Epstein: "The Scourge Of Rent Stabilization"

The Scourge Of Rent Stabilization
Richard A. Epstein
November 3, 2009

One central libertarian tenet is that governments should not use subsidies or price controls to distort the operation of competitive markets. The soundness of that position was brought home once again in the recent decision of the New York State Court of Appeals in Roberts v. Tishman-Speyer, a case in which both subsidies and price controls were far too much in evidence.

Roberts required the New York State Court of Appeal to interpret New York's antiquated rent stabilization law, which it did in a way that will roil for years to come New York City's rental housing market. The saga began on a hopeful note when in an partial move to market liberalization, the New York State legislation added in 1993 a luxury decontrol provision to New York's rent stabilization law. As currently configured, that inelegant compromise is supposed to return to the open market any rent-stabilized apartments whose tenants' combined income exceeds $175,000 per year, so long as the unit rents for more than $2,000.

The prospect of those increased rentals through luxury decontrol induced a Tishman-Speyer-led syndicate to plunk down over $5 billion to purchase two large Lower East Side complexes, Stuyvesant Town and Peter Cooper Village. Unfortunately, the arcane interaction between luxury decontrol and the city's tax subsidies for capital improvements under its so-called J-51 program have rendered its financial calculations worthless.


Richard A. Epstein