime apartments while the rest of the city gets shafted.
(For the record, New York landlords, as a class, would probably lose if RC were abolished, because it's quite likely that the free-market demand elasticity of housing is much greater than 1. Individual landlords who had RC tenants would gain, but landlords with no RC tenants would be getting less rental income, and the overall effect on landlords as a class would be reduced income because the artificially high rents paid by non-RC tenants would plummet.)
if vacancies are truly below or near 1% then the market is significantly underpriced. as a landlord, a vacancy rate below 5% typically means that you should increase your rent (with rent stabilization, its not that simple, obviously), so while removing rent control apts would have some impact on rents overall, it is highly unlikely that they would "plummet"
Just as an example, one of the rent controlled apartments was occupied by one Kofi Annan. Yes, that Kofi Annan. Some working class guy, right?
http://www.nysun.com/national/mystery-surfaces-over-apartmen...
Once Kofi Annan became "the Kofi Annan", he passed the apartment to his brother, Kobina Annan, a working-class ambassador of Ghana to Morocco.
Welllllll... I am NOT pro-rent-control/stabilization/etc, but I will point out that an existing landlord has some monopoly power over his tenant because the cost of a new apartment search and move is high (in terms of finances, effort, time, emotions, new neighborhoods, lost stability, etc). The free market is only efficient if transaction costs are low, among other things.
But then, on the other side of the equation, every place that has rent control also has the risk of foregone future rent increases baked into the price. They'll also have insane leases meant to minimize that risk. If there is an imbalance of power between the tenant and the landlord because of their relative conditions, the government really has very limited power to change that.
It's a legitimate request, but quoting stats for something that is illegal and widely occurring yet rarely enforced would seem to be difficult.
From personal interactions with NYC residents, I feel pretty confident that asking any of them about rent controlled apartments would elicit rants against the system for the reasons specified.
Can I cite an economics professor whose name I've forgotten?
He discussed how rent controls prevent both raising prices and selling the controlled property, so the owners can't make money from the property in any way.
Thus, many of these buildings stand abandoned and unsafe for decades.
"He discussed how rent controls prevent both raising prices and selling the controlled property, so the owners can't make money from the property in any way."
That's basically the position of every economics instructor I've ever had - at least in 1xx and 2xx economics. I didn't go any further in economics, but I have been told that the basic jist of 3xx and 4xx economics is to demonstrate how everything we learned in 1xx and 2xx models is pretty much demonstrably incorrect in the real world, and why.
I have a relative who owns a townhouse in Brooklyn. When they bought their place, they got a substantial discount because it came with a couple of un-evictable tenants who were paying under $100/mo in an area that would have bore $1500/mo otherwise for those apartments. They literally spent more on utilities for that apartment than they received in rent.
In looking for apartments in NYC, I ran across at least one other that was rent controlled and was absurdly cheap, and the person living there was subletting from the person to whom the rent controlled place was passed down to for more than he was paying, but still less than market rent.
I don't think it's a defensible system, at all, and I'm normally relatively in favor of welfare programs. This one is just completely broken.
The idea of rent control isn't so bad. If done properly and fairly, it could make New York a lot better, but the insane legacy system is an unmitigated disaster. Since RC rents aren't even allowed to go up with inflation, there are a lot of people paying ~$200 for apartments that would rent for 10-15 times that. Technically, RC can only be passed within families, but the rules are broken all the time, and there's a common (if morbid) practice whereby people seeking rent control stalk obituaries and try to get themselves named as relatives of the deceased, usually in an arrangement involving paying "key money" to non-NYC resident legitimate relatives of this person. It has created a class of parasitic, law-breaking New Yorkers who will never leave, because they're locked in to an arrangement strictly better than ownership (landlord pays maintenance costs and taxes, which are higher than RC rent) and even if they only visit the city for 4 weeks out of the year, holding on to their RC apartment is cheaper than a hotel-- especially because they can sublet their RC apartments at market rent, which is also illegal but happens all the time.
Now, here's the kicker. The system was developed in 1947 to benefit working-class people. In 2012, almost all of the rent-control holders are upper-middle to upper-class people who have no legitimate claim to needing it. Unfortunately, they're well-connected to the city council and therefore, like cockroaches, will never leave. Disgusting.