If I have ever created an oxymoron, I just did it by saying Rent Control Sanity.

As I think about it, the essence of good government is that it makes policies that assume everyone will act in their own self-interest and that, by doing so, they will optimize the public good. When people debate capitalism versus, say, socialism, this is really the heart of it. Unfortunately, in these debates emotion typically trumps rationality, and the debate just continues.

Rent control/stabilization is an especially tough area, since on its face the two sides, tenants who need rental help and building owners, seem so opposed. This means one has to be on one side or the other. It is the rich versus the poor!

This has always troubled me as an unsolvable conundrum, but then I read an article in The Wall Street Journal entitled Tighter Rent Control Robs New York Tenants. It pointed out that the new laws that make it uneconomical for a landlord to improve a stabilized property have, at the same time, robbed tenants of a valuable asset: namely, the value of the buyouts they formerly received. And those buyouts were sometimes quite high, reaching as much as $1M for an apartment. The article estimates the loss to tenants at about $100B of value. I have no idea how this was calculated, but it is clear that the tenants lost a lot.

And then I had an epiphany.

But before the epiphany, let’s stop and think for a moment about where things are right now. Pretend you fly up to 50,000 feet and look down. You would see a building in the best location on the planet, with incredible value. Yet the parties are fighting over it so hard that they are destroying that value, to the mutual despair of all involved.

So my epiphany was to think about putting landlord and tenant together as teammates instead of adversaries. Here is my idea:

A landlord and a tenant are free to make any agreement they like vis-à-vis an apartment.

This includes, without limitation:

  • The payment of money or other consideration to the tenant.
  • The relocation of the tenant to another location.
  • The ability of the landlord to raise the rent, with or without the tenant staying in place (at the tenant’s option, of course), under a statutory formula that bases the future rent increase on the amount of the payment to the tenant. In other words, if the landlord pays just a little, the rent hardly budges, but if the landlord pays a lot, the rent can go up a lot. There would be some special rules about how this would work if the landlord plans to tear down the building or convert it to a different use. Also to be considered is whether the landlord could make a special extra payment to the tenant in return for the rent being set entirely by the market thereafter.
  • To equalize bargaining power, the agreement would require (i) the tenant to have a lawyer who earns less than 5% of his or her annual fees from landlords or similar parties and (ii) the landlord to pay the tenant’s legal fees.

There are probably some other parameters to be worked out; however, this is the concept.

This may sound like the earlier concept of vacancy decontrol, but it is dramatically different. Vacancy decontrol was the landlord’s ability to raise rents once a tenant vacated. Ghoulishly, it put the landlord in the creepy position of benefiting from a dead tenant. The heart of my idea, however, is basing the rent increase on how much the landlord pays the tenant.

I am sure there are some devils in the details that I have missed, but the theme is to rid ourselves of the fruitless and disastrous war between landlords and tenants that misgovernment has created. That war is certainly bad for landlords, but at the same time it is not helping tenants at all. Even more disconcerting, it is disincentivizing investment in NYC housing.

I know this firsthand, as I have been seeking investment dollars for high-quality landlords in this space and have found essentially zero interest. I am not exaggerating; I mean zero. No one wants to invest or lend. They are afraid of our political leaders.

On the political front, whatever one’s view on this subject, one has to acknowledge that what is going on currently does not bode well for NYC’s housing stock. With landlords not incentivized to maintain the housing stock, investors moving their capital elsewhere and lenders not lending, the end game is obvious: the city will end up owning the housing. And we know how that will turn out.

NYC is the greatest place in the world to live. Okay, that is subjective, but I do think it is true. I have to believe there is a way to stop this mutually assured destruction of our housing stock. Perhaps, this one time, instead of trading polarizing sound bites, all sides might work together to create a solution.

As I put this forth, I wonder whether landlord groups and tenant groups would find it appealing. If I were a tenant, it would look pretty good to me. As a landlord, I would like it too. And if I were a lender or investor, I would be open to investing.

The only ones who might object would be some political groups. And they will say, immediately, “This will not create affordable housing in New York City!”

The answer to that statement is simple: yes, it will not create affordable housing. But that is not the right question.

The real question is whether tenants and landlords, who each possess ownership in a particular building, should both lose their upside to create affordable housing.

And the answer to that is a resounding no.

Yes, it is easy to have a political theory that taking away the owner’s upside is for the public benefit. I get it. But these policies take away the tenants’ benefit also. The only beneficiaries are the public good and those who aggrandize themselves with virtue-signaling sound bites. Perhaps those in political office might take a breather from that type of thinking and get behind something that creates a win/win/win.

For my own sound bites:

  • Landlords and Tenants Unite!
  • Political adventurists running amok are playing you as useful idiots.
  • If you work together, you can both make a ton of money.

To conclude, what NYC would benefit from is a governing body that is not ruled by emotion but instead looks to create good solutions for all of the constituents who make up the city. This good governance would realize that harming one constituent to help another never works out in the end. Nowhere is this more evident than in the rent stabilization space.

If I ever run for mayor of NYC, this will be on my platform for sure.

Bruce Stachenfeld, aka The Real Estate Philosopher™