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Rent Regulations Advantage the Well-Connected

by Sandy Ikeda
Tue, 22 Jul 2008 at 9:03 PM

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Basic economics teaches us, and historical evidence demonstrates time and again, that rent control and rent stabilization — regulating what a landlord can charge for a unit — tend to harm the very people they are supposed to benefit.

The Swedish economist Assar Lindbeck once said that "Next to bombing, rent control seems to be the most efficient technique so far known for destroying cities" (quoted in William Tucker's "The Excluded Americans," p. 265). Nevertheless, around 200 American cities and towns practice some form of rent control.

But in addition to resulting in shortages, less construction, slower turnover, a deteriorating housing stock, and a lower cost of discrimination, such regulation also advantages the relatively rich and well-connected.

One of the best analyses of rent control and its consequences that I've read is "Scarcity by Design" by Peter D. Salins and Gerard C.S. Mildner. They explain:

To begin with, to earn the maximum benefits from New York's rent regulations, it helps to occupy an apartment for a long time (because landlords are permitted to raise rents more than usual when an apartment is vacant). Affluent professionals have greater job stability and can, in any case, manage to fake their continued occupancy (in order to sublet) when they must move. Also, influence or good connections are helpful in the search for a desirable rent-regulated apartment.

It now appears that some renters on the posh Upper East Side also know how to game the system. A New York Times article, "Low Rent, East Side Location: See Landlord, if You're Famous," describes a fancy building at 218 East 68th Street full of current and former celebrity tenants paying below-market rents, including: Mayors David N. Dinkins and John V. Lindsay; a former police commissioner, Howard Safir; a former fire commissioner, Thomas Von Essen; a former WNYW-TV/Channel 5 anchor, John Roland; a lawyer, Andrew P. Beame, who is a grandson of another former mayor, Abraham D. Beame; the former president of the Off-Track Betting Corporation, Hazel N. Dukes; Tony Bennett, and the songwriter Sammy Cahn. (The article notes that not all live in rent-stabilized apartments.)

Finally, a study published in 2003 by the Manhattan Institute concludes that

rent stabilization provides little benefit to residents of the outer boroughs and the lower and middle-income neighborhoods of Manhattan, while providing a substantial subsidy only to the residents of the relatively affluent areas of Lower and Mid-Manhattan.

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