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How’s Business?: Rent control

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In the present perplexity of landlord vs. tenant, one could debate for either side regarding rent control. In rent-controlled or stabilized housing, attention is generally directed to Manhattan. But Queens also plays a role in the rent-control-law controversy, which is one of the most polarizing issues in New York City.

Rent control dates itself back prior to 1947. Rent-stabilized apartments were built from 1947 to 1971 with the initial objective of preventing housing shortages after the Second World War. But is placing price controls on rental units good business?

In the city’s economic environment where taxes are on the rise and growth is stagnant, let’s approach the pros and cons. In opposition to rent regulations, one can argue that this type of control drives housing prices higher since it serves as a disincentive in the new construction of housing.

The favorable side of rent control is that its retention will control widespread price gouging. There are approximately 60,000 rent-controlled and a little more than one million rent-stabilized apartments in the five boroughs of New York City. When spot-checking the Internet for Queens, you can find listings in Astoria, Elmhurst and Woodhaven; however, some can also be observed in Bayside and Forest Hills.

But are continued controls a good idea? Those of us who remember former President Lyndon Johnson’s 3.2 percent guideline policy soon learned that price controls create problem shortages. According to this policy, no one was supposed to raise their prices by more than 3.2 percent; this applied to all price increases and illustrates a point in our current dilemma. For example, if a piece of bread costs 39 cents to bake, could you sell it for 35 cents?

With real estate taxes hiked nearly 20 percent and proposed water usage and insurance costs edging ever higher, in all fairness how can landlords of these properties be expected to limit increases to just 10 percent? One only has to check the rental classifieds to find that very few moderately priced rental units are actually available.

If the city really wanted to play on a level playing field, a 10 percent increase limitation should also be complemented by a tax and water increase exemption. In checking the state of Massachusetts, where such controls were repealed, there existed no massive evictions or hardships such as was predicted.

So how’s the rent-control business? A rental unit is only worth what the general public is able and willing to pay for it. It is quality, service, location and product demand vs. supply that should determine rental pricing. And just like anything else, if it becomes out of hand, the laws of economics will correct it swiftly.

Joe Palumbo is the fund manager for The Palco Group, Inc. and can be reached at palcogroup@aol.com or 718-461-8317.

Posted 7:08 pm, October 10, 2011
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