“On Monday the City Council will hold a hearing on a bill to impose commercial rent control in the city by requiring binding arbitration in rent disputes in an effort to help small retailers. Before taking such a radical step—and it is radical—council members need to answer these questions.

Is there a crisis for small retailers and could it solve itself?

Of course rents have risen during the unprecedented economic expansion that began in 2009 and continues at a robust pace. But retail vacancies are rising too, although no one actually has reliable data on a citywide basis. Higher vacancy rates have already translated into lower rents and a steep plunge is more likely than a resumption of increases.

In fact, what the council should do is fund a study on what the vacancy rate is and how rents have changed in the last two years and what the prospects are for the next two years.

These same retailers have been complaining that they are finding it hard to cope with the big increases in the minimum wage, which rises to $14 in January for firms with fewer than 11 employees and to $15 for everyone else. It is doubtful the council wants to roll back the minimum wage for these firms; nor should it.

The biggest problem small retailers face is online competition, which makes it difficult to charge as much as they need to cover expenses and costs them a big percentage of their former customers.

The council would do better to begin thinking about what will be needed when the retail base of the city—both big and small outlets—shrinks by a substantial amount.

Why enact a bill that is most likely illegal?
As the Crain’s Instant Expert this week pointed out, the New York Bar Association and a list of other experts believe commercial rent regulation can only be imposed by the state Legislature.
Advocates should also consider another possibility. Enacting commercial rent regulation will give the opponents of all rent regulation a new opportunity to challenge it at the U.S. Supreme Court. With the new conservative majority, there is a chance the court would find all forms of rent control unconstitutional.

Finally, how do you respond to the fact that the rent rules are fundamentally unfair and will impose all kinds of unintended and negative consequences?
As I wrote a few weeks ago, with this bill the City Council would put the interests of one kind of businessperson ahead of those of another kind.

It will also lead to negative results such as disinvestment and overall physical degradation of commercial properties, the stunting of economic growth and interference with desired change.”

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