The Rug Merchant of Persia

It was around the passover dinner, that my dad mentioned to me that my "friend", Mr. Fred Ohebshalom, was featured in the NY Post for having the worst reputation as a slum/landlord in New York City.

I've only met with the guy once, when trying to "flip" him 50 condo units in a Downtown Miami waterfront project known as Cite. (I put flip in scary quotes because the building was of then, nonexistent, and I never had a financial stake in the project, other than trying to sell him onto the deal for the developer.)

So anyway, the story goes that he owns about 90 apartment buildings in NYC, and allegedly he does everything he can to rid the buildings of rent stabilized and rent controlled tenants. You see, because in NYC, we have this WWII-era emergency legislation (which in order to continue, must be renewed every other year, and has been since) which put a freeze on apartment rents all over NYC. It also alleges to protect the tenants, by making it close to impossible to evict them.

A building owner has limited recourse to achieve market price on the rental units. The general guidelines are as follows; when a monthly rent reaches $2,000, a unit can be converted into "free market" and the owner can begin asking whatever the market will bear, and begin to evict the tenants if they no longer want to pay the market price.

In a case where the rent is nowhere near the $2,000 mark, the owner can do several thing to increase the rent. If the owner makes improvements to the building, he can increase each rent by 2.5% of the costs for the improvement. The owner can also bargain with tenants, by paying them money to leave or to relocate to a different unit. The tenants may find it favorable to leave a unit in an otherwise vacant building, or maybe relocate to another unit since their rate was closely approaching the "free market" rate and anyway were going to be eventually evicted.

Even once that unit is vacated, it must remain so for a minimum of 2 years, in order to deregulate it. Only then can it be delisted from NYC's Division of Housing Community Renewal, the body which manages and regulates the yearly rental increases. For instance, the allowed increase this past year was 4%. It sounds like much, but than again some people are paying $250 per month in places where market rent is twenty times the amount. Note that this policy leads to thousands of apartment units being placed into a legal limbo, and prevented from being available on the market. This policy will naturally cause housing demands to go unmet, and keeps the supply costs high.

My "friend", Fred goes the battle-axe approach. His management company buys rent-stabilized/controlled buildings, which are relatively cheaper than buildings with free market units, on the hope that he can evict those low-paying tenants and take the arbitrage as profit. His first order will be to make sure that everyone pays their rent on time. Any short or missed payments and the eviction notices and legal papers start coming. He threatens them with lawsuits if they don't leave, tacking on the legal costs.

He also investigates the tenants, to make sure every thing is within the legal boundries. If they find irregularities, such as sublets, unoccupied units, illegal improvements, etc. they will sue for eviction. He is also creative in this regard; he will hire a crew to obstensibly install intercoms, fix electric services or plumbing, etc., but at the same time these crews will document any illegal things they notice.

Evidently the tenants (both legal and illegal) of these buildings are upset about these overzealous practices and have initiated lawsuits to stop the alleged harassments. They have even found a few local officials sympathetic to the cause, perhaps to counter the efforts of Fred and other shrewd landlords like him, and to punish them for having the gall to be so meticulous about enforcing the vaguerities* of the rent control laws.

Whats my point?
Readers of this blog probably know where I stand on this issue. But for the benefit of newcomers, I will reiterate my position on rent regulation- it's legalized robbery. The property owner should have the sole discretion to determine what rental rate he wants to charge for the units. Of course he must abide to any agreements he made with tenants in regard to increases, common charges, etc.

But some people, such as my brother-in-law (disclosure: he is a rental broker) have a confused notion over this concept. He will agree in principle that property owners who were effected by the rent control laws when they were first enacted are being victimized since their property rights are being infringed upon. But he has also thinks that someone who buys a building after the enactment, knows what he is getting; and so the new owner "agrees to the rent control laws", and therefore subject to abide by them.

This is the absurdity I wish to demolish.

If we are agreed in principle, that rent regulation are a form of legalized robbery, there is no room for assumptions about the moral sanction of buyers to the existing rent laws.

Let me give you a different scenario. A shop owner named Joe has a jewelry store on Neptune Ave in Coney Island, Brooklyn; the thick of a russian mafia territory. Every month like a good citizen, aside from his mortgage payment, he also pays a tributory to the local protection racket, in order so that his store and person isn't subject to arson, robbery, theft, busted kneecaps, murder, etc.

Now lets say Joe wants to retire and sell his shop to Michael- would you say that Michael gave his moral sanction to the mafia? After all he knew about the "protection" service prior to purchase, and therefore according to the moral sanctionists, he agreed to abide by them.

In the same fashion, there is no concept of implied moral sanction between victim and agressor, be it government bureaucrat or the common ruffian. Just because a person bought a property, or lives within a geopolitical system, it does not imply that he agreed to abide by the corrupt law system in place.


*vaguerities - is this a proper English word?

Wonky Wired Update

What can I say? I'm flattered to learn that Wired Magazine's May 2005 issue printed my nitpicking criticism of Wonkette's article which I found belittling of Howard Stern's success and which gave credit to the wrong party. You can see it both in print, and here online. (Scroll down to almost half the page until where you see it says "Stern Warning")

And, yes they edited it to the point that I'm not so sure that my message got out there clearly.

Well, whatever.

Kosher Pricing

I was quite irked, although not suprised to learn that the New York City Department of Consumer Affairs has asked citizens "to report charges by stores in New York City for Kosher-for-Passover food items that are notably more expensive than the regular prices." (complaint form here)

May I begin by asking, what does "normal" price mean anyway? Is there some idealic price for passover items which is acceptable? This garbage is wrong on so many number of fronts.

For instance, last year I paid $15 a pound for what I consider that best brand of hand-rolled matzah (unleavened bread). This year, it was $21 for the same thing. But what are the alternatives? Buying what I consider not to be as good may save me a couple of dollars, but in the end I preferred to spend my dough (heh, heh) on the best possible brand. Did anyone put a gun to my head and force me to buy it? And at that price? Nope, and nope.

A price is not a immutable property of objects. Through a legal viewpoint, it is an offer to sell at a certain price. A buyer is entitled to give a counteroffer, and is not locked in to a given price. In essense, the buyer has the upper hand, because he can either initiate or veto the transaction, where as the seller depends on the goodwill of the buyers. And if a two people agree to exchange in what they consider a mutual benefit, there is no justification for a third-party to weigh in on the validity of that transaction.

When viewed in this fashion, it's beyond contempt to give the buyer even more leverage, by way of government's coercive threat of violence.

And than there's the economic fact that price gouging and price control laws only further consumer misery. To understand why, please refer to here: Jim Cox's Concise Guide to Economics

And after all, with property taxes boosted thru the roof for all property types in NYC, is one suprised that the costs won't be passed down to consumers?

Some people can never resist the urge to use violence to get what they want. And that includes using government to determine "what ought to be the right price". Perhaps it's more noble to be a thief and steal what you desire sight unseen, than to brazenly intimidate people and threaten them to sell at a self-determined "fair" price point.

Common Real Estate ¢ents

You always hear about the housing problem; how it's so unaffordable, and how it's the business of the gubmint to help develop housing for low-middle income families.

Welcome to "Shooting-yourself-in-the-foot" 101, or how government can take a valuable and abundant resource, and make it more scarce; thereby driving up the market price when the housing supply can't meet the demand.

For example, and probably the biggest factor is zoning regulations. Crafted in the early 20th century, the concept spread like wildfire, for local governments around the country to join the frenzy of dictating who can build what, where, when & how.

Couched in arguments espousing controlled, organized, and intelligent urban and rural plannings, the statists established an outrageous attack on the sovereignty of property, with incalculable consequences of financial harm and housing shortages done to generations forward.

But for the moment, put aside any arguments against zoning regulations which recognize it for the debasement and gross violation of individual property rights, which it certainly is. Instead, understand that it is also a self-defeating proposal, in that it does not promote a better use of the land, no matter what the authoritarians tell you to the contrary.

First, allow me to quote a point made by a poster named Dave H. on Gothamist regarding the knee-jerk aversion that people have to development:

"This is ironic because NYC has historically been a very dynamic city development-wise. Fashionable districts migrating uptown, abandoning downtown for industrial uses. Abandoned industrial areas downtown being revitalized 100 years later as fashionable districts. The urge of some NYers to try to freeze the city in some imagined halcyon configuration goes against everything NYC actually ever was. Neighborhoods change; the city constantly changes. The West Village used to be the domain of bohemians (latter day hipsters) where adventurous wealthy people came to slum with "artists." The slaughterhouses and tanneries on the East River waterfront eventually evolved into Turtle Bay."

His other comments border on criminal, but at least he was right on the money regarding the anti-development crowd, and why their chief arguments are wrong, on the emotional level (as an aside, can emotional arguments be considered right or wrong in contrast to opposing emotional arguments?)

But now, putting aside the ethical and emotional arguments (thanks BK for the lesson on the 3E's approach of Minimum Wage), we will try a thought experiment on the futility of zoning regulations which among many "benefits" is supposed to stregthen the housing market, so that its affordable and available to all.

The first point is that the government dictates what type of use a land can have, for example- commercial, residential, educational, medical, industrial (light and heavy), agricultural, etc. This is the probably the greatest facet of the problem, because it implements arbitrary limitation on what usage a particular land can sustain. To developers, they see wide tracts of opportunity for affordable housing (the usage being a random example), on the other hand they see the demons of bureaurocacy, numerous townhall meetings, wasted time, wasted effort, and mounds of costly legal paperwork since a government decree declares it insuitable for housing.

At that point, the developers might walk away, and never develop the land for those imagined usages. So who loses? Everyone who lost the availability of using those lands, furthering both the scarcity of housing, and driving up the price for the unmet demand for everyone. This all goes back to Frédéric Bastiat's argument of "That which is seen, and that which is not seen". In this case, most people do not see the price of homes being driven up when usuable lands go undeveloped because of useless government usage laws.

But wait, suppose we eliminated land usage restrictions, and let the ultimate buyers of those properties decide if they think the land is suitable for their homes/business/etc. If the land is truely unsuitable, the developers would know that and find ways make it so that it is attractive to buyers. They can sell them at affordable prices; soundproof them for noisy neighborhoods; plant more greenery, and incorporate private gardens; build the structures so that the sun exposure is maximal; furnish with high-quality fixtures; etc. In short, only lands which are suitable would be developed, and those which have minor or major inconveniences would be mitigated by the developers in numerous ways.

The second most serious problem of zoning regulations is in the dimensional restrictions- those concerning height, length, width, setbacks, floorplates, usable floor areas, common-to-private usage ratios, and many more. With these laws, government tells you how to build your apartment or office building, home, shop, garage, pool, parking lot, etc.

If one is only allowed to build 4 stories, and not 20 or more, he will have fewer spaces for homes, offices and businesses in that structure. He may decide to build fewer, and higher-priced residences in order to gain back his investment (and which was only expensive in the first place because of the unmet demand for developable land which drove the prices sky-high!)

The third most serious problem is building codes, which are not just regulations to make contractors follow a set of expensive construction standards, but they also mandate the use of licensed professionals for installation of electric, gas, plumbing, workings and the materials they must use in the buildings construction.

For example, it is common nationwide for plumbers to use PVC piping materials, but in NYC the plumbers union and its paid shills in government only allow the use of metal pipes, ignoring the benefits and cost-savings that PVC brings to the table.

So the next time, some neighborhood organization moans about the rising prices of housing, tell them to point to the government as the source of their problems, not the benign agency who will help them alleviate the problem.