NEW YORK – As the financial centre of the world’s most capitalist country, New York might appear hostile territory for socialist ideas. And yet the concept of rent control has a stronger hold over the city than almost any other in North America.
As with most acts of public generosity, the system is abused — at least in spirit. Thousands of tenants who pay below-market rents use the money they save to buy out-of-town weekend or vacation homes.
The revelation emerges from an investigation by the New York Sun, which names some of those who have been able to afford luxury homes outside the city as a result of rent control.
Actor Mia Farrow, singer Cyndi Lauper and supermodel Kim Alexis are among a slew of celebrities who have benefited from below-market rates.
Ms. Farrow paid less than US$2,500 a month for an 11-room apartment overlooking Central Park she inherited from her parents. The property was even featured in a movie by her former partner Woody Allen.
Ms. Lauper went to court recently to get her US$3,250 rent lowered to US$508 for a suite in a building where some units rent for US$10,000. The judge said she was being too ambitious, but the singer, whose hits include Girls Just Want to Have Fun, still came away with permission to pay only US$989.
The latest study suggests the problem not only continues, but is widespread.
“It shows people who get lucky by getting into these apartments end up never leaving,” said Joseph Strasburg, president of the Rent Stabilization Association, which campaigns against rent control laws.
“They have hit the mother- lode, and can afford not only one, but maybe two properties outside New York City. We are asking, ‘Why is it a matter of policy to allow this privilege to people who don’t deserve protection?’ “
Rent controls became widespread in the United States during the Second World War. But they were written into longer-term New York law in 1947, partly to provide affordable housing for lower-income residents, but also to encourage diversity in neighbourhoods.
Though modified, they remain, causing distortions in the rental and property markets that have done little to end the segregated nature of many parts of New York.
Indeed, most of the residences that surround the southern two- thirds of Central Park are priced beyond the reach of all but the ultra-wealthy.
But neighbourhoods near its northern third are filled with residents who pay, for the most part, a relative pittance for their apartments.
Manhattan is perhaps the only place in North America where the value of property can drop by hundreds of thousands of dollars in two blocks. The paradox is all the more surprising in a city whose main economic engine –Wall Street — is driven by the closest thing to pure capitalism on the planet.
Rent-control opponents lobbied for and received some relief in 1997, when the state authorized the eventual phasing out of the system.
But that will be at an undetermined date because representatives of low-income people — who are the only ones who should legitimately be benefiting from rent controls — got the support of wealthy beneficiaries of the controls.
What’s ironic is that many of these people who live in rent-stabilized units in Manhattan work down on Wall Street and in 1997 it was exactly these people who financially supported the tenants’ movement,” Mr. Strasburg explained.
“Their mantra was, ‘If you get rid of rent regulation, you are forcing me to buy my apartment, but why should I do that when I already have a house somewhere?’ “
Another criticism is that rent controls limit the housing stock by acting as a disincentive for construction. But being an island, Manhattan has limited space.
All this has driven the cost of the average Manhattan apartment to well above US$1-million. The top sale price is US$45-million, paid last month by hedge-fund manager Daniel Loeb for a 10,000-square-foot penthouse condominium overlooking the southwestern tip of Central Park.
The Sun article gave five examples of people benefiting from rent control, but its author David Lombino says there are thousands more.
For example, Florida tax records show a doctor named Howard Shapiro owns a West Palm Beach property assessed at almost US$1-million while claiming a two-bedroom rent-stabilized apartment overlooking Central Park as his primary residence.
Owners of a Connecticut home worth more than US$1.6-million are William and Mada Hapworth, both doctors, who have a rent-stabilized apartment on Central Park South.
Retiree Ruth Golbin complements her rent-stabilized two-bedroom apartment with ownership of a Florida condominium assessed at more than US$500,000.
Another retiree, Andreas Scott-Hansen, lives with his wife, Beatrice, in their rent-stabilized Fifth Avenue apartment, and has owned a Connecticut home valued at US$825,000.
Mr. Lombino says his final example spoke on condition of anonymity — a rent-stabilized apartment dweller who owns a US$1-million property in Geneva.
© National Post 2005