Two words: vacancy tax | NYC: More than 60,000 Rent-Stabilized Apartments Are Now Vacant

The City news website in NYC reports that "More than 60,000 Rent-Stabilized Apartments Are Now Vacant — and Tenant Advocates Say Landlords Are Holding Them for ‘Ransom’."  From the article:

During a worsening housing affordability crisis, New York City landlords are keeping tens of thousands of rent-stabilized units off the market — a phenomenon tenant activists call “warehousing.” 

An internal state housing agency memo obtained by THE CITY shows that the number of rent-stabilized homes reported vacant on annual apartment registrations rose to over 61,000 in 2021 — nearly doubling from less than 34,000 in just a year as the city emerged from COVID lockdown.  ...

The Coalition to End Apartment Warehousing, a collective of tenants and 15 community organizations, has been calling attention to the trend, claiming that landlords are fabricating housing scarcity to manipulate legislative changes in Albany. “Creating fake scarcity to raise prices is not a fair way to run the housing market, and it deprives New Yorkers of needed housing,” coalition members wrote in a recent op-ed.  ...

The Housing Stability and Tenant Protection Act of 2019 (HSTPA) repealed both vacancy bonuses and vacancy decontrol. It also sharply limited how much landlords could pass along the costs of renovations to tenants through rent increases, practices that housing advocates and lawmakers criticized for spiking rents and fueling displacement. 

Prior to 2019, landlords could make a lot of money by emptying out rent-stabilized apartments. HSTPA essentially revoked any financial incentive to do so. ...

But landlords are still legally permitted to keep their rent-stabilized apartments empty indefinitely.

It still has loopholes ("D.C.’s problems with vacant, blighted properties haven’t gone away, residents and officials say," Washington Post), but DC's vacant residential property tax is 5x the regular rate.  It does move properties back into the market. 

And they aren't a universal solution ("Cities Now Use Taxes to Fight Blight. Is It Working?," Governing).  They work better in strong markets, where the demand to develop and the demand to rent are both high.  

In weak markets, vacancy taxes encourage demolition, because of low demand, and demolition generally isn't the best way to move revitalization forward ("Demolition isn't always a solution").

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-- "Rents are rising everywhere: with continued supply-demand mismatch, shouldn't renter protections be universal?," 2022

Guardian article on Berlin rent control issue

 "Berlin’s rent cap, though defeated in court, shows how to cool overheated markets," has lots of good links, including "Why Rent Control Works" from Jacobin Magazine.

For me, part of the reason I support the concept is it is a kind of "excess profits tax" since housing is expensive in part because of supply restrictions because of zoning and other rules.  (Note I don't think government is heinous as restrictions usually come about because of nimbyism and a very facile understanding of how the housing market works.)

Why should commercial property owners be the sole beneficiaries of these capacity restrictions?

The trick is to balance rent control requirements in a manner that doesn't provide another reason to limit production of more housing.

Historic Filipinotown, Los Angeles, as another example of real estate capital-driven arbitrage

In the same vein as the recent blog entry on the Parkdale neighborhood of Toronto, "'Real estate capital reproduction of space' in the Parkdale neighborhood of Toronto," the Los Angeles Times has an article ("As Historic Filipinotown gentrifies, imagining a different future") about gentrification in the Historic Filipinotown district, which historically had not experienced significant demographic change.

One of the interesting things pointed out in the article is how buildings under rent control actually represent a significant opportunity to increase rents, provided that expensive renovations are made.  From the article:

Surrounded by more expensive housing markets, Historic Filipinotown is one of the last places in central Los Angeles where cooks, housekeepers, Uber drivers and new immigrants can afford to live. Alumit’s mother, a nurse, and his father, a security guard, saved everything they had to buy a home here in 1978. The neighborhood’s median income of about $26,700 is about 40% of the county’s median, and about 95% of residents are renters.

But Historic Filipinotown’s affordability is also the source of its vulnerability. According to an analysis by the UCLA Law Review, about 620 buildings in the area are subject to rent control laws, which makes the properties more tempting to buyers because the potential profits from raising rent would be much higher.

I thought that was a very interesting point. It's not uncommon for improvements in rent controlled buildings to lag, because of the complicated regulatory process, especially if the buildings are locally owned.

But large companies with access to cheap capital see such buildings as an opportunity to rapidly increase rents if wholesale improvements are made.

See the Curbed LA articles:

-- "657 rent-controlled apartments stripped from LA’s rental market in three months," 2019
-- "Tenants sue Historic Filipinotown apartment building owner for harassment," 2017

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Interestingly, looking up the mentioned UCLA Law Review article, it turns out that the school organized a "clinic/class" on "Gentrification, Displacement, and Dispossession":

In Spring of 2018, a seminar at UCLA School of Law brought together a group of graduate students and law students to trace the current manifestations of the U.S. property law system to its historical origins. From it emerged this collection of pieces, in which students, professors, and practitioners examine the present-day effects of gentrification, displacement, and dispossession in and surrounding Los Angeles.

What a useful class!  Granted plenty of law schools offer legal clinic programs, which provide a lot of help to people within the served communities.  But law schools turn out a lot of scholarship too that is applicable to local situations, but rarely is this knowledge stream tapped.

Here's the full set of articles:

-- "Dispatches from the Other Side of Development" by K-Sue Park
-- "Living Poor in the Affluent City" by Scott L. Cummings
-- "Los Angeles, Displacement, and the Rise of Airbnb" by Alex Scott
-- ">Losing Historic Filipinotown by Ysabel Jurado
-- "Dialectic Episode: Reclaiming Land Use Law: Using People Power to Guide Development" Dialectic hosts Sunjana Supekar and Jason Lawler talk with Doug Smith, Ysabel Jurado, and Joe Donlin about the role of community planning in combating gentrification in Los Angeles.
-- "Protecting Mobile Homes as Affordable Housing" by Soham Dhesi
-- "The Limits of Land Reform: A Comment on Community Land Trusts" by Daniel Foster
-- "Public Land for Public Good: How Community Groups Are Influencing the Disposition of Public Land to Help Address the Affordable Housing Crisis" by Katie McKeon & Doug Smith
-- "Local Control of Land and Water Resources: Rethinking California’s Eminent Domain Standard" by Mia Lattanzi
-- "From Chavez Ravine to Inglewood: How Stadiums Facilitate Displacement in Los Angeles" by Laylaa Abdul-Khabir
-- "We Shall Not Be Moved: Practitioners' Perspectives on Law and Organizing in Response to California's Housing Crisis" by Tyler Anderson, Terra Graziani & Kyle Nelson

Rent control laws should be paired with laws that boost new housing construction, especially housing not aimed at the highest income segments

The article in yesterday's Washington Post, "Housing advocates push for more aggressive rent-control measures in D.C.," reminds me of something I've been thinking about since coverage about rent control initiatives in California ("How California's tenants won statewide rent control," Capital & Main), Oregon ("Rent Control Is Now The Law In Oregon," Oregon Public Broadcasting), and an update of the law in New York City ("Landmark Deal Reached on Rent Protections for Tenants in N.Y.," New York Times).

From the Post article:

The District’s rent-control law, which sets the rate at which rents can be raised by property owners, will lapse Dec. 31, 2020. Last month, all 14 members of the D.C. Council signed on to support an amendment to the 1985 law that would extend it an additional 10 years — to Dec. 31, 2030.

But a coalition of 17 groups that include labor unions, religious congregations and community organizations fears that in a city with some of the highest rates of gentrification and displacement in the nation, extending a 34-year-old law without making substantive changes will fall short of residents’ needs.

The group unveiled its political platform Wednesday in front of an apartment building on Hamilton Street NW, where activists said tenants were subject to 30 percent rent hikes after a new building owner sought to offset the costs of repairs and renovations.

(The DC Tenants Union doesn't seem to have a webpage at the moment, so I can't find a list of the platform for the "Renters Rights Campaign.")

Or how, the Trump Administration proposes tying transit system funding to local land policies favoring intensification ("New Bill Would Tie Federal Transit Funding to Local Zoning," Reason Foundation).

To me, the justification for rent control comes from the fact that residents tend to be against intensification and new housing construction in many different ways and this is reflected in planning, zoning, and building regulations, all of which combine to reduce the supply of housing.

Property owners are the intended and unintended beneficiaries from restrictions on housing supply. Housing values appreciate extranormally as do rents.

So rent control regulations are a reasonable constraint on what during past wars were called "excess profits" -- that is, much higher than normal profits resulting from extraordinary circumstances.  Then, such profits were taxed at very high rates.

WRT rents, instead of extranormal taxes on profits, price controls have been introduced.

But now I am starting to think that in return for the legalization by states of the creation and imposition of local rent control regulations (property interests try to get laws passed at the state level which preclude local rent control), localities should have to agree to reduce restrictions on adding to the housing supply.

From the LA Times article "Rent control helps, but it can't fix California's housing crisis":

But rent control is no panacea for the housing crisis because it does not create new units.  It should be considered along with other policies such as housing vouchers, relaxation of zoning laws to spur construction and better public transportation infrastructure. Mandatory inclusionary zoning ... is another strategy worth exploring.

Because ideally, there wouldn't be a need for price controls, because the housing supply and housing demand would be roughly balanced.

Of course, in places where demand is extra normal and even with fewer regulations and restrictions housing supply is constrained, price controls may still be necessary.

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Separately, the Center for American Progress has a campaign on legal representation for tenants in eviction proceedings.

-- "A Right to Counsel Is a Right to a Fighting Chance: The Importance of Legal Representation in Eviction Proceedings," article
-- Full report