Wednesday, December 21, 2011

NYC Rent Control Laws Go to the Supreme Court

James Harmon, an owner-occupant Manhattan landlord on West 76th Street near Central Park is going all the way to the United States Supreme Court with his claim that New York City’s rent laws constitute a “taking” of his rental property without just compensation, and violate his constitutional rights. 

From a NY Times article:

"[Rent control] regulations are meant to support the government’s goal of maintaining affordable housing for its citizens. Instead, Mr. Harmon  says, the laws have forced him and his family to shoulder the government’s burden and extend what is essentially “privatized welfare” to rent-stabilized tenants who are paying rent 59 percent below market rates and who have rights of succession to their lodgings in his house.

“Put yourself in our position,” Mr. Harmon, a former federal prosecutor, said of himself and his wife, Jeanne. “Suppose somebody told you, you’ve got an extra bedroom, we’d like to put someone in there for as long as they want to stay, and you have to take care of them for the rest of their lives and the rest of your life. That’s really what this is like.” 

The city’s rent regulations have been challenged many times going back decades, making this case an uphill battle. Mr. Harmon has lost twice in lower courts, most recently in September, when the United States Court of Appeals for the Second Circuit, in Manhattan, ruled that the rent-stabilization law did not constitute a “taking” because it did not stop him from using the building as a rental property and did not stop him from living there himself.

“Courts usually pay scant attention to these well-settled claims and routinely reject them,” said Jarred Kassenoff, a lawyer for landlords and tenants. 

But Mr. Harmon appears to have caught the attention of the high court, which has asked the city and state to file answers by Jan. 4 to his petition to be heard. The case could have wide repercussions for the almost one million rent-stabilized apartments in the city."

MP: There's certainly no economic, ethical or moral basis for rent control or rent-stabilization laws in NYC or elsewhere, it's all motivated by the same outdated and discredited political obsession with "affordable housing" that caused the housing bubble and financial crisis.  Good luck to Mr. Harmon in his attempt to restore the same sane, market-based pricing to NYC's rental housing that currently prevails for the city's hotels, coffee shops, restaurants, grocery stores, department stores, gas stations, etc.  In the same way that market pricing eliminates shortages of hotel rooms, food, coffee, clothing, and gasoline in Manhattan, market-based pricing for rental housing would just as effectively eliminate the shortage of rental housing.     

HT: Andy Weintraub


At 12/22/2011 12:17 AM, Blogger Milton Recht said...

Harold Demsetz noted that rent control laws, which limit supply but not demand, create situations where it is easy for the property owners to discriminate against renters' characteristics, such as religion, race, color, national origin, etc. Turning down a new tenant with unwanted characteristics is easy as there is a long line of others waiting for the apartment.

In an apartment market without rent controls, supply would meet demand and many more potential renters of all types would be able to find apartments. There would be more economic risk to a landlord of having a vacant apartment if he discriminated against a potential tenant.

At 12/22/2011 12:44 AM, Blogger ValueAnalytics said...

Milton you are 100% right!! 20 years ago I wrote a college paper at Baruch pointing this out. Prof was furious... he gave me a horrible grade with negative remarks on my anti rent stabilization.

The value of the building goes up significantly when they have all rich white tenants. Major discrimination and payoffs of supers, real estate to discriminate and others. If two bedroom becomes available does anyone think it goes to a family..a hispanic family, black family... hmmm i thought so.

Liberalism a true sickness and cancer on the USA.

At 12/22/2011 1:19 AM, Blogger Vagabundus said...

Rent control is equivalent to the forceful quartering of soldiers. Once in place, the many constituents who benefit shall fight to keep it in place. Others fear the "chaos" that may ensue upon removal.
Once limiting regulations are labeled as "takings", zoning and environmental regulations may be limited as well.

At 12/22/2011 2:14 AM, Blogger Charles Platt said...

When I lived in New York I was amused, in an ironic and weary way, to find that it was cheaper and much easier to rent commercial space, which has no rent controls. Depending on the part of town, cost-per-square-foot could be half as much for commercial, or less.

Another problem with controlled rents is that landlords don't have the money to maintain the buildings. And they have no incentive to do so, because there is an oversupply of potential tenants. Rent control has caused scarcity, and has thus increased demand.

At 12/22/2011 8:10 AM, Blogger jimfromearth said...

The developers were given tax breaks to build.
Now they want to undue the deals?
I'me for those that have higher incomes and not
Use the property as their main residence not avail
Themselves of the RSL.
What do we do with all those seniors living on
SS of about $1000. per month? I don't know how
Decontrolling rent would lower rent? I don't see it!
Eg. Commercial property is decontrolled and look
at what they are per square foot!

At 12/22/2011 9:27 AM, Blogger VangelV said...

There's certainly no economic, ethical or moral basis for rent control or rent-stabilization laws in NYC or elsewhere, it's all motivated by the same outdated and discredited political obsession with "affordable housing" that caused the housing bubble and financial crisis.

Morality, ethics, and economics have nothing to do with anything and are not important to the Supremes. In the past, they seem to have been more interested in the politics. Perhaps it is different this time but the risks are too high to make a bet on it.

At 12/22/2011 10:27 AM, Blogger Buddy R Pacifico said...

Here is an interesting quote from the NYC Rent Guidelines Board, that attempts to justify gov't control of the NY real estate market:

"The enhanced value of residential buildings in New York is, thus, in large part, attributable to government intervention. To give a stark (if somewhat fanciful) illustration, if the City sold Central Park to private developers the value of residential units bordering the park would plummet, housing would be more abundant, and Manhattan, in general, would be a more affordable but far less attractive place to live."

Manhattan real estate history is fascinating and much of it is tied to Trinity Church's real estate holdings that date back to 1694. Trinity Church holdings have been controversial, in that they have included many of the city's famous tenements.

At 12/22/2011 11:29 AM, Blogger Colin said...

Milton, here is an article about housing discrimination in India due to limits on housing supply.

At 12/22/2011 12:17 PM, Blogger dmacp said...

I have often wondered why no one has challenged the constitutionality of the progressive income tax. After all, isn't this in essence a direct violation of the concept of equal protection under the law?

If I were one of the super wealthy individuals I would challenge this. Also the notion of senior discounts (which I will soon be eligible for), ladies night (which I am a fan of), ethnic, gender, faith, and nationality based scholarships and all other special programs that treat some groups different than others.

At 12/22/2011 8:37 PM, Blogger Robert Kafarski said...

New York's rent regulation laws fall under the rubric of fascism. That is: ostensible private ownership but total government control. A rent regulated tenant is given a defacto estate in the owner's property as leases must be renewed at a rate specified by the NYC government; the apartment can be passed down to other persons indefinitely(and not only to family members - significant others are included); but taxes are raised inexorably and indiscriminately, services to the tenant are regulated by several layers of bureaucracy both city and state, even the speech by landlords to tenants is strictly regulated under anti-harassment laws. The NYC Housing Court is a farce and a parody of a court system it is little more than an exercise in tenant advocacy by former tenant advocates posing as civil court judges. NYC rent regulated property owners: wake up you are not really owners you are facilitators of a fascist con game.

At 12/23/2011 12:24 AM, Anonymous Anonymous said...

dmacp, you go far once you start imposing your "protections" on private establishments, like with ladies night, which Mark has pointed out is already illegal in two states. The govt can't discriminate because it takes tax money from all of us, but private establishments should be free to do as they please, whether senior discounts or whatever.

As for this rent control case, I hope the supreme court will strike down rent control, as it certainly does seem to be an unlawful taking.

At 12/23/2011 9:14 AM, Blogger VangelV said...

New York's rent regulation laws fall under the rubric of fascism.

Listen to Obama and most of the Republican candidates. They are very comfortable with fascism.


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