A Stitch in Haste

The single stupidest economic policy ever conceived by any level of government in the United States is alive and well:

Mayor Michael Bloomberg on Wednesday extended the city's rent stabilization law for another three years, citing an ongoing housing emergency in the city's rental market.

In 2005, the number of rent-stabilized units, where the median household annual income was $32,000, was nearly unchanged at 1.04 million, according to the 2005 Housing and Vacancy Survey, conducted the U.S. Census Bureau and the city’s Department of Preservation and Development.

That same survey showed vacancy rates in the city of just over 3%. It needs to be at least 5% before rent regulation can be discontinued, according to the law.

For perspective, this housing "emergency" has existed since World War II.

To review: deny property owners the ability to charge a market-clearing rent and thereby make a market-clearing profit, and -- presto! -- the market doesn't clear. Try again the next year -- same result. Continue the process for 60 years -- same result. Same "emergency," same response, same outcome. Forever and ever...

And remember, rent regulation only benefits those fortunate enough to score an apartment. And those people are not necessarily poor. There is no means testing for rent regulated apartments. Middle- and upper-income earners are as likely, perhaps even more likely, to be able to game the system to acquire, keep and pass on rent-regulated apartments.

The laws of economics are much closer to the laws of physics than most people realize or most politicians are willing to admit. Disturb the laws of supply and demand, and only disequilibrium can result. For sixty years the government has restricted supply only to lament the fact that supply is inadequate. It boggles the mind.

If you really care about low-income housing or helping the poor, then the first thing you should do is totally deregulate the housing market, let the rich pay market-based rents for market-based average or luxury apartments, thereby freeing up the lower-end housing stock for the middle class and working poor. Either that, or just use vouchers. But if the problem is that New York City needs more housing, then the answer is to give developers an incentive to build it -- the exact opposite of the current approach.

So much for Mayor Bloomberg's "business acumen" or the lie that he is anything other than a same-old-same-old hack politician.

"There is a quality even meaner than outright ugliness or disorder, and this meaner quality is the dishonest mask of pretended order, achieved by ignoring or suppressing the real order that is struggling to exist and to be served."
--Jane Jacobs

I've blogged previously about how rent regulation, at least as it is practiced in New York State*, not only violates the most rudimentary principles of introductory economics but also the most rudimentary principles of progressivism. If you love the poor, then you should hate rent regulation, since it doesn't help the poor; it helps renters — who quite often are anything but poor.

But did you know that the same Alice-in-Wonderland logic is also exhibited in New York's other major "anti-poverty" residential program, public housing itself?

The New York City Housing Authority announced yesterday that it wants to raise the rents paid by tens of thousands of its better-off tenants.
...
The proposed rent increases, some as high as several hundred dollars a month over the next two years, would affect nearly 47,000 households with annual incomes ranging from $19,800 to as high as $100,000.
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The authority, the largest in the country with more than 400,000 tenants, last fixed rent ceilings, beyond which no tenant's rent could climb, in 1989. The aim of those "ceiling rents" was to encourage upwardly mobile families to remain in public housing, cultivating a socioeconomic mix that some say has been crucial to the authority's success.

So the best way to help poor people is by offering public housing to not-poor people? This is a definition of "success," in the same way that the authority running out of money is also a sign of "success"?

And I'm confident that my readers are not so naive as to think that the Politics of Pull plays no role in allocating those "rent-ceilinged" apartments.

How does the saying go? "Great socialism — if you can get it."

If you really want to maximize the housing stock available to and affordable by poor people, then your first, most urgent priority should be to get upper-income people out of middle-income housing and middle-income people out of lower-income housing. And the most straightforward ways to achieve that are, first, by scrapping all rent regulation in private housing and, second, by means-testing public housing.

Either that, or fess up and acknowledge that you don't really care about poor people at all, but merely those lucky few, regardless of income, who win the interventionist housing lottery.

(The idea of homesteading public housing, thereby giving the poor some direct economic empowerment through marketable property rights, is far too delusional utopian for this blogpost. Some other time, perhaps.)

(*Contrary to popular belief, rent regulation in New York is governed by state law, not city law, and there are a handful of rent-regulated apartments in cities like Buffalo and Rochester, not just New York City.)

...because we are dealing with Kindergartners:

If you've never been to an RGB meeting, it's a unique political spectacle. The board members take turns reading speeches -- when we arrived, one of the tenants' advocates was making an impassioned plea to freeze the rent increases. She was interrupted several times with shouts of support from the audience. After she finished, one of the landlords' advocates began to read his statement. He was drowned out every couple of minutes by shouts and organized chanting from the audience. Many members of the audience brought their own banners and signs, and waved them gleefully for the media assembled around the edges of the room. Most of the reporters had that glazed look they tend to get when there isn't much happening and they are watching something they've seen a thousand times before.

The "RGB" is the Rent Guidelines Board, a central planning bureaucracy that sets rates for about half the rental apartments in New York City. And while we have not seen this phenomenon "a thousand times before," we have in fact been seeing it since World War II, when the "temporary" and "emergency" rent stabilization program was first implemented. And we have, of course, suffered chronic housing shortages in New York City ever since. Go figure.

I won't pen yet another diatribe about the (rather elementary) economics of rent regulation -- been there, done that. What I want to note here is two other observations. First is the hopeless economic ignorance of these brats -- most of whom couldn't draw a supply-and-demand graph, let alone explain it.

Price ceilings create shortages. I can explain it to you in five minutes with one piece of scrap paper. And it's not a question of policy, but a question of fact -- economic laws are akin to the laws of physics. And no banners or speeches or protests or screeches can change that.

Second, what does it say about people who mark their calendars for the sole purpose of throwing temper tantrums? What precisely does it accomplish to drown out a landlord RGB representative -- who is trying to convey information -- with wailing shrieks and other manifestations of rude behavior? What cause are they serving by being jackasses? Whatever their purpose, alleviating the housing crisis certainly isn't one of them.

It's perfectly reasonable not to be an activist. It is not at all reasonable to become an activist and then dedicate your efforts to serving as mere background noise. That is not the activism of a reformer ... it's the activism of a pre-schooler.

More on the uncivil attendees from the New York Times.

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One sign at the RGB sandbox:

PRICES ARE NOT COSTS
Well no, actually prices are costs, since "profit" is not simply some residual to be found and looted like buried treasure, but rather a return to a factor of production no different than wages or interest. That factor of production is called entrepreneurship -- and it requires an extraordinary amount of entrepreneurship to own property as a business. Anyone who doubts that should ask whether simply owning one's own home is an effortless proposition. Then extrapolate to owning dozens or even hundreds of homes. Who could be so obnoxious as to suggest that landlords do not deserve profits or that "prices are not costs"?

The answer: only those who want something for nothing. And there's a word for people who want something for nothing, like these undisciplined housing "activists":

Greedy.

Think we're making any progress?

A routine public meeting of the Rent Guidelines Board dissolved into a profanity-laced shouting match yesterday, after one member proposed that the board pass a resolution calling on Albany lawmakers to repeal the current housing laws.

A peeved board chairman, Marvin Markus, scolded Adriene Holder, who represents tenants, for trying to force a public-policy role on the board and called for a vote to rule any such resolution out of order. He then turned his ire on proposal supporter Timothy Collins, who yelled that Markus' actions "were a disgrace to the democratic process."

"Who the hell are you as the expert of the democratic process?" Markus retorted. "Bulls- - -. Get out of the f- - -ing place," he screamed.

Childish tantrums at a public hearing? Arlen Specter would be proud.

Previous post on the idiotic Rent Guidelines Board process here.

Here's one for those who insist that it is inappropriate to describe unbridled democracy as "mob rule" --

Rents for New York City's one million rent-stabilized apartments can increase by as much as 7.25 percent over the next two years, the city's Rent Guidelines Board voted last night in a raucous meeting that was disrupted for hours by jeering tenants protesting the state's control of the city's rent laws.
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The vote came after hundreds of tenants filled the Great Hall at Cooper Union in Manhattan, armed with everything from drums and whistles to aluminum-foil roasting pans and handmade rattles. The meeting was disrupted for the better part of an hour, prompting the board chairman, Marvin Markus, to adjourn for the next two and a half hours.

The board finally voted shortly before 10 p.m., more than four hours after the meeting started. The bellowing and pounding had become so deafening that the stenographer recording the proceedings had to go onstage to hear Mr. Markus, shouting into his microphone, read the proposal into the record.

There's a word for people like this: brats.

Another word might be: criminals --

While protesting tenants were unhappy with last night's outcome, they were pleased with their disruption. "We did a fantastic job," exulted Jumaane Williams, executive director of the Tenants & Neighbors coalition. "We shut it down longer than it's ever been shut down before."

Tenant leaders said they decided months ago to disrupt the annual rent-setting meeting because they considered the deliberations "a sham" that always produced a pre-ordained result.

That's premeditated disturbing of the peace, trespass, obstructing governmental administration and perhaps even inciting to riot. Remind me again how these people pretend to have the moral high ground?

So now these leeches not only get something they don't deserve, something that extracts a terrible economic toll on the city, something that was supposed to be a "temporary" program back in the 1940s — but they also get to behave like pre-schoolers, and lawbreakers, in the process?

This is the democratic process at its purest.

And it's not something to be accommodated.

Those who receive regulatory charity at the involuntary expense of others should exude, not indignation or criminal intent or certainly not infantile tantrums, but apologetic humility.

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Meanwhile, Washington D.C. just slipped back into last century:

D.C. Mayor Anthony A. Williams signed legislation yesterday to bar most landlords in the District from raising rents by more than 10 percent a year, the first major revision of the rent-control laws in more than two decades.

Under the new law, landlords of rent-controlled buildings will be permitted to raise rents only once a year, with most units limited to an increase of 2 percent plus inflation, or no more than 10 percent.

It's quite simple really: As I've said before, the laws of economics do not yield to the laws of politicians. I hope Washingtonians are looking forward to their pending housing shortage — and, eventually, their rent riots.

Public housing can only help alleviate a housing shortage if the apartments are actually available:

The city's public housing authority takes too long to renovate its apartments -- sometimes as long as seven years, an audit released yesterday found.

The apartments are left empty for so long that some residents say homeless people and drug dealers break into them.
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The audit by Comptroller Bill Thompson's office surveyed six of the city's 344 developments and found that the average time it takes to complete renovation work is 3 1/2 years.

Could you imagine such mismanagement in the private housing market?

Remind me again how public provision is better than private provision? Remind me again how government is the solution rather than the problem?

Brazil is undertaking a program to convey private property rights to residents of its shantytowns:

Without title, residents cannot finance home repairs, get credit or mail, or sell their property. They can also be evicted without legal recourse — a real fear in a city where entire slums — known as favelas — have been removed to make way for commercial developments.

Since 2003, 272,000 families nationwide have received titles to property in favelas and another 450,000 families are in the process of getting them, [Minister of Cities Marcio] Almeida said.

"A right to property is like a right to citizenship," he told a ceremony inaugurating the program in a humble white church in the heart of Rocinha.
...
Today, about a fifth of Rio de Janeiro's 6 million residents live in the favelas. Many have been there for generations.

So while the United States reinvents property rights downward, less developed countries reinvent them upward. Go figure.

There is of course no difference between the favelas and, say, pharmaceutical research: why invest if you can't reap the rewards? Now these residents can reap the rewards, so they will indeed invest (or sell to those who will invest). And the favelas and their residents will inevitably benefit from that.

Meanwhile, any proposal in, say, New York City to offer property rights to occupants of public housing, to give them an opportunity to invest in and thereby improve their homes, would bring only hysterical laughter (or vitriolic rage) from the so-called "housing activists." Go figure. Indeed, I would not be surprised to see some opposition to the Brazil plan from anti-capitalists on the grounds that the "greedy real estate developers" will simply buy up all the land in the favelas and turn them into condos. Or worse, they would bemoan the end of a "way of life" — even if was a life of poverty and squalor.

One of the many ways that basic constitutional rights have been blanked out over the decades has been through the disgrace of "regulatory takings," in which the government doesn't physically seize your property (as in Kelo v. New London), but simply forbids you to do what you want with it. See, e.g., "wetlands" preservation.

A pending example in New York:

State legislators announced a plan Sunday to ensure Starrett City apartments remain affordable by protecting the Brooklyn complex under the state's rent-stabilization laws.

Under current law, buildings that opened in 1974 or later — such as the 46-building, 5,881-unit Starrett City — are exempt from rent-stabilization rules if they leave [government subsidy programs]. Starrett, which was just sold for $1.3 billion, is enrolled ... but its new owners could potentially withdraw from the program.

The bill, sponsored by Assemb. Vito Lopez (D-Brooklyn), would automatically protect any property that leaves the programs with rent-stabilization, no matter what year the building was built and occupied.

For year after year, Starrett City played by rules and obeyed the law. Now, when they want to — gasp! — still follow the rules, by opting out of the game — suddenly they might not be allowed to? It's like the bully who, having lost the game, demands "two out of three," and then "three out of five," ad infinitum.

And for the consequentialists (of which I am not one): what kind of signal does this send to real estate developers and other entrepreneurs? "Do not build housing in this city. If you build it, they will come — and steal it (or its profit potential) from you."

The current and intended future owners of Starrett City did everything that was asked of them for over thirty years. They are entitled to the deal they were promised.

The fact that so many activist legislators can't grasp this simple truth is another reason why all politicians are, by definition, moral defectives.

To review: Rent regulation in New York State, consisting of "rent control" (a permanent price ceiling) and "rent stabilization" (a below-market rate of rent increases) was established at the end of World War II as a "temporary" price control scheme to address a housing "emergency."

So far, the "temporary emergency" has lasted for over 60 years. Thus ever with central planners.

Meanwhile, landlords of rent stabilized apartments, who year after year have as a group played by the (unfair) rules, accepting below-market rents, and below-market increases in rent (among other infringements of their private property rights), have at least had one consolation — one carrot dangled before them as an incentive not to riot in the streets over their unfair treatment under this abominable program: The knowledge that, once the rent of a stabilized apartment trickled up to $2,000 per month, that apartment would be unshackled from rent regulation tyranny and returned to the free market. Just be patient, the landlords were assured, and eventually you will be allowed to make your market-based return. It might take years; it might take decades. But your day will come.

Instead came Spitzer:

Legislative sources briefed on the plan said the governor will soon propose a bill to raise the rent threshold at which an apartment can be deregulated to $2,800 a month, with a mechanism for subsequent annual increases based on the consumer price index.

In other words, the light at the end of tunnel for landlords will be forever extinguished. The goal, once universally thought to be $2,000, is — presto! — $2,800 ... and climbing forevermore. If the increases in the ceiling exceed the (regulated) increases in rent (and of course they will), then the apartment will simply never be deregulated. The "temporary emergency" is now guaranteed to last forever.

It's quite simple really: Changing the rules toward the end of the game is cheating. Turning an already unfair, unwise and immoral confiscation of property rights into a Sisyphean nightmare is yet another example of how all politicians are, by definition, moral defectives.

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Note that I'm arguing strictly on rights-based reasoning, ignoring the economic (i.e., consequentialist) argument, namely the axiom that all below-equilibrium price ceilings, including rent control, create shortages, and that anyone who really wanted to catalyze the creation of more housing, including more "affordable" housing, would of course champion the total abolition of all rent regulation and other government-imposed impediments to building.

If the politicians don't care about elementary economics, then why should I?

How is this not a racist statement?

The Rent Guidelines Board recommended increases between 2 and 4.5 percent for one-year leases and between 4 and 7.5 percent for two-year leases at a preliminary vote last month. That's a pinch many New Yorkers say will be hard to take.

"Minorities can't afford that," said Lakisha Brown, 29, a single parent who pays fully half her income for a two-bedroom apartment in Harlem.

So all minorities are poor, and all whites are rich? (Or, alternatively: All renters are minorities and all landlords are white?)

If rent regulation is going to exist, then let's at least be accurate about what it represents: counterproductive warm-fuzzy-feeling politics that violate every principle of elementary economics and do more harm than good. Race has nothing to do with it. That's about the only nice thing one can say about it — it's an equal opportunity disaster.

More:

"If the board adopts the newly proposed rates, the housing crisis will be exacerbated," said City Council Speaker Christine Quinn.

Never mind that rent regulation — implemented shortly after World War II — was crafted as a "temporary" ameliorative to a "temporary" crisis. But, of course, it is generally impossible for a politician or bureaucrat to accept the possibility that a "crisis" is ever over. No matter what happens to New York's housing market, demographics or economy, there will always be malcontents who insist that there is a "crisis" that demands government intervention. It's part of a politician's DNA.

Still more:

"It makes it almost impossible," said [a housing activist], who noted that the city's affordable-housing stock has diminished in recent years. "A health emergency or a job loss means that they will very quickly fall behind on the rent."

What the malcontent doesn't tell you, meanwhile, is that under New York rent regulation, a landlord may have to wait up to six months before he can begin an eviction procedure against a deadbeat tenant. An amoral rent-regulated tenant can, as result, pay rent whenever she feels like it, not when it's actually due. Alternatively, every rent regulated tenant could, if they so chose, simply get five month's rent free. Nice "housing crisis" if you can get it.

Remind me again who's "exploiting" whom?

City housing officials acknowledge that they have no hard data on the numbers of cases of harassment between landlords and tenants.

Which, of course, does not stop them from seeking to intervene in what the Washington Post histrionically describes as landlord-tenant "wars" --

"We want to give tenants the power of the law to fight intimidation," said Councilman Daniel Garodnick, one of the sponsors of the first bill, Introduction 627, which has the backing of 34 of the [New York City] council's 51 members. The issue is so contentious that Councilwoman Maria Baez of the Bronx, who introduced the rival bill, Introduction 638, to protect landlords, withdrew her support for it after an angry protest by housing activists outside her office.
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Representatives of landlords say incidents of harassment are rare. They say that a new law is unnecessary because 10 existing laws deal with similar issues and that the state housing agency has been hearing harassment cases for years.

Are all landlords saints? Surely not. But I wonder which is the more ubiquitous problem: landlords illegally harassing tenants or tenants not paying rent on time (or otherwise violating leases)?

And keep in mind that a significant, perhaps overwhelming, proportion of these harassment allegations (including the false ones that no doubt exist) are in reference to rent-regulated apartments. When the government, by negating property rights, creates a powerful incentive to evict a tenant paying a minuscule fraction of a market rent (the eviction allows the rent to rise at least a bit with the next tenant), then who can claim to be surprised when a handful of landlords cross a line that the government itself created?

Does that excuse harassment or other illegal conduct? No -- two wrongs do not make a right. But let's at least acknowledge that the precedent wrong exists -- and persists -- as a matter of public policy.

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Meanwhile:

The workers say their wages are trailing inflation and don't reflect the booming value of the office buildings where they clean, run elevators and staff the doors.

The backstory is a pending strike by the Service Employees International Union against the Realty Advisory Board, which represents many, perhaps most, commercial office buildings in Manhattan.

The part of that sentence that is most fascinating (i.e., most frustrating) is the citation to "the booming value of the office buildings." Why should the underlying value of the property matter to the value of the services a janitor provides? Since when do employees have an underlying claim to the value of the property on which they work?

This obfuscation -- best reflected in the insolent attempt by some malcontents to replace the word "stockholder" with the gobbledygook term "stakeholder" -- blanks out the fact that property values reflect entrepreneurship and risk-taking, the return to the factor of production called "ownership," just as wages are the return to the factor of production called "labor."

If workers want to share in the "booming value" of office buildings, then let their unions take equity stakes in the properties. Earn a share in the reward by taking on a share of the risk. After all, wasn't the end goal of socialism always for workers to own the means of production?

Maybe they should actually give it a try sometime -- though they may be surprised by what they learn.