Last week (June 21), in its biannual circus, New York City housing regulators once again decided how much landlords will be able to raise rents. Despite inflation raging at a 40-year high of 8.6%, they decided on an increase of 3.25%. In real terms, this is a rent *reduction* of 5.35% (3.25% minus 8.6%), assuming the costs of maintaining the building rise in line with inflation.
This is a tragedy on multiple levels. Owners of New York rental property must face the challenge of operating a building as costs such as labor, supplies and taxes (yes, taxes are never capped) rise at a much faster rate than the rents the landlord can legally charge. We have gone down this path before. The last time inflation was this high was in the 1970s, when annual inflation averaged 7%. The costs of operating buildings rose much faster than legal rents, and the result was disastrous.
Take a look at these two photos. One of these is Warsaw in 1945, the most severely destroyed city in Europe from World War II. The other shows a neighborhood in the South Bronx of New York City in 1977. Which one is which? Read to the end for the answer.*
In a quote often repeated by Milton Friedman, Swedish economist Assar Lindbeck said, “In many cases rent control appears to be the most efficient technique presently known to destroy a city — except for bombing.” Judging from the photographic evidence, he is right.
The tragedy of rent control goes far beyond just the palpable destruction brought on by high inflation and lagging rent increases, although we may be headed there again.
