Visible hand
Today's Bergen Record reports that the Teaneck Township Council is expected to reinstate limits on how much landlords may increase rents when apartments turn over. This return to greater governmental interference in the local housing market should come as no surprise. While a number of members of the public got up to express their views on the issue at Tuesday's Council meeting, it was not the familiar arguments they trotted out that swayed the Council to change course. The outcome of the latest debate on the lingering issue of rent control was determined at the polls back in May, despite some unfounded speculation by the Suburbanite that Michael Kevie Feit would renege on his campaign promise to uphold restrictions on landlords' ability to charge market rates for their properties.
Despite the fact that emotions run high when full vacancy decontrol comes up for discussion, statistics cited in the Record article appear to render the issue moot. After all, without binding restrictions over the past year, "according to township officials, the average rent increase on vacant apartments over the past year was just under 9 percent." Imposing a 10 percent limit on rent increases for newly vacated apartments, it might be argued, seems unlikely to make a big difference, as the market is not, for the most part, bearing increases of that magnitude.
However, the changing dynamics of the housing market suggest that this may not remain the case. As the New York Times recently reported, rents are now rising significantly nationwide after an extended period of muted gains. As price controls are reinstated in town, Teaneck landlords may actually sustain a financial loss, even as they failed to benefit from the one year reprieve they were handed by the previous Council.
What recourse do the landlords have? Probably none. The makeup of the current Council is such that tenants have regained the upper hand for the time being. Who will bear the brunt of this? Every non-renter who would benefit if landlords were properly incentivized to invest in their properties and upgrade them. Many declare themselves more than willing to pay that price in order to preserve the current demographic makeup of the town. But are the economic and aesthetic costs along with somewhat creepy social engineering really necessary to achieve that goal?
posted by Teaneck Blog @ 10:23 AM
14 Comments:
The New York Times article shows that the Northeast has seen minimal fluctuation in rent inflation rates over the past six years with an average increase of about 4%. According to the article, the highest recent rate of inflation was about 6.5% in the Western states for a brief period in 2001. It’s fairly safe to assume that the 10% inflation cap on vacant units will not create an undue hardship for landlords.
And don't get me started about "aesthetic costs" or I'll begin another rant about McMansions...
I never really understood all the hoopla over vacancy decontrol. The only argument I can think of is that existing tenants would be fearful that their landlords would try to get rid of them in order to get the higher rents from new tenants.
However, as a former landlord, If I had a good tenant, that is, someone who paid their rent on time, didn't destroy property and didn't call me at 3:00 am to insist I fix a running toilet immediately - I'd want to hang on to them.
Could you provide an explanation of why so many people get so emotional over this issue?
The New York Times article shows that the Northeast has seen minimal fluctuation in rent inflation rates over the past six years with an average increase of about 4%...It’s fairly safe to assume that the 10% inflation cap on vacant units will not create an undue hardship for landlords.
If rents charged for newly vacated apartments in Teaneck rose a little less than 9% over the past year and rents nationally are now accelerating to the upside, I'm not sure this is a "safe" assumption. Perhaps there was a one-time catch-up involved in the most recent Teaneck numbers, but I leave it to others to confirm.
As for capitalist's question as to why vacancy decontrol is such a hot button issue, Brian Aberback, author of today's Record article writes the following:
Tenant advocates have said unlimited vacancy decontrol would encourage landlords to harass and evict longtime tenants, price lower-middle-class people out of Teaneck, and eventually lead to the end of all rent control.
I'm sure many people honestly harbor these fears, but a more interesting question is what motivates them. It is a strange system that protects the rights of certain individuals to use the property of others for an indefinite period at an artificially low price. Could it be that the hysteria comes from tenants' awareness of the fact that they have a perk that requires vigorous action to protect because it isn't really justified?
If rents charged for newly vacated apartments in Teaneck rose a little less than 9% over the past year and rents nationally are now accelerating to the upside, I'm not sure this is a "safe" assumption. Perhaps there was a one-time catch-up involved in the most recent Teaneck numbers, but I leave it to others to confirm."
Regional differences are crucial when evaluating the performance of multifamily markets. In the Northeast, where land costs are high, development approvals are difficult to obtain, and zoning and tenant protection laws are stringent, rental markets tend to be less volatile than relatively unregulated markets that are subject to boom and bust cycles. In the New York Times article, there is a link to charts that illustrate the difference in volatility in four quadrants of the country and the difference between say, the Northeast, and the South, are striking.
Perhaps rental tenant "hysteria" is attributable to the fact that they don't own their own home and are therefore more suseptible to the vageries of the market than homeowners. There are significant benefits to homeownership which are self-evident.
In the Northeast, where land costs are high, development approvals are difficult to obtain, and zoning and tenant protection laws are stringent, rental markets tend to be less volatile than relatively unregulated markets that are subject to boom and bust cycles.
This would make more sense if the multifamily market were completely isolated from other segments. However, if the supply of apartments is relatively static in this area for the reasons you mentioned, that is all the more reason to expect a surge in rents (where market forces are allowed to operate). For the past half decade, many families who would ordinarily be renters became buyers due to the availability of easy credit and the rapid rate of home price appreciation. As the single family market deteriorates, those overleveraged homeowners and others who would have followed them (newly married couples, recent immigrants, etc.) are returning to the rental market. Increased demand with a fixed supply should lead to higher rents.
When it is time to sell their homes, will the rent control supporters cap the sale price to their purchase price + 4% per year?
While the average increase has been about 9%, the increases ranged as high as 27%. The council indeed appears to be headed toward “limited vacancy decontrol”. However the percentage increase that will be allowed has not been determined. At the council meeting, Councilmembers Gussen and Rudolph appeared to be against any limited vacancy control. Councilmember Feit proposed that the allowed vacancy increase be set at 27%. Deputy Mayor Parker as well as Councilmembers Kates and Honis favored significantly lower allowed increases.
The maximum yearly increase landlords may charge tenants is also still undecided. It looked like the current limits of 3.5% with heat and 4.5% without would be raised in recognition of increased energy costs. The council appeared to be divided along the same lines with Feit in the middle. I believe he suggested 4% and 5.5% as the new rates.
I have a great-aunt-in-law who's 101 years old and has been living in her rent-controlled apartment in a prime section of Greenwich Village for well over half a century. I don't know what her monthly rent is, but I'd surmise it's well below current market value.
God bless her, she’s a wonderful old gal, but when she finally "vacates" the apartment, I can't say that I would blame the landlords if they wanted to raise the rent by something more than ten percent. I don't know that I'm for full vacancy decontrol, but it seems to me that a little more flexibility might be called for in situations where turnover has been infrequent.
There is no guarantee that when seriously undervalued apartments become vacant, they will go to the neediest renters. Human nature being what it is, I'm sure than in some cases they will go friends and family members of the “gatekeepers,” or to those who can pay an off-the-books "premium" for the privilege of living there.
I thought the NEW council was forward thinking ! Why then is the word that they are even thinking about a step backwards with the rent control issue.
I hope Mayor Katz does not recuse on this rather then let his ship steer off course.
I hope the council are given the facts before they take action on rent control. How many units were effected by the change since last year ? How much were the rents raised ? How many complaints were filed about harassment or other issues ? This is needed before you just vote with FORMER mayor kates on an important issue
Sure it has its flaws and excesses, but I've always been impressed by the workings of the free market.
When I go to the supermarket, I pay whatever the prevailing rates are for milk and eggs, fruits and vegetables, and all the other products I need to feed my family. As the banana crop has suffered as of late, I expect to pay more for a bunch. Seasonal differences often account for variations of prices in other produce.
I also recognize that there are many people who can't afford to buy food. Government-provided Food Stamps allow those in need to purchase items at market rates. No supermarket is asked to cut its prices for those in need or for all buyers.
If I were to sell my home, I would expect to get the maximum price the market will be willing to pay. Most sellers would be apoplectic at the proposition that they would be free to sell their home only at a 4% annual markup from their purchase price.
As a society, we often grant benefits to select groups that don't go to others. Incentives built into our tax code encourage marriage, charitable contributions and mortgage interest payments. While these tax benefits may encourage stable families, community organizations and homeownership, they also create perverse disincentives and overincentives in various situations (certain people can't marry or lose out to a "marriage penalty", contributions may go to causes some in society may disagree with, and property owners can get deductions on megaproperties or vacation homes, for some selected perceived distortions).
It just goes to show that we must be judicious in deciding how to craft a benefit; there will always be those advocating for some new or expanded benefit for their pet issue, with the argument that the overall gain to society outweighs the total cost to all taxpayers, let alone the burden on any one individual.
People need a place to live.
There are several ways that government helps those who can't afford to find an apartment. Section 8 provides vouchers to cover the balance of rental costs above a level usually set at 30% of income. The tenant is obligated to follow rules, including accurate reporting of income, and landlords must meet housing standards set by the program. By this means, the market sets rates, and society as a whole covers the difference for those in need.
Rent control is another method. We all know how it works: limits are set on increases in rents for new leases. Vacancy control limits the rents a new tenant pays over the level paid by the previous tenant of that unit.
Teaneck apartment dwellers are a mix of long-time residents who have made a commitment to our community and newcomers to Teaneck who expect to live here for no more than a few years before moving on. The traditionally low voter registration and turnout percentages in District 15, which covers the apartments between Teaneck Road and the CSX tracks, around State Street and West Englewood Avenue, is a sign of the transience of many of these tenants.
The questions that I have about crafting a fair, reasonable and effective rent control ordinance revolve around the following issues:
1) Not based on need - those earning $20,000 per annum and those taking in $200,000 a year would pay the same rent, regardless which one of the two rent a given unit.
2) Not based on commitment to community - a couple moving into Teaneck looking for a place to live for a few years before moving elsewhere and an empty-nester looking to sell and downsize after living in Teaneck for several decades would pay the same rent for the same unit.
3) Non-transferability - the rent control benefit only applies to an individual's continuing tenancy in that unit. A below market rent can't be "transferred" to a larger apartment for a growing family or to a smaller unit for those whose children have gone on to homes of their own. Tenants with existing leases will rarely be able to grab a newly-available unit with a lower rent, which may very well go to someone new to the community.
4) Distorts market - not only are rents likely to be below market values, the prevailing rents for different available units can vary widely and arbitrarily based solely on the leases and durations of tenancy of those who've moved on years before. If one tenant has lived in an apartment for several decades, while another has turned over frequently, there can be significant discrepancies in rents for these and other comparable units that become to market for rental at any point in time.
5) Burden of benefit - If rents are below market rates, it is the landlord who is losing out. Regardless of how much the landlord deserves or needs to make to justify continued ownership, it's the landlord who sees a lowered return than the market would be willing to pay. Society as a whole gets to see people housed, but pushes the overwhelming majority of the rent control-induced income loss onto landlords. Teaneck homeowners can feel good about cutting rental costs without shouldering the cost.
6) Does not directly foster diversity - Rent control may help keep middle-income tenants. But this is rarely by design. Often, wealthier prospective tenants prefer to live elsewhere and poorer potential lessees are priced out of the market. Racial and ethnic diversity are subject to the random preferences of those looking to rent, not on any conscious plan.
I fully support a rent control regime in Teaneck. But these issues I've listed above (and many others I haven't listed) need to be addressed. How can we craft a rent control program that is better targeted to serve those in greater need, ideally reaching those who have already made and will continue to make a long-term commitment to Teaneck? How can we ensure that the mechanism we formulate doesn't create distortions where a long-time tenant can be paying several times more rent than a renter moving in to a comparable unit next door? How can we spread the burden of providing reduced rents to those who deserve a break? How can we craft a regime that actually plans for a measure of diversity, rather than achieve it randomly, if at all?
The supply of rental apartments in Teaneck is finite. We can allow anyone and everyone to benefit from rent control (as we do know), or we can try to target the recipients more narrowly.
As often tends to happen, this issue is painted in black and white by tenants and landlords, while there is much grey in the middle that often is unaddressed and unconsidered.
I would hope that all those involved in the rent control debate, both proponents and opponents, would address the specific issues of how Teaneck's rent control and vacancy control ordinances actually accomplish the goals we are trying to achieve, and how in many cases they fail to do so.
Alan Sohn
When I go to the supermarket, I pay whatever the prevailing rates are for milk and eggs, fruits and vegetables, and all the other products I need to feed my family.
Not exactly the best example of the workings of a free market. When you pay for milk the prevailing price is based on federal and state price supports. Farm subsidies also effect the prices on most domestic food products.
The truth is that government involves itself in virtually every level of our financial life from price supports and farm subsidies to bank deposit insurance, pension laws and setting interest rates.
I'd also like to comment on
"5) Burden of benefit." While the statement is not false, one cold also argue that many if not most of the the owners of rental properties bought them with full knowledge of the existing laws. The prices paid to acquire the properties already took existing and projected rents into consideration. Such landlords who woud have paid bargain prices for these properties would recieve a windfall if rent controls were suddenly abolished.
The examples I gave of tax incentives and commodities -- especially milk -- were carefully chosen to include those where there are varying degrees of governmental interference in the market.
Government regulates virtually every aspect of our economy. We could reduce the burdens on consumers for such items as food, clothing and transportation by mandating that supermarkets, retailers and gas stations cut their prices in half. If so imposed, every one of these establishments would leave town and never be replaced. While individual landlords may sell their properties and move on, the buildings themselves are firmly rooted in Teaneck. That we can impose rent control does not mean that it should be done without regard to consequences.
In any situation, governments have a two-step decision process in getting involved in an issue: 1) should it be involved?; 2) if yes to #1, how should it be involved?
With any and every initiative at any level, Government needs to determine what it is truly trying to accomplish (a subject that is a seldom articulated, but critically needed, starting point) and then assess how its plan addresses its goals, what negative externalities will be created and how it will monitor the program over time, ensuring that the stated problem is being solved and no new ones are being created.
As always, the power to tax (or regulate) is the power to destroy. We all knew that we had to pay property taxes when we bought our houses, but most of us wouldn't feel consoled by that argument if our taxes were to double or triple, a change that would not only result in increased expenditures of those who remain, but reduced home values for those forced to leave.
Clearly, one of the factors that sets home prices is the level of property taxes. If we could work together to cut the tax rate (let's be real pie in the sky) in half by cutting expenditures in half, every single taxpayer in Teaneck would reap a windfall benefit in the value of their home. The windfall benefit that landlords would receive if rent controls were abolished in their entirety would be exactly equal to the value subtracted by the existence of rent control. The price a landlord paid for a building factors in the regulatory scheme and prospects for changes in these rules. That there is a quantifiable difference in value with and without rent controls demonstrates that there is a definite cost imposed on property owners, not on the Township as a whole. And as far as I know, neither Teaneck, nor any other municipality, has ever considered compensating those landlords who were here when rent control went into effect for the reduced value of their properties by the Township-imposed mandate.
I'll add a few more factors to the mix in evaluating rent control in Teaneck (or any other regulatory intervention) to the ones enumerated above, some of which may overlap with others listed, but each of which provides a framework to evaluate the structure and methodology. (Please note that "deserving/undeserving; justified/unjustified; worthy/unworthy are all comparative terms that can be determined in many different, but arguably-justifiable, means):
7) Proportionality - Is there a relation between the benefit provided and the relative need? Presumably there should be a relationship that offers greater benefits to those with the greatest justified need (however defined), and a smaller (or no) benefit going to those with lesser need.
8) False negatives / false positives - Do the regulations fail to find those people who are more deserving of the rent control process (false negative) and / or do their benefits go to individuals who are less worthy (false positive). While they may sound like one and the same thing, we could have a rent control process that serves every worthy set of prospective tenants (no false negatives), but includes many people who don't deserve the benefit (high false positives). Conversely, given that the supply of apartments in Teaneck is finite, we could have a situation where there are more qualified families in need of apartments than are available (high false negatives) while there are no undeserving tenants renting any apartments.
10) Controls, checks and balances - Have adequate controls been established to ensure that we understand the state of the market and the needs in the community -- and how they are changing over time -- and are we properly balancing the structure of the program to address the needs of those we're trying to serve and those we've imposed the burden on?
11) Alternative methods - Is making changes to our exisiting rent control / vacancy control the only options available? Could we find other options that could be added to the existing rent control structure to balance the tenant / landlord issues. The Council on Affordable Housing (COAH) initiative in New Jersey includes programs by which developers agree to build a fixed percentage of affordable units of the total constructed on the site (usually 20%), to market to low and moderate income households and to maintain affordability for 30 years. Could set-asides be used to take a percentage of apartments off of rent control, thereby helping to achieve some of the landlord's goals of additional revenue while leaving an adequate supply of controlled units (commensurate with market conditions). Should other changes at the county / state / federal level address the needs of tenants while reducing the imposition on landlords, and would lobbying for these changes have a reasonable likelihood of success.
No single one of these consideration provides THE answer. But as it seems that we will be maintaining some form of rent control, we owe it to ourselves to define the goals we are trying to achieve and that we have the appropriate controls to ensure that we're addressing the issue of serving those defined as worthy while not creating any new problems.
Alan Sohn
I don't have the data to prove it, but I suspect that a majority of the rental tenants in Teaneck earn too high an income to qualify for federal rent subsidies such as Section 8 vouchers which are scarce and difficult to obtain and available only to households earning less than 60% of the area median.
By imposing rent controls, Teaneck is providing an indirect rent subsidy in the form of foregone property taxes.
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