Financially, this counterproductive law will also come at an incredibly high price in terms of alienation and loss of business to the city and state.
These are the many unintended consequences that policy makers did not appear to think about in their behind-closed-doors “rush to judgement.”
• More Demand, No New Supply: We know from simple supply-and-demand economics that the effect of lowering prices is to increase demand, not increase supply.
What this means is that everybody who lives with a roommate or a parent or is thinking of having a reasonably priced pied-a-terre in New York will join the affordable housing stampede and create additional demand, crowding out the truly needy while not adding one unit of new housing.
• Less Mobility for Tenants: Another classic problem of rent control is it disincentives the aging occupants who no longer need their “family-size apartments” from leaving their underpriced apartments.
This effectively reduces supply. Under the old system, aging households could ask their landlords for a “buyout” and move to more suitable apartments and locations.
• Loss of Important Economic Opportunity for Lower Earning Families: Co-op and Condos–Conversions have long been a way to build a housing asset base for families who could not otherwise afford to become homeowners.
The new 51 percent (versus 15 percent) will effectively make conversions impossible. Because of the discounts offered to insiders, this led lower-income families to be able to buy apartments without down payments, since banks regarded their insider discount as equity.
Thus, the new law is depriving tenants of the opportunity to monetize their “tenant equity” and condemning them to a lifetime of poverty.
• Housing Stock Deterioration: Depriving the housing market of a viable income plan as either rental or coop/condo will lead to deterioration.
Rent-stabilized housing in New York has been deprived of any rational economic basis for this housing stock to be renovated after longterm tenants vacate their apartments.
Other Important Consequences
• As New York City’s housing is run into the ground, companies like Amazon, who were thinking of coming to New York will instead choose jurisdictions that are more thoughtful.
• Tens of thousands of renovation jobs typically provided by small contractors will be out of work.
• Real estate investment companies having been “burned” by New York policy makers will end up leaving the city and go to more builder-friendly environments.
• Banks who once eagerly financed New York City apartment properties will protect their depositors’ money and invest it elsewhere
• What was passed was not thoughtful housing policy, but rather political one-upmanship by under informed anti-landlord zealots. Why else would they choose to protect rich tenants earning over $250,000 per year?
This indiscriminate “taking” of housing and equally indiscriminate allocation of this housing will not serve the public interest or the cause of providing more affordable housing to needy families.
Francis Greenburger is chairman and founder of Time Equities, Inc., which owns 31.4 million square feet of real estate across the globe.1>