We should always be willing to look for the silver lining in any situation, no matter how dark and ominous the clouds may appear. In New York City, some people are sensing a possible silver lining to the pandemic, but it’s not one that will likely seem obvious at first glance. The plague has taken its toll on Gotham’s population and a recent survey shows that the population of the Big Apple is down by half a million from the same time last year. One side effect of this exodus is that the number of available apartments and other rental units is nearing all-time highs while the cost of renting has dropped significantly.
Here’s the obscure part of the story you might not know. New York City has rental laws in place, establishing a system of rent control that keeps prices artificially low. But the law was only enacted to provide relief during a period of a “housing emergency.” That emergency was the excuse for passing the rent control laws in the first place and the “emergency” has been ongoing for decades. But if vacancies in rental units exceed five percent when the regularly scheduled official survey of real estate is taken, the laws are supposed to expire. Vacancies are currently above 5%. (NY Post)
Unofficially, the city’s population is down by 500,000, and it won’t soar back up soon. Units are going for an average of 9 percent below the listed amount, and vacancies are still at historic highs.
In theory, this should end the city’s decades-long “housing emergency,” which stands as the legal justification for rent controls. If the vacancy rate is above 5 percent at the time of the next official survey, the rent laws are supposed to expire.
That would indeed be a cause for celebration. Landlords, who are now despairing, are given long-term hope. And it wouldn’t hurt tenants — not when rents are dropping.
Even if you thought that the rent control and rent stabilization laws were a good idea at the time they went into effect, this situation has dragged on for far too long. In reality, it’s the rent control laws that keep the city in a permanent “housing emergency” that wouldn’t exist if New York had a normal, healthy real estate market. If these laws expire, both investors and renters should have something to look forward to.
Because of those laws, nobody wants to take the risk of building new housing in the city. There’s simply no assurance that the city will allow the investor to turn a profit. That situation leads people living in currently rent-controlled apartments to be very unlikely to move out of their units, even if they are doing better financially and need more space. This stagnation keeps the existing rental units tied up in knots with no private investment going toward expanding the available housing volume.
If the laws drop off the books and there is any degree of confidence that they won’t come roaring back, people will once again be willing to invest in new housing construction. Other large cities have healthy real estate markets without rent control laws. That’s because where there is a demand for more rental units, those units appear and take advantage of that opportunity. Not so in New York City, where there hasn’t been a viable, healthy housing market since the 70s.
The problem is that the Democrats who run New York see rent control as a political winner. As the Post editorial notes, there has already been discussion about amending the rent control laws so they won’t lapse during this transitionary period. If that happens, this opportunity will slip away. Right now, housing opportunities are plentiful and rental prices are coming down. This would be the ideal time to remove the shackles currently placed on the market and let it expand in a normal, healthy fashion.