The High Cost of Freezing the Rent

Millions of New Yorkers could be about to get a lesson in economics courtesy of the rent freeze eyed by Mayor Zohran Mamdani. That’s the upshot of a new analysis by ratings agency Moody’s, which is weighing the implications of a rent freeze for landlords. The good news, from the property owners’ viewpoint, per the Times, is that if rents are frozen, only 6 percent of landlords would be at risk of default on mortgages for the buildings they own. The bad news, though, is for those who rent market-rate apartments. These apartments make up some 1.3 million of the city’s 2.3 million rentals. That’s because landlords are likely, in Moody’s telling, to raise the rents on the non-regulated apartments to make up for Hizzoner’s freeze on the rates charged in the government-regulated units. In other words, each dollar lost to Mr. Mamdani’s rent freeze will be covered by market-rate tenants.So it’s hard to imagine millions of market-rate renters across New York ending up pleased by the results if the city’s Rent Guidelines Board — stacked with appointees of the Marxist mayor — goes through with the rent freeze scheme. The board is slated to make a decision on this head by the end of June. Yet the noble comrades of the Times are already touting the Moody’s report as a vindication of Mr. Mamdani’s proposal.After all, in the Times’ telling, “the real estate industry” had caviled that Mr. Mamdani’s rent freeze amounted to “a reckless idea that could bankrupt landlords and stunt New York City’s economy.” Seizing on Moody’s “independent analysis,” though, the Times reckons that the ratings agency offers “a less ominous conclusion.” Less ominous for whom, though, one could well ask. Not, it seems, the market-rate tenants who could see their rents soar.“We’re talking, incrementally, something very small,” said Moody’s Darrell Wheeler, who heads research in commercial mortgage-backed securities, of the burden on landlords. The implication, per the Times, is that property owners will be “lightening the financial burden” of the rent freeze by shifting the cost over to “market-rate units in the same buildings or elsewhere in their portfolios.”This nonchalant outlook overlooks, say, owners of properties made up exclusively of government-regulated apartments. Plus, too, a landlord advocacy organization, the New York Apartment Association, gripes that the analysis by Moody’s “covered only a small subset of newer apartment buildings that are part of large portfolios,” the Times reports, “including some that get city tax breaks.”That points to a larger problem with the city’s rent-regulation regime. Before New York’s rent controls — imposed during World War II as what was deemed a temporary measure — countless families and small landlords used to rent out apartments to supplement their income. When rent control laws began to curtail the rates these property owners could charge, these landlords often simply took the apartments off the market. These are among the unintended consequences of rent control, which creates disincentives for property owners to build new housing or to invest in existing rentals. By limiting the availability of apartments in the city, rent control is fueling the crisis of affordability that Mr. Mamdani purports to be solving. The city’s market-rate tenants could soon get a bracing dose of this economic reality when they see the high cost of freezing the rent.

The High Cost of Freezing the Rent

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