The Great Rent Wars: New York 1917-1929.

• Author: Van Doren, Peter
• Position: Book review

The Great Rent Wars: New York 1917-1929

Robert M. Fogelson

New Haven: Yale University Press, 2013, 512 pp.

Economic shocks in an unregulated textbook world are managed through the price system. During gluts, prices fall and the least efficient firms lose wealth and exit the market. The result is that supply falls and demand increases. Eventually a new equilibrium is reached in which prices increase toward marginal cost and risk-adjusted returns to firms equal the cost of capital. During shortages, prices rise, existing firms receive rents, and new firms enter the market. The result is that supply increases and demand falls. Eventually a new equilibrium is reached in which prices decrease toward marginal cost and risk-adjusted returns to firms fall to equal the cost of capital.

In The Great Bent Wars: New York 1917-1929, Robert M. Fogelson expands my one paragraph, antiseptic, economist's account to over 400 pages and describes in great detail housing-market shocks in New York City during and following World War I. First some stylized facts. From 1903 to 1916, NYC experienced an unprecedented expansion of rental housing supply. Four hundred thousand units were built, and, by 1916, 40 percent of all apartments were built after 1903. During this time, even though the population grew by a million and 40,000 old tenements were demolished, the vacancy rate grew and rents fell.

From 1917 thorough the late 1920s, the expansion of supply ended. Initially WWI regulations stopped residential construction. After the war, everyone expected a construction boom, but it did not occur because materials and labor costs rose faster than tenants' willingness to pay. Construction costs rose 50 percent from 1913 to 1918. By 1920 the vacancy rate was 0.3 percent. Rents rose dramatically, and tenants resisted with rent strikes. Landlords responded with eviction attempts.

The remainder of the book describes how the state legislature wrestled with these events. The conflicts and arguments from 100 years ago about the pros and cons of market intervention are very similar to what we hear today. Some argued for tax incentives and reduced down payments to increase housing supply. Others proposed to increase supply by modifying the Tenement House Act of 1901 to make converting single-family houses into apartments cheaper. Fire departments and tenement reformers predictably opposed such modifications because they would result in unacceptable (for them) fire-safety risks...