If you think New York City is overregulated, consider Argentina.
For years, price controls and other socialist policies made Argentina a poster child for economic malpractice. Then an economist was elected president and implemented reforms cold-turkey. That shocked the system and caused even more pain — as the new leader warned they initially would.
But one change seems to have succeeded: rolling back rent control. Supply is up, rents are down and people can find apartments in Buenos Aires again.
Would that also work in New York City?
I once posed that question to then-City Council Speaker Corey Johnson, who had stopped by my desk for an informal conversation after a photo shoot. He said he feared rents for lots of New Yorkers would soar and thousands would become homeless.
Reporter Will Bredderman, who had joined us, shot back, “Really? Because that’s not what happened in Massachusetts.” Will is not known for being reticent.
He was right, though. When Massachusetts voters banned rent control statewide in 1994, rents and homelessness did not jump in places that had it, such as Cambridge.
But test cases are rare because rent control tends to stick. The policy creates winners and losers, and the winners typically become a strong political constituency that locks in their benefit even if the results are bad for everyone else. (The wait for an apartment in Stockholm, for example, can be 15 or 30 years, unless you pay through the nose on the black market.)
In Argentina, however, the economy was such a disaster that voters ripped off the Band-Aid and elected the controversial Javier Milei president. He junked rent control, and landlords responded by putting units back on the market, boosting supply in Buenos Aires by 170 percent.
Because apartments are now much easier to find, rents in the city have fallen by 40 percent since October.
To be sure, prices went up for tenants whose rents had been rendered absurdly cheap by Argentina’s runaway inflation. Just as rent control creates winners and losers, so does reversing it. But now Argentina has a functioning housing market again. People offered jobs there no longer have to reject them for lack of a place to live.
Back in New York, some units are rent-regulated and some aren’t. In less desirable neighborhoods, both types often have similar rents. But most everywhere else, regulated rents are below market. If rent stabilization ended, those tenants would pay more.
But they would also get more.
Buildings would be better managed and maintained because landlords would have to compete for tenants and would have more money for improvements. The state’s new good cause eviction law would still limit rent increases for existing tenants, but far less severely than rent stabilization does now.
Good cause has downsides, but rent stabilization’s are far worse. In fact, good cause would be a buffer for tenants if rent stabilization ended. It would allow the city’s rental market to evolve gradually into something resembling normalcy. With good cause as a fallback, politicians could justify allowing the housing emergency, and thus rent stabilization, to end.
The big winners would be renters in market-rate apartments, whose landlords would face competition from 900,000-plus deregulated units. And dilapidated, mothballed units whose regulated rents are too low to support a renovation would be fixed up and returned to the market, notes Ann Korchak of Small Property Owners of New York.
Assuming this fantasy came true, what other reforms would be needed for the market to function properly? Quite a few.
Restrictive zoning would have to be lifted so developers could build enough units to catch up with demand, which has soared since crime began falling in 1990. Wage floors that deter construction of buildings with more than 99 units would have to be scrapped.
Also, housing court would have to be wrested from its dystopian hell so tenants and landlords could get justice rather than endless adjournments.
“Small property owners play a crucial role in providing affordable housing,” Korchak said, “so New York needs to ensure that housing court cases are heard promptly and unbiasedly, which will remove much of the risk and get these providers back in the market.”
For a while now, with rent-stabilized tenant Linda Rosenthal chairing the Assembly housing committee and idealogues dominating the state Senate, ditching rent control in New York has seemed unthinkable. But Argentina has shown that it’s worth thinking about.
What we’re thinking about: Why would Mayor Eric Adams have put his career at risk to fly business class and stay in fancy hotel suites for free? Email me at eengquist@therealdeal.com.
A thing we’ve learned: Three of the most progressive members of the City Council — Lincoln Restler, Shanaha Hanif and Tiffany Caban — rallied at City Hall Thursday morning for a provision of the City of Yes for Housing Opportunity that would remove parking mandates from multifamily development. The plan would still let developers include parking if they want to. Conservatives on the Council don’t want builders to have the freedom to choose. The entire proposal passed the City Planning Commission Wednesday and will be decided by the City Council in the next 60 days.
Elsewhere…
— Our story this summer about a rent-stabilized building selling for just $79,000 per unit got a lot of traffic, but not all such buildings sell for so cheap. Two six-story, rent-stabilized buildings with 108 total units in Rego Park, Queens, just sold for $108 million, or $167,000 per unit. The average rent in the 1950s-era buildings is $1,746. The seller, from Westchester, had run the buildings for decades and decided to retire. The buyer was a Bronx-based multifamily owner, according to Lala Realty Group, the broker for both deals. The Inwood buyer’s low price worked out to a 9 percent cap rate, versus 7 percent for the Rego Park buildings.
— The American Dream Mall has had its issues over the years, beginning with its construction and running into the pandemic, but at least one problem seems like it would be easy enough for the owners, the Ghermezian family, to solve: The motorized animals it rents out to young drivers keep running into other mall patrons. A woman alleges in a lawsuit that she was struck from behind while carrying her baby through the mall. It’s the third such lawsuit this year, according to northjersey.com. One victim said she needed spine surgery as a result.
— A reader asked if we’d cover the sale of Union Wharf Apartments, a 281-unit waterfront complex in Baltimore, for $79 million, nine years after the Bozzuto Group sold it for $121.5 million to apparent JPMorgan entity I&G Direct Real Estate 37. The 2015 sale, for a Baltimore record $430,000 per unit, was a big win for Bozzuto, which built the property from 2011 to 2013 for $72 million. But the latest deal was a disaster for the seller, who got just $281,000 per unit, even with occupancy at 96.1 percent. So, why haven’t you read about it in The Real Deal (until now)? Because distress sales are pretty common these days, and we have to focus on the bigger ones in our core markets.
Closing time
Residential: The priciest residential sale Thursday was $24.5 million for a 4,492-square-foot condominium unit at 111 West 57th Street in the Plaza District. Kane Manera and Janet Wang of the Corcoran Group had the listing.
Commercial: The largest commercial sale of the day was $36 million for a 9,320-square-foot, mixed-use property at 673 Madison Avenue in Lenox Hill. TRD reported on the purchase by Friedland Properties from the Duell family.
New to the Market: The highest price for a residential property hitting the market was $21 million for a townhouse at 11 Cranberry Street in Brooklyn Heights. Ravi Kantha of Serhant has the listing.
Breaking Ground: The largest new building application filed was for a proposed 30,661-square-foot, seven-story residential building at 213 East 83rd Street in Yorkville. Joseph Spector of Dome Architecture, Design & Engineering Group filed the permit. — Matthew Elo