Control via Regulation in NYC

Recently, the largest residential property sale in history was completed when Tishman Speyer, in a joint venture with BlackRock Realty, purchased Peter Cooper Village/Stuyvesant Town for $5.4 billion.  While that news can make headlines in business and real estate journals, the ongoing issue about the sale is the ability of the new owners to bypass decades of rent control that has been maintained on the properties.  The classic rhetoric of "affordable housing advocates" was front and center in a recent Washington Post article about the sale:

 "But if we're not willing to use regulatory tools in a smart way, we won't have the city we want." -Brad Lander, the director of the Pratt Center for Community Development

Point well made, if Mr. Lander does not use the coercive force of government to control the actions of free people to make private contracts between one another, then, no, Mr. Lander and his motley crew of so called advocates that somehow speak for The People™ will not have the city they want. 

Without the regulatory nightmare of rent control NYC would not have such a large shortage in housing.  For your reading entertainment, a free economics lesson: 

1. The price of something is a way to allocate scare goods.

2. Housing is a scarce good.

3. By capping rents, housing rates are made to be artificially low and recklessly distort the supply of housing for two reasons:

A. Developers have no incentive to build new housing to meet demand because the increasing price indicator, which signals developers to build more units, is cut off due to the cap in rents and new housing is not built at a rate sufficient to meet demand.     

B. When the price of housing is lower than market rates people have no incentive to have roommates and/or consolidate there living space.  For example, a person is more likely to live alone if he/she can live in a rent controlled one-bedroom unit for $1,500/month versus a market rate of $3,000/month, which would more than likely require a roommate.  This effectively decreases the number of people per rental unit ratio and inevitably leads to housing shortages. 

 Here is a great article by the economist Thomas Sowell about rent control.