The New York Post today ran a breathless attack by Lois Weiss on the proposal wending its way through City Hall to provide greater stability and protections to commercial tenants. In essence, the new law would apply a watered-down version of rent stabilization to commercial properties. The two most important aspects of the bill would prevent landlords from increasing commercial rents beyond prevailing rates in a one-mile radius of the property and would make 10 years the default length of a lease. Compared to the current residential Rent Law the burden on landlords is minimal, but we also shouldn’t shield our eyes to reality: this is an expansion of rent control.
For many people, including a lot of left-wingers, rent control is a lumbering, oafish policy that leads to shoddy housing, misallocation of capital and acts to bind poorer people to certain areas when they might be better off if they were more mobile. Across most of the US rent control is long dead, and only in New York City is it still a major part of the real estate market. In NYC less than a third of homes are owner-occupied, while the remaining 67.2% are rented out. Though the percentage of ‘regulated’ units is plummeting, fully 43% of all housing in New York City is rented by people who enjoy the protections of rent regulation. These protections include secure tenancies which prevent landlords from evicting people who pay the rent on time, as well as caps on how much the rent can be increased each year.
Personally, I don’t think rent control is ideal but the alternative is beyond unacceptable and the principle of rent regulation, though not the practice, should not be objectionable to anyone except the purest of libertarians who reject taxes and planning laws. If you’re happy enough with the idea of the government telling you what you can do with your property (the bricks must be of somber shade! it can’t be taller than five stories!) and with the government appropriating part of your income in the form of taxes, I don’t see how regulating rents is somehow a greater offence against the rights of property.
These principled objections aside, there are a lot of reasons to support commercial rent regulation. The most obvious is that it prevents landlords from sucking up almost all of the profits created by businesses. So much of the money that flows through businesses renting properties in New York just goes straight into the pocket of landlords. The Bank Street Bookstore, a children’s bookstore and neighbourhood favourite on the Upper West Side, has finally found a new home after it was driven out by high rents. The owner of another bookseller, Bookculture, emptied out his retirement fund to meet the costs to secure a new lease going for $35,000 a month. Call me old-fashioned (or a bad socialist…) but I think that the rewards from small businesses should accrue to their owners, not landlords.
The most obvious criticism of regulating commercial leases, of course, is that it would stop stores being rented by the people who can put them to best use, i.e. those who can wring the most money out of the location or at least stomach the astronomical rents. As anyone who spends time in the bustling parts of New York can tell you, however, this often pits a local business against the deep pockets of Chase, AT&T or Duane Reade. Banks in particular open new branches as physical loss-leaders, taking the hit on rent in order to capture new customers that will in the long-run earn them vastly more money. This bring us to the second reason to support commercial rent regulation: it will slow or even stop the homogenisation of New York City.
People who know me might be surprised that I, a man known to rise to the defence of the culinary accomplishments of McDonald’s, should care much about the fate of prissy boutiques that I dislike or established neighbourhood stores that I rarely venture into. But the stipulation in the bill preventing leases that charge rents much in excess of prevailing rates in the area will give neighbourhoods far more control over their streets, something I do care deeply about. Democracy means very little if it doesn’t even stop down the street but rather at our front door. People need to be able to exert some control over the character of their area. In a city that gives such undue weight to the aesthetic concerns of residents, it is strange that there is no mechanism for residents to step in to protect beloved local institutions that more often than not are small businesses. It is easier in New York City to protect the bricks and mortar that shelter a neighbourhood institution than to protect the institution itself. 10-year leases and rent caps that are relative to area prices will ensure that functional businesses can survive and thrive.
At the same time that relative nature of the rent cap will ensure that zombie stores don’t litter the streets. There’s something right and socially justifiable about rent stabilization laws that allow an old couple that has lived in a now-buzzing neighbourhood to remain in the home that they have lived in for decades. There is no such reason to feel sentimental about businesses that have no customers. Failing businesses should make way for other businesses and should not be protected. What needs to be protected are businesses that are capable of paying reasonable rents and turning a good profit but which cannot win a bidding war with a financier’s hobby restaurant or a major corporation.
The third reason to support commercial rent control, and the one that appeals to me the most, is that it would buttress residential rent regulation. Despite the best efforts of New York’s property developing elite rent regulation is still a viable force in New York City. Regardless of the many outsider objections to it, rent regulation is at the core of New York’s social contract and is a guarantee to many otherwise powerless people that their home, at least, is under their control. If businesses were to begin benefiting from rent regulation a major commercial interest would be drafted into the fight to protect the idea of the State and City interference in the real estate market. If well-connected cafe owners and personable small businessmen began to mobilise to defend rent regulation, then the position of working class New Yorkers would be even more secure.