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October 20, 2008

For Post-Rent Control Real Estate, Leave Brooklyn

jerseycity-1008.jpg
It's hard to feel sorry for folks blessed enough to occupy rent-controlled real estate. But such apartments can be a bit of a curse; who can summon the courage to leave them? Well, the NY Times profiles a woman in "The Hunt" column of the real estate section who wished to break free of her $700, two-bedroom apartment in Midwood. LaVerne Walker is an accountant and frequenter of an investment club, and wanted to own for the tax deductions alone among other considerations. Her budget: $250,000, and, predictably enough, she couldn't find a two-bedroom for that in Brooklyn. Moral of the story: move to Jersey City, where she got a three-bedroom for $230,000. Maybe she can see Brooklyn from there?
Life After Rent Control [NY Times]
Photo by mudpig.




Posted by lisa at 9:41 AM | Comments (25)
Categories: Market

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Comments

I don't think that's looking like a great move on her part at this point!

Posted by: Fast Freddy at October 20, 2008 9:57 AM

Not quite sure whats going on here, how could she want to do it for the tax deduction "alone"?

Assuming her monthly payment on a 230K mortgage is about 1300, even assuming its all interest, if she is in e.g. the 35% tax bracket, she is now paying out $845 a month to live somewhere, instead of the $700 a month to live somewhere. The tax deduction merely reduces an extra cost that she didn't have in the first place. Surely then she can't be doing it for the tax dedution alone.

What am I missing?

Posted by: dittoburg at October 20, 2008 9:57 AM

Presumably she will pay off the entire mortgage at some point and then be living for the cost of taxes and utilities, which should be less than the $8,400 a year she is paying in rent.

Not enough info on this one...dittoburg is correct.

Posted by: daveinbedstuy at October 20, 2008 10:02 AM

what you're missing is she thought that she was going to lose here apt. in a coop eviction plan. She knew and said that there was no reason to buy just for a tax deduction.
Possibly she jumped the gun and coop eviction never would have happened. (they are pretty rare).

Posted by: Petebklyn at October 20, 2008 10:03 AM

I see. You mean I have to go to the trouble of reading the article itself?

Posted by: dittoburg at October 20, 2008 10:12 AM

If I can play psychologist, there is also the sub-text of her desire to buy a home with her husband, who she divorced, and what I interpret as an act of self-definition in her post-married life. So many reasons to buy and own real estate beyond the monetary....

Posted by: altervoce at October 20, 2008 10:14 AM

I don't think there is ever a financial reason to give up a rent controlled place willingly.

I think the usual reason is that you want to live somewhere else (e.g., move from crappy 1 bedroom in unpleasant neighborhood to nice 2 bedroom apt. in better neighborhood).

This is why I gave up a rent stabilized place.

While the concept of rent control may or may not be a curse, the way it has developed certainly seems to be. I'm not going to pretend to understand how it all happened, but there is something wrong with the fact that large numbers of people in the city live in places paying below 60% of reasonable market rents.

I'm not sure what can be done about it at this point, because people's lives have become based on having those apartments, but I don't think having guaranteed cheap rent is as good a thing as the people who have it think. For some, I think it becomes an excuse to not strive to succeed (financially).

For others, it becomes a means to buy a nice vacation home somewhere else, which feels pretty wrong to me.

Posted by: northsloperenter at October 20, 2008 10:15 AM

At the risk of hijacking this, consider the plight of Ella Taliercio who moved into her Park Slope two-bedroom on Carroll Street in 1958, is paying $148 now and might be evicted by Berkeley Carroll school.

Staunch proponent of rent control that I am, even I can see that maybe she should be paying something more, but otoh can anyone also see there's something not quite right about evicting her?

http://onlytheblogknowsbrooklyn.typepad.com/only_the_blog_knows_brook/2008/10/correction-to-b.html

Posted by: cmu at October 20, 2008 10:23 AM

Shes not going to be moving anywhere for the tax deduction thats for sure.

Posted by: dittoburg at October 20, 2008 10:32 AM

aren't a lot of rent controlled (moreso than rent stabalized places) kinda dingy and dumpy, for obvious reasons i guess? if had that kind of dough (i know to many that seems like not much, but to many, like me that's a LOT), id rather have a nicer apartment (yes even in jersey city.. i was born in jc!) than a dingy rent-controlled one. perhaps not tho, i dont know.

-rob

Posted by: PitbullNYC at October 20, 2008 10:36 AM

It has always been my contention that if the the government imposes rent control or rent stabilization, than it is the government (a/k/a all the taxpayers) who should pay the landlords the difference between the market rent and the stabilized rent. Of course this will never happen, because the government would be directly subsidizing fat-cat rent stabilized tenants who own houses in East Hampton. So we're stuck with the current system, which puts the burden, unjustifiably, on the landlords.

Posted by: Suburbandude at October 20, 2008 10:46 AM

What's Charlie Rangel's position on this???

Posted by: daveinbedstuy at October 20, 2008 10:48 AM

Huh. She could have easily found a co-op for under 250k in Midwood (or Gravesend, or Flatbush, or...) -- maybe not a 3-bedroom, but there's just one of her, yes?

Posted by: Jane Jacobs at October 20, 2008 10:48 AM

I agree with PitBullNYC—and Jersey City is also the town of my birth. I know a bunch of people that have restored townhouses there. Brooklyn it ain't but the bang for the buck is just incredible. My wife to be and I would consider moving there but she's got a great gig in Brooklyn that she'd rather not leave...

Posted by: Fjorder at October 20, 2008 10:49 AM

Suburbandude, it has always been my contention that the sales prices of apartment buildings with rent regulated apartments should reflect the rent roll. If speculators weren't so willing to pay incredible multipliers, the balance sheet would look different. Or, investors can stop trying to have it both ways and just admit that they purchased for long-term capital gain.

Posted by: altervoce at October 20, 2008 11:07 AM

Jersey City has rent control. This is why the apartments there are so crappy, compared to say Stamford.

Posted by: Polemicist at October 20, 2008 11:30 AM

Altervoce

The sale prices DO reflect the rent roll. Today, there is no question most landlords bought into the system, so they knew what they were getting into.

Landlords don't really care about rent stabilization too much - they typically do get a fair return on their investment. It is the people who end up getting shafted because the landlord makes his fair return by providing the absolute minimum service required by law and performing almost no maintenance on the building.

Rent control only has two provable effects: it reduces the quality and quantity of housing.

One could argue however that standards of housing could be raised if the people assumed the cost of the subsidy rather than just landlords. Imagine what Brooklyn could look like if the subsidies were targeted for nice stuff like facade repair and renovation.

We all live with the consequences of rent stabilization, it isn't just the landlords.

On a side note, a nice alternative to dealing with the well off who benefit from rent stabilization and rent control is to consider the positive leasehold value a taxable benefit. The poor would likely continue to pay little or no additional tax, but middle class folks would probably find it more difficult to own that second home.

This is actually the one instance where the IRS doesn't consider a below market lease or sale as income.

Posted by: Polemicist at October 20, 2008 11:39 AM

Of course, it's building by building, landlord by landlord, but just because a place is stabilized doesn't mean it's a dingy mess.

Walk around Flatbush area near PLG. Most of the buildings are kept up - neat in front - trash bags placed around the neighborhood since the city doesn't have trashcans on the corner - and right now there's a really neat Holloween display on Lenox between Flatbush and Bedford.

My apartment was gut renovated right before I moved in. Granted - there aren't stainless appliances & it's Home Depot cabinets - but I don't care. It's clean and functional.
Granted, some of the units where people have lived for ages are getting a bit worn - but they are working on those little by little as well - or at least maintaining them.

I doubt any of my neighbors have a vacation home anywhere - except maybe still a home in their native country.

People get up - go to work - raise their families and try to get by. How little we sometimes forget that in order for you to have a high paying job and nice home - there have to be people around to fix your plumbing, serve your latte, and ring up your Fairway purchase.

Posted by: Flatbushrising at October 20, 2008 12:02 PM

I can understand not wanting to feel trapped in one apartment for one's whole life. But Jersey City? Not a solution for me. I don't know how the taxes on apartments shake out, but on brownstones they are 4X the amount of NYC.

Posted by: donatella at October 20, 2008 12:29 PM

Polemicist, if landlords are "get[ing] a fair return on their investment ... by providing the absolute minimum service required by law and performing almost no maintenance on the building," then the purchase price was still too high.

Also, with the rent increases permissible for major capital improvements, there really is no excuse for not maintaining a rent regulated building. It's been my experience that bottom feeders are often attracted rent regulated buildings and the poor maintenance is mostly a result of the fact that they are just not very nice people.

Posted by: altervoce at October 20, 2008 12:35 PM

flatbushrising - i agree with most of what you said, but somehow, in the many cities of the world without rent regulations, there still manage to be people around to fix plumbing, make coffee, and work cashiers. you just don't have the disparity of some of them paying $148 per month and others paying twenty times as much for comparable space.

i agree that landlords bought into the system and, yes, some landlords and some tenants respect the system. but i also agree that there are many other systems that could protect low income tenants and distribute burdens and benefits in a more equitable way.

altervoce - i think what you're forgetting, with respect to capital improvements, is the high transactional cost involved any time you try to increase the rent of a regulated tenant, even justifiably. nyc's courts are flatly pro-tenant, making it very difficult and expensive for landlords to enforce their rights, even when they follow the rules.

Posted by: i disagree at October 20, 2008 12:52 PM

Donatella- The taxes are not 4x as high. Maybe double. Plus no Mtg Tax of 1.8%

Posted by: Adam Dahill at October 20, 2008 1:04 PM

I would say that if Ella has been paying such nominal rent for the last 50 years, she's had ample opportunity to save up a downpayment and buy a place. She chose to allocate her finances in other ways, and left herself vulnerable.

Posted by: Flatbushwhacker at October 20, 2008 1:41 PM


Altervoce,

MCI increases hardly encourage a landlord to improve his or her buildings.

If a building is 100% rent regulated, it takes a landlord eight years to make back his cash outlay. After that, the rent increase becomes profit.

Given that most rental buildings in NYC probably average 50% regulated and 50% unregulated, it takes on average sixteen years for a landlord to make back his investment from the regulated tenants.

I agree that at least there's some benefit to landlords of the MCI program, but it's not a major incentive to them, and remember, only certain things, like replacing the roof or boiler, qualify for MCI's . . . fixing up the public hallways, for example, does not.

As a landlord myself, I'm hesitant to make my buildings too nice because I don't want to provide any further incentive for my regulated tenants to stay.

The NYC rent regulation system screws up the natural tenant/landlord symbiosis that occurs in a free market housing environment.


Posted by: IronBalls at October 20, 2008 5:53 PM

I say introduce a true free market to NY: no controls on rent and no tax breaks for unrented spaces (because it encourages warehousing and keeps rents "high" even during downturns). Only when BOTH those conditions are met will NY ever have anything approaching a free rental market.

Posted by: bridges at October 23, 2008 3:01 PM

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