Let them rent cake: George Pataki, market ideology, and the attempt to dismantle rent regulation in New York.

• Author: Gurian, Craig

INTRODUCTION

There are not many issues upon which the editorial boards of all the daily newspapers in New York City agree. Yet in the spring of 1997, The New York Times, the Daily News, the New York Post, and Newsday were unanimous in respect to one thing: rent regulation had to go. The editorialists (joined, less surprisingly, by their colleagues at the Wall Street Journal and Crain's New York Business) were hardly reflecting popular sentiment. A poll of New York City residents in June 1997 found that "[a]t least 70 percent of [New Yorkers]--including homeowners and tenants--said rent regulations were necessary to provide affordable housing and to prevent rents from soaring." (1)

What the editorialists were reflecting was the pervasiveness of the idea of the "free market" as natural and beneficial, and of the corollary notion that restrictions on that free market are unnatural, unjust, and counterproductive. (2) This theology provided the basic assumption that underlay and constricted much of the policy debate over whether to extend, modify, or eliminate the rent regulation system, a system which was due for its periodic renewal on June 15, 1997. (3)

Opponents of rent regulation, of course, had a serious problem with which to deal. Rent regulation protected about 2.5 million people in New York City. (4) It was thus crucial for adherents of market theology to don the garb of market populists, and they did so with a vengeance. Fundamental questions of greed and power were turned on their head. Forget that the principal motive for building owners and their allies might indeed be the maximization of profit. Forget that the security of tenure that tenants enjoyed under rent regulation (i.e., the right to lease renewals) would evaporate if rent regulation were to end and that, thereafter, tenants could remain in their homes only so long as the arrangement suited the landlord. (5) Focus instead on a very different picture painted by opponents of rent regulation: the quintessential landlord was the struggling owner of a small building being deprived of the ability to earn a livelihood. (6) The quintessential tenant was the wealthy family shamefully exploiting the system at the expense of their poorer brethren. (7) If only regulation were ended, rents might actually go down, and a new era of apartment construction would begin.

At the center of the controversy was New York's governor, George Pataki, a man firmly committed to market theology, and a man whose reelection campaign was only a year away. The Governor, the unquestioned leader of his party, (8) had an ambitious agenda: set rent regulation on the road to its demise while presenting himself as a friend of tenants. (9) Through a strategy of concealment, soft-pedaling, and implicit coordination with like-minded, pro-landlord forces, he came close to staging a spectacular short-term victory. Instead, he ultimately had to settle for making what was still real and substantial progress (10) toward a day when no apartments would be regulated, and market values would trump all other values.

Indeed, the June 2003 reprise of the rent regulation debate can only be understood in light of the outcome in 1997. In 2003, anti-regulation forces were happy to consolidate their gains by letting the 1997 system continue for as long as possible; pro-regulation advocates were desperate to recapture lost ground by trying to repeal the core of the 1997 amendments. (11) Though not well understood by the public or press at the time, 1997 had been a watershed moment.

This essay examines the ideological and political struggle over rent regulation that was waged by rent regulation opponents in the Spring of 1997. Part I traces the debate as it unfolded in 1997, including the role of legislative leaders, the governor, the press, and anti-regulation advocates. It focuses on the assumptions about the market shared by the various anti-regulation protagonists, and on the factors starkly omitted from their analyses. Part II sets forth the results of the debate, examining the provisions and consequences of the "Rent Regulation Reform Act of 1997," including the legislation passed in 2003 to extend rent regulation another eight years. Finally, Part III offers conclusions about the role of market theology, the nature and motivation of anti-regulation arguments, the strategies of the governor, and the future of rent regulation.

It is important that the 1997 battle over rent regulation be understood as part of a struggle that had been going on for more than fifty years (see the Appendix for a chronology of New York City's rent regulation systems). On the eve of the 1997 debate, there was a residual system of strict rent regulation called "rent control" that was still in place for approximately 70,000 apartments in New York City. (12) When such apartments were vacated, and if the building had six or more units, they joined the much larger stock of "rent stabilized" apartments, units that were governed by a looser system of regulation. The stock of rent-regulated apartments, which totaled more than 1,000,000 units, (13) was the focus of the debate, and is the focus of this paper.

The principal features of rent stabilization as it existed as the beginning of 1997 can be summarized as follows: 1) so long as a tenant paid the rent and did not engage in conduct violative of his lease, that tenant was entitled at lease expiration to a written one-or two-year renewal lease; (14) 2) once an initial legal rent had been set (when the apartment was first registered as being rent stabilized), further rent increases (for a one-year renewal, a two-year renewal, and, generally, a "bonus increase" after an apartment had been vacated) were set each year by a public body, the Rent Guidelines Board; (15) 3) these increases were supposed to track the increase in costs borne by landlords in running their buildings, (16) although whether the Guidelines Board was being too generous or too stingy was a constant source of debate between tenants and landlords; 4) a new tenant stepped into the rent-stabilized shoes of his predecessor; (17) 5) landlords were not permitted to reduce services (and were subject to reductions in collectible rent if they did); (18) 6) a family member of a tenant who had been living with that tenant was entitled to a lease in her own name were the named tenant to die ("tenant succession"); (19) 7) landlords were entitled to rent increases both for building-wide capital improvements they made, and for improvements they made to individual apartments (in practice, generally apartments that had been vacated); (20) 8) apartments could be deregulated either if they were renting for $2,000 or more and were then vacated, or if they were renting for $2,000 or more and the tenants in occupancy had income in each of two successive years of at least $250,000; (21) and 9) apartments in buildings with fewer than six units were not covered at all. (22)

According to the 1996 New York City Housing and Vacancy Survey, approximately 68 percent of rent stabilized apartments were occupied by households with total 1995 household income under $40,000; (23) 91.5 percent of rent stabilized apartments were occupied by households with total 1995 household income under $80,000. (24)

1. THE 1997 DEBATE

   1. A Campaign of Disinformation

      The rent regulation battle began in earnest when Joseph Bruno, the Majority Leader of the New York State Senate, announced in December, 1996 that he was going to "end rent control as we know it." (25) Bruno, asserting that rent regulation had done "as much damage to the city's housing market as an 'atomic bomb' would," said he would simply let regulations expire on June 15, 1997 if the system were not dramatically overhauled to deregulate all apartments except those occupied by people with disabilities, senior citizens, and people with the "lowest income," a category the Senator did not define further. (26)

      On one level, Senator Bruno's position did not appear to be idle boasting. Both houses of New York's legislature operated largely by one-person rule: the Democratic-majority Assembly by its Speaker, Sheldon Silver; the Republican-majority Senate by its Majority Leader, Mr. Bruno. (27) The Republicans in the State Senate held a five-vote majority in that chamber, (28) and it was true that legislative inaction would effectively kill rent regulation. (29) On another level, however, politicians and the press understood that rent regulation continued to have widespread support, and that Senator Bruno's statement represented merely an opening gambit in what would be a difficult negotiation. (30)

      The Governor's strategy was to maintain a low profile, allowing Senator Bruno to take political rack for urging the end of rent regulation, and then belatedly come forward with a plan to end rent regulation more gradually. The Governor would then characterize himself as having offered a "compromise" that protected tenants. Actually, Governor Pataki's position in relation to rent regulation was clear enough to anyone who had been paying attention. Even though the Governor refused to set forth a specific proposal on rent regulation for months after Senator Bruno's announcement, he acknowledged in the immediate aftermath of that announcement that he "supported Bruno's ultimate goal of eliminating most rent regulations." (31) His record as a legislator was clearly anti-regulation. He voted against rent regulation extension as an Assemblyman in 1989 and 1991; in 1993, as a State Senator, "he voted to extend the laws, but largely because they added luxury decontrol." (32) In 1995, he stated his support for vacancy decontrol, a system by which rent regulation is ended over time by eliminating apartment from controls as soon as the incumbent tenant leaves. (33) If the press seemed, for the most part, not to know where the Governor stood, rent regulation opponents were better informed. Peter D. Salins of...