New York’s Latest Tenant Revolt Is Centuries in the Making
(Bloomberg Opinion) -- One of New York City’s first big landlords was Trinity Church, which with a 1705 land grant from Queen Anne (yes, the one from the movie), other grants from the city government, and a few gifts and purchases cobbled together a “church farm” along the Hudson River from what is now Fulton Street to what is now Christopher Street. Before long, it began transitioning from agricultural to commercial and residential purposes.
Trinity, an Episcopal church at the intersection of Wall Street and Broadway, remains one of the city’s biggest landlords, with a portfolio valued at $6 billion, which tells you something about New York City real estate. It was also subjected to an early form of rent control: a limitation on its total income imposed by lawmakers who belonged to Dutch Reformed and Presbyterian churches and didn’t want an Anglican church to get too rich. The limits shaped how it began to develop the neighborhood now known as TriBeCa. The church opted for long-term ground leases with relatively low rents, encouraging carpenters, grocers, and other artisans and tradespeople to build their combination homes/shops there. In 1797, a French visitor declared the area “infinitely more handsome” than the city’s older neighborhoods.
So rent regulation in New York City — which got a big boost in June with new state laws that will, among other things, end the practice of removing vacant apartments from rent regulation when rent tops $2,774.76 a month — has a long history. Extending it back to the 18th century is admittedly a stretch, but the first explicit rent-control law was enacted almost a century ago, in 1920, and other efforts to shift the balance of power from landlords toward tenants go back much further than that. With rent regulation now on the comeback trail in New York and elsewhere, that history seems worth revisiting, which I have done here with much help from Elizabeth Blackmar’s “Manhattan for Rent, 1785-1850” (source of the Trinity story above), Robert M. Fogelson’s “The Great Rent Wars: New York, 1917-1929” and a few other sources.
The American real estate ideal is one of small landowners interacting on more or less equal terms. The very beginnings of European settlement in Manhattan looked a bit like that, with the Dutch West India Company so desperate to attract and keep residents that it gave plots of land even to slaves. Before long, though, the company’s officers began to dole out vastly bigger landholdings to themselves and their affluent friends (who often also had to purchase the land from local Indian tribes, although the prices don’t seem to have been very high) with the idea that these “patroons” would lure settlers from Europe to farm the lands for them. The British, who took over in 1664, accelerated the process, divvying up the Hudson River Valley into gigantic quasi-feudal manors and Manhattan into tracts as big as 200 acres. As the city expanded northward, the owners of this land became its rentier class, usually letting out property as Trinity Church did on long-term ground leases to others who built houses and, increasingly as the years went on, rented them out — often subject to landowner-determined restrictions on what they could build and whom they could rent to. As for the descendants of those slave landowners, their holdings were expropriated by the British after a slave uprising in 1712, and blacks didn’t regain the right to own property in New York until 1809.
The story of Manhattan real estate, then, has for centuries been one of multitudinous tenants and a much smaller, and in some cases hereditary, landlord class. In 1790, 51% of New York City voters were renters. By 1814, that was up to 77%, not much different from the 75% of Manhattan households that rented in 2017, according to the Census Bureau. Three of the other four boroughs that joined the city in the late 1800s are less renter-heavy than that (the Bronx is the exception, at 81% renter), but the city’s overall renter share of 67% is still almost double the 36% national share.
One might think that tenants’ greater numbers would give them a political advantage, and in the first half of the 19th century, New York state legislators did pass multiple laws meant to aid tenants, but they started from an English common-law tradition that tilted heavily in landlords’ favor. Tenants were liable for a full term’s rent even if the land or house or room they rented was defective, for example, and landlords were allowed to seize the property of tenants who did not pay in full. In 1815, the Legislature voted to protect domestic possessions (“apparel and bedding, all cooking utensils, one table, six chairs ...”) from seizure, and in the 1820s added Bibles, schoolbooks and family pictures. After 1842, tenants could decide for themselves which goods should be exempted, up to a value of $150. In 1846, the practice of landlords seizing tenants’ property was finally outlawed, although its replacement was a legal process that actually made evictions easier. That same year, a new state constitution effectively broke up the remaining Hudson River manors by banning long-term ground leases in agricultural areas, but city landowners were exempted.
Later came legislation aimed at housing conditions. In 1860, state lawmakers removed tenants’ obligation to pay rent on buildings that had become “unfit for occupancy,” although it was mainly commercial and well-off residential tenants who could afford to establish such unfitness in court. Then Tenement House Acts and amendments in 1867, 1879, 1887 and 1901 upgraded standards for apartment construction to include fire escapes, windows in every room, indoor toilets and interior courtyards, but those mostly applied to new buildings, not existing ones.
What seems to have been the first call for rent control came in 1848 from a Tenant League consisting mainly of recent Irish immigrants, which asked the Legislature to restrict rents to 7% of assessed property value. That went nowhere and, in the Gilded Age that followed the Civil War, political power (and judicial power) was consistently arrayed against any measure that might cut into return on capital. Printer-turned-activist Henry George did find lots of enthusiastic supporters for his plan to target landowners with a steep tax on the unimproved value of land, and he came in second in a lively 1886 mayoral race (ahead of some guy named Teddy Roosevelt). But while his land-tax ideas remain popular with economists, including my Bloomberg Opinion colleague Noah Smith, their real-world application has been limited.
By the 20th century, political momentum had begun to shift toward Progressive Era reforms — such as the much-tougher-than-its-predecessors Tenement House Act of 1901 — and New York tenants were growing bolder. Rent strikes led by Lower East Side housewives in 1904 persuaded landlords to roll back proposed rent increases. Even bigger strikes in 1907 and 1908, in which the fledgling Socialist Party of America played a big role, brought fewer tangible results. But an unprecedented building boom, with 400,000 new dwelling units constructed in the city from 1903 to 1916, brought higher vacancy rates and more bargaining power for tenants. Much of this new construction (including the circa-1906 building I live in) was along new subway lines. As happened again and again from the first half of the 19th century to the mid-20th, transportation improvements that increased the distance from which one could commute to Manhattan workplaces effectively expanded the amount of available land for building.
Still, an influx of newcomers to the city during World War I, and a shift in resources away from housing construction to war-related industries, brought a quick return to low vacancy rates and rising rents. An also-war-related coal shortage that left thousands of New Yorkers without heat during the bitter winter of 1917-1918 hardened views toward landlords. Rent strikes and other activism ensued, culminating in 1920 in new state laws that banned “unreasonable” rent increases (leaving it up to the courts to determine what that meant) and restricted landlords’ ability to evict and deny lease renewals to tenants.
Congress had also imposed rent controls in the District of Columbia during the war, and in 1921, the U.S. Supreme Court took on the question of whether the D.C. and New York laws amounted to unconstitutional infringements on private property. In a pair of landmark 5-4 opinions written by Oliver Wendell Holmes, the court ruled that they did not. Some aghast observers saw this as the end of private property in the U.S. “Any man’s property can be taken whenever the majority sees fit to take it,” argued the editors of one legal journal. “Bolshevism could not ask for more.”
Interestingly, the New York lawmakers who approved the laws had actually seen them as a blow against Bolshevism. The reforms had followed a Red Scare that saw the state Assembly expel its five Socialist Party members, and they were pitched as a means of co-opting the Socialists with an emergency stopgap — the controls were supposed to expire in 1922 — that would forestall more radical measures. Lawmakers also went with another, distinctly non-Socialist approach to addressing housing shortages: a state law that allowed cities to exempt new residential construction (but not the land it was built on; Henry George did have some influence) from property taxes until 1932. New York City did just that in 1921, restricting the value exempt from taxation to $10,000 per dwelling unit to avoid subsidizing luxury apartments.
Another record-breaking building boom followed, with a net gain of more than 450,000 apartments in just nine years. As vacancy rates rose, legislators debated how to proceed. A commission appointed by Governor Al Smith determined that a vacancy rate below 5% constituted an emergency that justified extending rent regulation — a standard that still applies today — but also decided that higher-end apartments (initially those renting for $20 or more per room) should be decontrolled. The Legislature agreed, renewing the rent controls several times but ratcheting down the maximum rent for decontrol. With the citywide vacancy rate at 6.6% in 1928, lawmakers let the last of the controls expire as of May 31, 1929, although restrictions on landlords’ ability to evict tenants remained. The city of New York then enacted its own rent controls, but a state judge ruled that only state lawmakers could do that, and the city didn’t appeal.
With the coming of World War II, the saga repeated itself, although this time it was the federal Office of Price Administration that initially froze rents in New York City in November 1943. The state took over after the war, and ever since then, New York City’s apartment market has been subject to some form of rent regulation, a story that is told online in numerous accounts. So I’ll just end with a chart. The post-World War II rent controls exempted buildings constructed after Feb. 1, 1947, and yet another building boom followed, not as intense as those of the 1920s and 1903-1916 but lasting for almost two decades. Those buildings were subsequently swept up in another round of rent regulation in the late 1960s and early 1970s, and housing construction in New York hasn’t approached mid-1960s levels since.
New York City lost one-tenth of its residents in the 1970s, so the lull in housing construction after that made sense. The city’s population has grown most years since then, though, and it has been setting new records since the 1990s. Last year was the biggest for housing construction in New York City since 1966, but the rate of new construction is still well below that of past booms. There’s effectively no vacant land left, regulatory hurdles to building have grown, and, according to one recent survey, New York’s construction costs are the second-highest in the world, trailing only San Francisco’s. With city streets growing more congested and public transit struggling, travel times to jobs in Manhattan have also been growing, not shrinking. The things that eased past affordable-housing shortages aren’t really happening this time around.
To contact the editor responsible for this story: Brooke Sample at bsample1@bloomberg.net
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Justin Fox is a Bloomberg Opinion columnist covering business. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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