Commercial Rent Control’s Fundamental Flaws


Commercial Rent Control’s Fundamental Flaws

2018-09-20T15:42:49+00:00September 20th, 2018|Advocacy, Local Updates|

In the late 1980s Ruth Messinger, who was then on the New York City Council, was pushing a proposal to impose rent controls on commercial space to save small businesses from being pushed out by soaring rents. I called her “the most dangerous woman in New York” in a Crain’s editorial opposing her plan. I think my writing is a little less shrill these days, but commercial rent control was a bad idea then and now.

In fact, a 1987 Fordham Urban Law Journal article lays out exactly why the concept is so wrongheaded. (I am indebted to Crain’s political reporter Will Bredderman for finding the piece). Author John J. Powers makes three major points.

Commercial rent control will lead to disinvestment and overall physical degradation of commercial properties. When taxes and mortgage obligations rise faster than rents, landlords have no choice but to cut back on maintenance of their properties. Capping rents means owners have no incentive to improve their properties to attract tenants who can pay more. Commercial tenants eventually will be trapped in buildings that are deteriorating.

It will stunt economic growth and interfere with desired change. The winners will be merchants and businesspeople with longstanding ties to their neighborhoods who won’t be forced out by rising rents. The losers will be the people who live in the neighborhoods, especially areas changing in age, ethnicity and affluence, among other factors. No longer will landlords be able to rent to the businesses that want to provide the kinds of goods and services the changed neighborhood needs. Rent regulation also hurts growing neighborhood businesses, who won’t be able to find larger spaces or who will have to pay exorbitant rents for those that become available.

Commercial rent control is fundamentally unfair. It puts the interests of one kind of businessperson ahead of those of another kind, namely real estate owners, who have invested their capital to make a profit, not provide a free service to others.

“Notwithstanding the good intentions behind commercial rent regulations,” Powers concluded, “such schemes are inimical to the interests of landlords, business proprietors and society as a whole.”

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