ProPublica: decline of rent regulation triggered by unwise 1994 Council vote

Yesterday, the nonprofit ProPublica published The Fateful Vote That Made New York City Rents So High, subtitled, "A 1994 City Council vote enabling landlords to dodge limits on rent increases has had a profound impact on the lives of New Yorkers."

The research and reporting by Marcelo Rochabrun and Cezary Podkul describes how, though battles over rent regulation typically involve Republicans Senate as furthering the agenda of landlords and the Democrats as favoring tenants, the latter swayed a 28-18 margin New York City Council vote for “vacancy decontrol,” which moved rent-stabilized units to market rates once tenants moved out and the rents hit at least $2,000 a month. 

That rose slowly, first in 2011, and is now $2,700, but is still well behind the rise in rents. An adjusted figure today would be $3,260. Also, the rise in rents far outpaced incomes. New York City Independent Budget Office data show that, from 2006-2014, total wages and salaries for the city's top 1% grew nearly 13%, while for the bottom 50%, the total fell by more than 2%. In other 

The ProPublica conclusion:

Vacancy decontrol expanded the city’s tax base, and likely helped revive decaying neighborhoods, but at the cost of driving out longtime residents. Those dislodged had few other options, especially since New York’s population, which fell sharply in the 1970s, began to climb. For every rental unit added to the housing stock between 1993 and 2014, nine people moved into New York, according to a ProPublica analysis of city and census data.
Back in 1994, hardly any tenants outside Manhattan’s toniest neighborhoods were paying $2,000 a month or more. The median rent across the city was under $600. Since then, of the 860,000 apartments that were stabilized, almost 250,000 have become free-market units, diminishing New York City’s largest source of affordable housing. Most of the decrease came from vacancy decontrol.
A third of New York households now pay at least half of their income in rent, and homelessness in the city is at its highest level since the Great Depression, having more than doubled since 1994. Between January 2013 and June 2015, owners of private properties filed more than 450,000 eviction cases citywide, data from the New York City Public Advocate’s Office showed. Less than 10 percent of all identified landlords were responsible for 80 percent of the cases.

The argument

Backers of vacancy decontrol argued that well-off people were gaming the system, but the consequence was an incentive to displacement, by carrot, stick, and loophole. And unwise legislators could not see how the new policy, in a rapidly rising market, could fuel displacement in neighborhoods like Bushwick in two decades.

Bushwick legislator Martin Malavé Dilan, then a Council Member, now a state Senator, expressed regret. Former Flatbush Council Member Una Clarke, who changed her vote to favor vacancy decontrol (now a huge issue in that district),  wouldn't comment.

Council Speaker Peter Vallone, a Democrat who twisted arms by controlling Council funding, ducked inquiries. His chief of staff, Joseph Strasburg, by 1994 moved to the Rent Stabilization Association (where he most recently earned $800,000), and lobbied at least informally--despite a ban on formal lobbying--for vacancy decontrol. He wouldn't comment either.

The impact

The impact, as described by ProPublica:

The pace accelerated as landlords learned how to exploit regulatory gaps to hike rents above the $2,000 threshold. The most important loophole allowed them to pass on a small percentage of apartment renovation costs to tenants. Whenever renters paying less than $2,000 per month moved out, savvy owners claimed expensive renovations, and then charged new tenants whatever the market would bear.
“That is the number one tool for gentrification and the number one tool for fraud,” said Aaron Carr, head of the nonprofit Housing Rights Initiative, which recently organized a lawsuit against one of the city’s biggest landlords over the tactic.
The renovation ruse alarmed Speaker Vallone, who in 1997 complained that “decontrol could take place for apartments that became vacant with rents less than $2,000. That was not the intent of the Council.” At his prodding, the Council banned the practice.
But later that year, the legislature struck down the prohibition and allowed landlords to increase rents by 20 percent whenever a stabilized apartment fell vacant, even without renovations. Tenant groups called it the “eviction bonus,” because of the incentive it gave owners to expel residents.

...In 2003, landlords obtained the right to collect rent increases retroactively. This policy allowed owners who had increased rents each year below the maximum amount set by the city to make up the difference whenever a lease came up for renewal. Currently, tenants in nearly one-third of rent-stabilized units pay these below-maximum “preferential rents.” As a result, when their leases expire, their landlords can jack up rents on these apartments by more than is otherwise allowed.