The author has chosen to use a question-answer format in order to make the often complex subject matter, easier and more enjoyable to read. Q and A is not a dialogue bewteen real people -- the author has provided the dialogue for both Q, standing for Quaero, which is Latin means "I search for" and A, Auctor, which in Latin means "person responsible."
Q-To start out, would you mind condensing your views on a couple issues and then you can expand your position during the course of our conversation?
A-Certainly.
Q-First, do you see lack of affordable housing as a problem?
A-The lack of afffordable housing is only a problem if you believe each generation should do as well, if not better than the previous generation and if by "well" you mean home ownership among today's youth should be present in as high if not a higher percentage than yesterday's. By this criteria alone, we have a problem.
Q-What are the main causes of high housing prices?
A-High prices are due to government's inteference in the free market via wrong-headed and excessive restrictions, regulations, mandates and tax manipulations.
Q-What solutions do you favor?
A-The solution lies in removing excessive government regulations, recognizing the tantamount role private property rights play in our society and letting the free market solve the supply and demand imbalance in housing.
Q-I've heard a lot about the decline of home ownership in this country. Is it as a bad as people claim?
A-It depends on what you've heard? Before the second world war less than half the housing units in America were owned by their occupants. Easy homeowner financing and the housing boom which followed the war brought home ownership within reach of more and more Americans and by 1955 fifty-five percent of all households owned their own homes, with that number rising to over sixty-five percent by 1980.
But soaring prices, high interest and a decline in inventory has recently resulted in fewer people participating in the dream of home ownership and owner occupied units had dropped to just under sixty-four percent in 1987 and has failed to come back.
Q-That's not as bad as I thought; only about a one percent drop.
A-But if you examine those statistics more closely you'll see a disturbing trend. Thirty-nine percent of households headed by a person under 35 owned their own homes in 1989 down from forty-one percent in 1982 which was the first year such data was available, whereas seventy-seven percent is the constant figure for those over age 50. That means almost twice the percentage of older people own their own homes and that percentage has held steady while fewer young people are becoming home owners.
Q-Can't something be done to get the numbers on an upward slope again for those under age 35?
A-In an attempt to reverse the downward trend, the Reagan administration tried to substitute loan subsidies for rent subsidies and home ownership for public housing.
Q-I've always wondered how the government determines how much to pay for people's rent; housing prices vary so much from one area to another.
A-In the old capitalist America a person's skill at managing his life dictated where he would live. He lived where he could afford to live and that still makes the most sense to me. Poverty need not be permanent in this country but government helps to make it so.
Q-Do you really think government policies keep people poor?
A-I think the poor are constantly talked about as if they were a class instead of poverty being a temporary condition which just about any American can find himself in at one time or another. When did we stop seeing ourselves as a mobile society?
In June, 1991 the Department of Housing and Urban Development came out with their new "fair market rents" which were substantially higher than the old ones. Kirstin Downey claimed in her article for the Washington Post, that the new allowances "could give subsidized renters more choices of places to live, including luxury apartment complexes in some neighborhoods".
Q-What exactly is a so-called "fair market rent" ?
A-It is the price the government, in its omnipotent wisdom, has determined to be appropritate compensation to a landlord willing to participate in HUD's Section 8 program (subsidized rental housing).
Q-So the government, or us taxpayers, provide this predetermined compensation?
A-The qualified renter pays 30% of his or her income and the government pays the rest. Instead of doing things the old fashioned way and letting supply and demand determine value, the government takes a survey. As rent levels increase so does the amount paid by taxpayers. As you can see, the incentive is there for both landlord and tenant to keep rents high. And there is a disincentive there too.
Q-I see what you mean. Basing rent on income acts as a disincentive to work by giving those who work hard to get ahead a penalty instead of a reward. Of course, under the guise of fairness.
A-It's a shame when honest and well meaning attempts to help, end up hurting the recipient instead. That's why I like the idea of loan instead of rent subsidies. Low interest loans often bring mortgage payments down to the level of rent and offer a family a real chance to get ahead. Home ownership almost always equates to middleclass and accountability.
The evil here is that some people who are barely scraping by and saving to realize their dream of home ownership, end up paying taxes which subsidize another family that may well end up getting their home with less effort and even quicker. There's a fairness issue whenever Uncle Sam decides to play the godfather.
Q-I would think new technology would have made housing more affordable just as new technology in electronics and in many other industries has brought prices down.
A-That's an interesting comment because I thought the same thing. A couple of years ago one of our sons looked into technological breakthroughs in the housing industy with the idea of doing some development. That's why I'm familiar with the difference between modular housing, which is constructed according to state industrial and local building codes and manufactured housing which is regulated by federal codes.
Modular housing is virtually indistinguishable from your regualr stick-built units. Many components are built in factories and fastened together on the building site. This makes the building process move more swiftly; one to two thirds less time is required for construction. The biggest cost savings come in labor and that is why unions are dead set against modular housing.
Manufactured homes, more familiarly known as mobile homes, are virtually completed at the factory and then shipped to the site. They bear little resemblence to the old trailers and are hard to spot among their site-built counterparts in a tract of single-story ranch houses. They cost anywhere form $19 to $25 a square foot compared to $75 to $100 a square foot for conventional housing.
Q- That's quite a savings!
A-But again, the unions are unhappy with the concept. Nevertheless sales in 1990 were up 40% over the previous year.
Q-Can manufactured buildings be used for apartment houses?
A-The technology has actually progressed to the point where manufactured multistory buildings are feasible and safe and could be used to produce extremely low cost housing. Enter government with another brake on a good idea. The Department of Housing and Urban Development (HUD) refuses to approve the designs. Do you suppose any pressure is being exerted? Just a thought!
Q-I would think the government would want to subsidize these innovators.
A-Developers would probably settle for non-interference. Unfortunately, subsidies, including the voucher program, interfere with the workings of a free market and inhibit new creative solutions to affordable housing problems.
Even now technology is in the wings which will allow housing in the future to solve problems in other fields, notably crime and health care. A so-called smart house has been designed which replaces ordinary wiring with a single cable capable of handling control and data signals as well as audio-video signals. About 150 tiny computers will serve the controllers which receive power and signal information.
Anything that uses electricity can be programmed to function according to the wishes of smart-house owners. Smart-house wiring standards are written into the 1987 National Electrical Code and may initially cost $5,000 to $7,000 above ordinary wiring but the benefits are phenomenal--especially in high crime areas or in homes providing shelter for handicapped or elderly persons who depend on special equipment and supervision.
Q-The smart-house concept sounds like a winner. There are so many ways it can be used.
A-It would probably be great in shared housing.
Q-What's "shared housing"?
A-It's the trendy industry term for describing a living situation where unrelated adults live together for their mutual advantage. It's not a new concept. In fact it was quite common for families to share housing during the depression and during the housing shortage immediately following the second world war.
Q-It sounds like a good way to make the rent or the mortgage and tax payments more affordable.
A-Innovative Housing, an organization in Fairfax, California came up with a variation on the shared housing idea. Several houses would be built around a community courtyard and garden.
The buildings would provide a variety of sleeping-living accomodations, ranging from ground floor bedrooms with bathrooms outfitted for the handicapped, to rooms with sleeping porches to shelter the children of single parents. They all would have community kitchens and common areas. Some houses would contain large community rooms, others specially insulated music or television rooms.
Q-Besides providing inexpensive housing, I would imagine that sharing would provide a community atmosphere with all kinds of social benefits if the tenants were chosen from different generations. There are a lot of good, yet simple ideas out there.
A-I would recommend that everyone reads William Tucker's 1990 book The Excluded Americans which, as the subtitle says, discusses housing policies and homelessness. Mr. Tucker suggest that housing could be within the reach of all Americans if government would back off and let the free market prevail.
Afterall it is the marketplace that relays needed information from buyer to seller; from consumers to producers, telling them what and how much of any product is needed and what price consumers are willing to pay. It is only when that communication is disrupted that we end up with shortages. According to Mr. Tucker, "The housing industry is so strong and versatile that it can produce just about anything people want".
Q-According to one reckoning the country wants 7.6 million three bedroom three bath homes costing under $30,000. Do you think it's possible?
A-We can get closer. Let me tell you about Charlotte Gardens in the Bronx, which is one of my favorite examples of successful modular housing. Genevieve Brooks decided to do something about her decaying neighborhood in in the South Bronx. She gathered a group of her neighbors together and made Charlotte Gardens a model of what human energy and determination can do with minimum help from the government.
The neighborhood group, called "Mid-Bronx Desperados" (MBD) got loans from the Chemical Bank of New York, and with state backed mortgages and tax credits for low income housing, was able to intice investors to put up modular homes costing, in the early 1980s, $57,000 a unit. The average incomes of the home buyers was $25,000.
MBD went on to renovate and construct over a thousand additional units, many of them for the elderly, in the Bronx area. This is a success story! It shows that change can and does sometimes occur via a grass-roots endeavor from the bottom up and without a direct infusion of government funds.
Not only did Genevive Brooks change delapidated buildings, into a neat appearing middle class neighborhood, she changed the lives of the inhabitants. Home ownership not only enhances net-worth, but enhances self-worth as well.
Q-The Nehemiah project in Brooklyn is another example demonstrating how well private and public sectors can compliment one another. In that case didn't the City donated thirty blocks of vacant land and interest free second mortgages to help make the one thousand new low-income residences a reality?
A-If I remember correctly, the Nehemiah project, sponsored by 48 congregations of churches in East New York City, which involved the construction of 5,000 two and three-bedroom homes each with 1,150 sq. ft of space and a basement. Mostly black and Hispanic buyers, who might not otherwise be able to afford home ownership, were able to buy these properties for $41,000 each, half the price such a home might normally bring.
An initial revolving construction fund of $5 million was raised by the churches, supplemented by tax-default land donated by the city of New York.
Q-Didn't New York City also defer property taxes for ten years and provide special 9.9% mortgage financing that reduced monthly homeowner payments to about $350?
A-That sounds about right.
Q-How about Habitat for Humanity as another example?
A-That's an organization that is probably familiar to a lot of people because of President Carter's much publicized involvement. Habitat for Humanity operates in 170 cities with an $11 million budget raised from churches, businesses and foundations. Forty major banks across the country have set up community-development subsidiaries over the past decade.
Q-It seems to me a large housing market could be stimulated without government subsidies simply by modifying zoning ordinances. Most major cities have unused or abandoned building in their inventories that could be turned over to profit or nonprofit groups for conversion into low-cost housing. Betwen 1983 and 1989 the Boston Housing Partnership Inc. rehabilitated 1,600 units with no federal subsidies beyond tax credits.
A- Habitat for Humanity, paid $19,000 to New York City for a six-story building which had been abandoned for five years. It was transformed into 19 apartments which were sold at no profit, to low-income persons under long-term, no-interest mortgages.
Q-Wasn't there a wholesale purchase of a public housing facility by its tenants in Washington DC at the beginning of the Bush Administration?
A-Yes,the Kenilworth housing project in DC was purchased by its tenants in January 1989.
Q-Kimi Gray was the driving force if I remember. I recognize the name but very little else about Kimi Gray except I think by the time she was 19 she was the mother of five children.
A-That's right. Kimi Gray has become a legend in her own right and there are lots of stories circulating about her. In December, 1974, three recent high-school graduates approached Kimi Gray who was then youth coordinator of the community and lived in the Kenilworth public housing project in Washington DC. The three young ladies told Mrs. Gray that they wanted to go to college but didn't know how to go about it.
"College Here We Come" was started in short order and the group soon numbered over 100 youngsters. They gathered in Mrs. Gray's living room once a week and quizzed each other, practiced exams and wrote essays and dreamed their collective dream.
A parents' booster club sold baked goods, organized bazars, raffles, auctions, yard sales and did just about anything they could think of to raise funds. As youngsters applied and were admitted to small colleges across the country the self-esteem of the entire housing complex was lifted---college admittance had become a matter of pride for everyone even remotely involved.
In less than 15 years over 600 kids were sent to college. The dream was being realized thanks to the efforts and abilities of Kimi Gray and her cohorts.
Q-It looks like I'm way off. It appears Kimi Gray is involved with education and I thought she had something to do with privatizing public housing.
A-But you're right. Mrs. Gray's organizing abilities and proclivity to dream and inspire others was first recognized as the result of the college project.
In that sense 1974 was the beginning of the privatization of the Kenilworth Housing project which was consumated in tenant ownership in 1990. It started in earnest in 1982 with the election of Kimi Gray to head the directors of the Kenilworth management corporation, incorporated as a result of her and others convincing the District of Columbia that the government could not manage Kenilworth as well as the tenants themselves could.
In 1983 welfare dependency and teenage preganancies were reduced 50% and crime dropped by almost 75% in the Kenilworth housing project. The per-unit monthly rental receipts were up 60%, and administrative costs associated with the housing project were down over 60% under tenant management.
Q-That's amazing.
A- Kimi Gray says you can put all the dollars you want into rehabing buildings but if you don't rehab the residents, you are wasting the taxpayers money. Mrs. Gray helped create small businesses within the housing project and ended up employing 100 community residents.
Q-She sounds a lot like Macler Shepard. I bet you know a lot more about him than I do--- just as you knew more about Kimi Gray.
A-I don't know about "a lot more", but I'll tell you what I do know.
Macler Shepard was the upholstery shop owner in St. Louis who organized residents of an economically disadvantaged neighborhood when their homes were threatened with urban renewal.
After getting no response from an application addressed to the Office of Economic Opportunity he decided to take matters into his own hands His rallying cry was, "Renewal means our removal!" Together with a handful of like minded residents he formed a non-profit entity named Jeff-Vander-Lou, or JVL, after three of the streets bordering the neighborhood. The purpose of JVL was restoring the neigborhood and keeping government do-gooders at bay.
A local Mennonite church organization gave JVL a $30,000 interest-free loan and volunteer craftsmen to help renovate abandoned buildings. Before long a businessman and refugee from the old neighborhood, formed a nonprofit foundation which injected a million dollars in grants and more interest-free loans into renovating JVL.
The next job was to lure job-creating businesses back into the community. JVL purchased two acres of land at a bargain price and offered it to Brown Shoe Company hoping the manufacturer would consent to build a plant on the site, which would, they hoped, provide jobs for local residents. Brown took JVL up on its offer and in less than two years trained and employed 150 JVL residents.
Over the next twenty years JVL rehabilitated 800 housing units and 80 houses were renovated and sold. Shepard was rightly honored as the instigator of one of the most amazing inner-city success stories. He wan't deterred by lack of money, power or influence and his project prospered without the help of any government entity or official.
The last I heard he was looking to establish a private school system that would set the local public system on its ear.
Q-I'm impressed! Private initiative really seems to pay off.
A-There are loads of examples. In McKeesport, Pennsylvania, 14 miles south east of Pittsburgh, a remodeled house cost HUD, i.e. taxpayers, an average of $153,949 and brought in only $125 a month in rent, while a private program remodeled the same-sized house for $57,715 which brought in an average of $285 a month in rent even though the average income of families in both programs was about the same. The disparity in costs was due to administrative expense and delay at HUD and excessive construction costs, mandated by federal adherence to Davis-Bacon wage rates that the private entity didn't have to contend with.
Q- What's Davis-Bacon?
A-Stuart Butler of the Heritage Foundation once said in jest that Davis-Bacon is a federal law requiring craftsmen building houses for the poor to be paid significantly more than when they are building houses for middle-income Americans.
Many people, myself included, believe Davis-Bacon legislation should have been repealed long ago. It has always worked to the detriment of the poor and disadvantaged---those just starting out and looking for an opportunity---while it protects the status quo. The unions had their own self interest foremost when they got congress to enact Davis-Bacon (named for the politicians that sponsored the legislation).
The law mandates that prevailing wages be paid on all government jobs, which really means government can't save money by hiring a lower bidder or those receiving government asssistance or really cannot have any hiring latitude.
Q-Have you noticed that the best-known leaders of the tenant management movement are predominantly black women?
A-I guess you're right. Predominantly, but not exclusively. Kimi Gray, who we mentioned earlier,along with Bertha Gilkey of St. Louis, Mildred Bailey of Boston and Irene Johnson of Chicago had a lot of attention focused on them because they lived in very large, crime-ridden and run-down projects. They decided that they had the right to take control of their lives and they led public-housing tenants, who discovered when they got together, they had the political clout to get a job done.
Q-But legislation to permit residents to purchase the public-housing units they live in has angered some people in the field.
A-That's all too true. Bob Mc Kay, executive director of the Council of Large Public Housing Authorities derides the program calling it a cruel hoax to play on the poor.
Q-But Secretary of Housing, Jack Kemp claims critics don't like the program because it takes power away from the public-housing authorities.
Q-That seems plausible.
A-It is rather strange to find low-income housing activists who supported tenant management for more than twenty years suddenly desert the cause when Ronald Reagan and Jack Kemp added the wrinkle of selling public housing to its tenants.
Another wrinkle which I am not too fond of is the stipulation that for each unit of public-housing sold to a resident management corporation, a replacement unit must be provided. To smooth that wrinkle a bit, Congressmen Armey and Fauntroy co-sponsored the 1990 Urban Homestead Act which, if passed, would permit the use of housing vouchers to meet the requirement that each unit of public housing sold to a resident management corporation must be replaced with a new or refurbished public-housing unit so as not to diminish the public-housing stock.
Q-Could you maybe give a brief run down on the positions taken by the members of congress most involved in the public-housing issue?
A-Congressman Fauntroy, who used to represent Washington D.C., disliked the section of the 1990 bill that would permit the use of housing vouchers to meet the replacement requirement and old-timer Henry Gonzalez of Texas is also dead set against using vouchers that way. Congressman Gonzalez firmly believes that each public-housing unit that is sold must be replaced by another physical structure.
Jim Kolbe of Arizona argued in favor of allowing public housing managers to hire low-income, hardcore unemployed inner-city residents to perform on-site maintenance in their own housing projects. The current law (remember Davis-Bacon [see previous file]) requires that union labor be hired to perform repairs in public-housing projects.
Texas Representative Dick Armey also believes public-housing tenants should be permitted to fix up their own apartments "to put sweat equity into their own homes, just as you and I do." He argues that private home owners quickly learn how to become part-time handy persons and there's nothing but discouraging laws preventing public-housing tenants from doing the same thing.
If you want somewhere to direct your rage, Bruce Morrison of Connecticut was responsible for putting into the law the provision that union workers must perform all work in public-housing across the country.
Bruce Vento of Minnesota argued against Mr. Armey's attempt in the spring of 1990 to remove the restrictions in hiring repairs placed on public-housing managers by Representative Morrison's law.
He said, "We have plumbing problems. We have electrical problems. We have carpentry problems that need to be addressed. Are the tenants that are living in assisted housing the skilled mechanics that can take on these tasks of doing the electrical rewiring of a multi-complex housing unit? Are they the glaziers that will hang out there and put a piece of glass into a window? I think on its face it is obvious that they cannot do that."
Q-I'm with Congressman Vento. Those things take skilled craftsmen and cannot be done by just anybody. Besides why should public-housing tenants have to do all that work?
A-First of all no one else is making repairs on their units and it is in their interests to get the jobs done. Besides poor people aren't stupid, even if the laws they are forced to live under are!
Haven't you ever heard of Synanon and Delancey Street? Just a couple years ago previously unskilled poor people were able to complete a magnificient building right here in San Francisco.
In my opinion, Congressmen Morrison and Vento are subordinating the interests of the poor, who they always claim to champion, to the interests of organized labor.
Q-What about the position of black congressmen like Ron Dellums of Berkeley?
A-A delegation of black public-housing residents asked the Black Caucus to vote against Morrison's law requiring that only union labor be hired to do work on public-housing projects. Dellums voted with labor and against the low-income blacks to retain the bureaucratic pork-barreling Morrison provision as did John Conyers and George Crockett, both of Michigan, California Representatives, Julian Dixon and Mervyn Dymally, Gus Savage of Illinois and Louis Stokes of Ohio.
Q-You mentioned the voucher program. How does that work?
A-Vouchers provide assistance while preserving mobility and freedom of choice. They are cost-effective, costing taxpayers half as much as a new public housing unit where developers are subsidized more than tenants. The Office of Management and Budget found that in government subsidized construction projects, tenants receive 34 cents worth of benefits for every one dollar spent whereas they receive 84 cents for every dollar spent in a voucher program.
Vouchers are supposed to make up the discrepency between 30 percent of a family's monthly income and the established "reasonable rent" authorized for the area in which the participating family chooses to live. Many of the restrictions associated with the initial program have been eliminated. For instance voucher recipients can supplement the rent payments from their own incomes and upgrade their neighborhoods.
Q-What about the Moderate Rehabilitation program?
A-Moderate Rehabilitation is a program separate from tax credit programs. In one such program, rents were calculated at $425 a month, but figuring in the tax credits brought the rent up to $600 a month. If vouchers had been substituted for subsidies, twice as many people could have been helped for a lower cost.
Q- I heard that New York City refused to even distribute vouchers for ideological reasons.
A-That's right. Instead the City demanded money from HUD to rehabilitate the foreclosed buildings it owns.
Q-Barry Zigas is president of the National Low Income Housing Coalition. He blames the severe shortage in low-income housing on cuts in federal housing assistance. He points to the University of Massachusset's National Priorities Project which found government expenditures on housing dropped 78% during the eighties.
1990 construction of low and moderate income units has dropped to 80,000 a year from 500,000 annually ten years ago; only one in four Americans qualifying for government housing assistance receives aid---only 7.9 million units were available to 11.6 million low-income potential renters in 1985.
A-It's funny how widespread the idea is that we spend no money to subsidize housing in America anymore, when $18.8 billion in FY1988 and $19.8 billion in FY1989 was provided for federal housing programs.
Q-We may spend something on housing but I think everyone would acknowledge that whatever sum is spent it is dwarfed by our defense budget. Defense spending rose 50% in the eighties, with 40 cents of every dollar being spent on the military. The average American supposedly spends $1,089 for military, $756 for interest and debt with only $51 coming back to the community for housing or 1.4 cents of every dollar. Apparently the ratio of defese to housing was 5 to 1 ten years ago and is now 20 to 1. Wouldn't you agree with the University of Massachussets report, that our priorites are all wrong?
A-That sounds to me like a question about the role of government and I think it is apparent from all my writings that I believe defense is one of government's few legitimate roles. Housing, or shelter of some sort, is not only a high priority but it has been classified as a necessity for people in all societies throughout recorded history. But the American government has never acknowledged an obligation to provide housing for its citizens as socialist countries do.
Q-Then how do you account for the fact that more than one million public-housing units have been built in this country, costing the federal government up to $4 billion a year. Most are in the nation's worst slums, corroded by crime, vandalism and indifference.
A-You're forgetting, or perhaps you didn't even realize, that public housing started out in this country as part of our war effort and was only meant to be temporary. Over the years, and especially during the time of the Great Society programs, public housing, as a concept, was adopted by specific interest groups for their own ends. Nevertheless many people, even now, would agree that government's role in housing, is at most, to provide incentives.
Q- Governments, federal, state and local more and more frequently require private real estate developers to set aside a portion of any to-be-built housing for the exclusive use of low-income tenants. What do you think of this as an incentive policy?
A-First let me say that I'm very much aware of the current need for adequate and affordable housing for all segments of the population, not just those in low-income brackets. But for those on the lowest end of the economic scale, as well as for everyone else, their needs can best be met by the marketplace.
I'm sorry, but I agree with Ronald Reagan in this area and in so many other areas, when he said "government is not the solution; government is the problem."
Q-But what about the set-asides? Don't you think the trend towards mixed projects--a combination of subsidized and unsubsidized housing in a single project--is a good idea?
A-I don't think mixed projects are a good idea at all. I think RTC (Resolution Trust Corporation) rules stipulating that assets must first be offered to buyers who will set aside thirty-five percent for low income tenants and will promise to keep the units low income "forever" are wrong-headed incentives.
Of course I understand the political pressure that brought them about. Non-profit developers generally build one hundred percent low income housing, but since few communities want one hundred percent low income projects there is a demand that tax credits (public funds) be allocated to developers of mixed projects.
Q-Don't you think set-asides work?
A-As I said before, there's a better way. For hundreds of years one group of people after another has swept through neighborhoods, starting out in the low-rent areas and moving out and up as their economic situation improved---just like snakes shedding skins or turtles outgrowing their shells!
The older less expensive dwellings were taken over by those starting out in life, or those on the skids due to some, generally temporary, economic misfortune.
But the free market is disrupted when planners, get the idea that poverty is a permanent situation, (statistics show that it is not), and force developers to unnaturally incorporate dwellings for low income people into their new upscale projects.
These set asides, together with rent control--most of all rent control---are the real culprits in distorting the affordable housing market. In the fifties approximately one third of the nation's renters paid more than a quarter of their incomes on housing; by 1980 half were doing so.
Q-New York City may be the best example of what you are talking about. Are you familiar with the so-called Bruno bill? New York State Senator Joseph Bruno has proposed a bill which would prevent people making over $100,000 a year from reaping the benefits of New York's rent-control laws.
A-Yes, I read about it. Senator Bruno is trying to end cheap rent for the rich.
When the market is kept artificially low, people don't outgrow their apartments and leave them for those on the rung behind . No pure blooded American can pass up a truly good deal and that's what many of New York's apartments have become under forty years of rent control.
Fourteen percent of the tenants living in rent-regulated apartments have incomes over $40,000 and six percent have incomes above $50,000. A recent analysis showed that 45 percent of the benefit of rent regulation went to households with incomes above $40,000.
"Benefit" was defined as the difference between actual rent paid and the rent someone in that income bracket would be expected to pay absent rent control. Some New York apartments are kept and sublet for handsome gains on the blackmarket even when the original tenants have left town.
Q-Yes, but don't the poor benefit from rent control also?
A-The poor benefit least as they are most likely to move around and rent-control always reduces the number of units available in a community. Under rent control there is a subtle but speedy shifting of valuable property rights from owners to old tenants. Powerful political constituencies emerge and feed on people's desperation. Black markets develop as old tenants demand tribute for access to their lease rights.
Ownership rights become a drag on the market--a losing proposition under rent control--but leasehold rights are in great demand. Vacancies are communicated via the underground, necessitating the payment of more tribute to the bearers of news about possible vacancies.
Q- Since there is such a demand for suitable housing in New York City, I find the lack of response from the private sector surprising?
A-Are you serious? Government policies effectively destroyed the private housing industry. First of all the industry itself is highly protectionist in New York, which keeps competition down and costs up. The building codes are administered by upteen departments and agencies and if someone should get through all that red tape, they are greeted by the rent control boards and even more micromanagement.
Q-In that case it's hard to believe anyone would want to be a New York landlord.
A-According to Irving Welfeld, in his 1988 book Where We Live, fifty percent of New York City's landlords were born outside the United States and almost that percentage are minority (black, Hispanic or Asian) owners.
Historically it's not affluent, retired, passive investors, but relatively young people with energy and ambition and lots of sweat equity that renovate and manage older properties . I did the same thing in Berkeley when I was in my twenties, only that was before rent control and the tangles and layers of regulation.
What surprised me is Welfeld's finding that half of New York City's landlords never graduated from high school. They find themselves no match for the college educated bureaucrats and so-called public interest attorneys and so they often don't even bother to wade through all the red tape entailed in applying for rent increases.
Q-I guess you heard that vacancy control came to San Francisco at the end of May, 1991. Landlords can no longer raise rents to market value when tenants move. Formulas must be applied to raise rent on a vacant unit just as there are formulas for determining how much rent can be raised annually on a tenant occupied unit. The cost of repairs must be amortized over ten years meaning only 10% of the landlord's cost can be passed on in an annual increase to the tenant.
A- I heard that Berkeley spends $2 million a year to administer its rent control bureaucracy. San Francisco used to cost each tenant only $8 a year for the administration of its rent board but that figure is sure to increase as the minutiae in the new vacancy law will take lots of public-employee hours to determine just what the landlord is allowed to charge, how and when as well as what he must do.
Q-Already the permit bureaucracy is horrendous. The old San Francisco Victorians will deteriorate if not maintained. This law could be one of San Francisco's bigger mistakes.
A-I heard talk of a gross receipt tax instead of rent and vacancy control.
Q-What's that?
A-Simply put, a landlord would raise his rent to whatever the market would bear and then pay, say 3% of his increase, to a fund to subsidize low income tenants so that they can afford to live in the now more expensive units.
Q-You mean forget about putting a cap on rents?
A-Yes. Simply let the market determination the price of rental units but collect a new tax for affordable housing.
Q-Do you favor the idea?
A-Absolutely not, although if my only alternative were a gross receipt tax or rent control I would have to chose the tax as far less detrimental to the housing stock and the spirit of the community. There are few things worse than rent control.
Q-A lot of people think rent control is unconstitutional. How did it get started?
A-Like a lot of public policies, the transition from unconstiutional to constitutional was gradual. After numerous court rulings the other way, rent control was declared constitutional in 1921. The city of New York has the oldest and strictest rent control laws in the nation, among the lowest vacancy, lowest new housing starts, lowest inclination to lend by residential lenders and lowest profit to residential investors. In 1983 average rents were $78 a month below operating costs.
Q- No wonder so many landlords continue to lose money.
A-A few years a go I read about an 87 year old man who had been given property in Harlem by his former employer. He had worked as a plumber-handyman for his benefactor for 23 years. This old man spent over $40,000 in a two year period, heating a building used by squatters.
Q-Why in the world would he do that when he got no income to cover his costs?
A-He was following a court order. But that wasn't good enough for the law. Despite his efforts to comply he was sent to jail three times for failing to supply adequate heat to squatters. He boarded the building up at night only to find squatters there in the morning.
It didn't seem to matter to the judge that this 87 year old man was almost bankrupt and was being required to provide heat to those who didn't pay him. When he was able to get a paying tenant he wasn't allowed to charge more than $55 a month for a five room unit, thanks to rent control regulations.
Q-I heard about a steelworker who had property in New York City and in his capacity as a landlord lost $11,000 in 1986. Rent control regulations meant he had to rent half the units in a 35-unit apt house for under $100 a month.
A-In both of these examples the far from wealthy owners would have to sell at a loss if they could get any takers at all.