October 12, 2006

Sandra Day O'Connor heard appeals yesterday.

The Daily News reports:
O'Connor heard a criminal case and four civil disputes, including a time-honored New York favorite - the landlord-tenant dispute - while sitting on a panel with two other judges from the 2nd Circuit U.S. Court of Appeals.

She challenged a tenant lawyer, asking him how he'd react if a landlord said, "Look, I'm entitled to rent at the end of the day."

26 comments:

Jeff said...

"Look, I'm entitled to rent at the end of the day."

Them are fightin' words in Moscow on the Hudson!

Goesh said...

Per diem, a well grounded common law principle understood by all with many generations of established precedent, my attempt at lawyeresqueness..

Anonymous said...

Any word if she passed the hat around and required those in the gallery to contribute towards the rent due?

JCJim said...

"Look, I'm entitled to rent at the end of the day."


In NY a landlord is only entitled to what the government says he is entitled to. Ahh, the wonders of rent control and stablization. The taking of property rights by law without competely taking the property.


Verification word: grnka
russian for grin and bear it.

Eli Blake said...

jcjim:

If you think rent control is such a bad thing, I would only point out that New York has done much better over the past couple of decades than other large northeastern cities like Detroit or Philadelphia where there is no rent control. People are actually living in all those apartments instead of half of them sitting empty because maximizing profits means raising the rent to the point where the extra rent from those who pay just balances out the loss on vacancies that people are priced out of. And all those extra people buy food, gas, clothes, entertainment and other items there in the city instead of outside of it. Bottom line is, rent control works. And it hasn't prevented people from building Trump towers type developments either.

Doolesfan said...

"rent control works."

Sure, if you start with the premise that it is somehow the landlord's responsibility to make sure people buy food and entertainment in the city at the expense of the fair market value of his apartments.

Sean said...

eli blake, the financial services industry has done a lot better over the past couple decades than the automobile industry. (And better than the cream cheese industry, I guess, or whatever it is they do in Philadelphia.) I think that is probably a better explanation of these cities' relative prosperity than rent regulation.

Anonymous said...

NYC went bankrupt. Rent control has been made less ubiquitious since then, not more. NYC thrives in spite of rent control, not because of it. If you want to point out one municipal policy that saved NYC, it would have to be strict law enforcement.

Underprice something by fiat and you get a shortage of it. Period.

There's a reason why suburbs have seen explosive growth in the last 75 years. There's no corrupt city government meting out rewards to favored constituencies.

Yet.

JCJim said...

"I would only point out that New York has done much better over the past couple of decades than other large northeastern cities like Detroit or Philadelphia where there is no rent control."

NYC's turnaround started the day Rudy became mayor, the city was seemed to be decending into chaos prior to that. The growth of the Financial Industry contributed mightly to the turnaround. Also many of the rent control laws were relaxed in the mid 80's to early 90's, including some means testing and vacant apartment de-regulation.

"And it hasn't prevented people from building Trump towers type developments either."

1st of all Trump Towers was condos, secondly in Manhattan high end apartments are the only type of buildings going up because "luxury" building were exempted from rent control laws.

"New York has done much better over the past couple of decades than other large northeastern cities like Detroit or Philadelphia where there is no rent control."

This has much more to do with the econmic realities of the cities then anything to do with rent control. Chicago has a comparativly reasonably priced rental market because they have no rent control. The experience in Cambridge, Ma shows what happens when rent control is ended.

All in all I'll go with the 90+% of economists (including Paul Krugman) who think rent control is a destructive policy.

JCJim said...

"People are actually living in all those apartments instead of half of them sitting empty because maximizing profits means raising the rent to the point where the extra rent from those who pay just balances out the loss on vacancies that people are priced out of."

Econmoics 101- when the apartments are empty the prices come down, you don't keep on raising rents higher. Show me anywhere in the real world where when vacanies are rising due to unaffordability, rents continue to go up.

Craig said...

The quasi-authoritative economic analysis is very pleasing.

E.g., "Underprice something by fiat and you get a shortage of it. Period."

This would be so powerful and cogent, if it were true in this absolute form. Instead, I think our diligent author ought to have written: "In a perfect market with perfect information, balanced negotiating power, no long-term cost issues, no barriers to entry or exit, and no price setters, in that case, [u]nderprice something by fiat and you get a shortage of it."

Otherwise, it isn't so clear that this statement is how things work. For example, and this is from introductory economics coursework, if you underprice a commodity sold by a monopolist by fiat, you are very likely to see an increase in production (for the monopolist has been price-setting by holding production down; once there is no price-setting to be had, the incentive to under-produce is gone).

The author's original statement suggests a misunderstanding of basic economics. In truth, the effect of government price-setting is contingent on a host of factors, and no absolute rule like the author suggests can be set.

Another example: "There's a reason why suburbs have seen explosive growth in the last 75 years. There's no corrupt city government meting out rewards to favored constituencies."

This one isn't analytically false like the first one is, but it still suggests a lack of economic understanding (a lack that is all the more surprising given the apparent belief in the first statement).

Consider this: if you believed that changing something's cost by government action affected its consumption/production rate, where might you look when you see an explosion in consumption/production? A-ha! Maybe you'd look at government subsidies for land-ownership (which tends to favor suburbs over cities), or maybe you'd look at government subsidies of the automobile industry (e.g., gas and highway expenditures, both of which make living in the suburbs cheaper than it truly is), or maybe you'd look at zoning and environmental laws that permit (rightly or wrongly) private owners and developers to shift certain costs as externalities to the general public (again, often to the disadvantage or established cities and to the advantage of suburbs). This list could go on and on.

More importantly, the corruption the author suggests is to blame is much more likely to be the effect of these economic issues than the cause of them. (And suggesting that the suburbs want for corruption is erroneous, even if it requires a bit of mental dexterity to see varying forms of corruption.)

OddD said...

I think y'all are missing the point: If NYC didn't have rent control, half of the plots of "Law & Order" wouldn't have a motive....

Richard Fagin said...

I just reviewed a commerical lease for a client that about said "I'm entitled to rent at the end of the day" notwithstanding uninhabitability caused even by my own fault, and, "you indemnify me for everything bad that happens on the property even if it's my fault". Yeesh.

Jeff said...

While lacking rent control, Philly does have a lot of abandoned buildings and squatters!

Palladian said...

The only people I know who have rent control are rich people, making 7 figures and paying 500 dollars a month for 3000 square foot lofts.

jcjim is right, the only new construction (and there is a lot of it right now) is "luxury" apartments and lofts. I looked at a place in a not terribly nice part of Brooklyn and the rent started at 2500 a month for maybe 900 square feet.

Revenant said...

If you think rent control is such a bad thing, I would only point out that New York has done much better over the past couple of decades than other large northeastern cities like Detroit or Philadelphia where there is no rent control.

"We did better than Detroit and Philadelphia" is not exactly holding yourself to a high standard. Neither one of those cities is a desirable place to live -- it isn't rent prices that discourages people from living there.

JorgXMcKie said...

JCJim: We've been handed a solution for the problems in Detroit. Raise the rent on all those vacant houses and apartments to the level of that found in NYC and lock them there and financial types, etc, will be beating down the doors to get in.

Get a little creative here, guy.

Surely there's pretty much a 1-to-1 relationship between rent subsidization and economic well-being of a city, right?

Eli Blake said...

Many of you seem to be making the error of confusing macro-economics with micro-economics.

To take a simple and straightforward example:

If you have an apartment house with 1000 units which is full at, say, $500 per month, but you will get say five vacancies for every $10 increase in the rent, then right now you are grossing 1000 X $500 = $500,000 per month. If you raised the rent to $600 per month you would have fifty vacancies, but you would be earning 950 X $600 = $570,000 per month. So in this case it is to your benefit to raise the price. The additional money you are collecting in rent outweighs the fact that you are not collecting anything on some of your apartments. In fact, you would probably continue to increase rent until you reached an optimum level (which in the simplified example I just referred to would be when you were half occupied at five hundred units to whom you were charging $1500 in rent and thereby brought in $750,000 per month in rent.)

So it is true that if you focus on the micro-economic level (as this example is focused at) then you would lose some of what you could be making if the city told you that you had to maintain $500 per month in order to ensure full occupancy.

However, this would be wise of the city because instead of having 500 renters downtown buying from local businesses they would have 1000 down there buying approximately twice as much.

The argument about the financial services industry being better off than cars is somewhat valid but not entirely because people can commute in from elsewhere if they can't afford the rent. In New York people can afford the rent, so they live there as well as work there.

NYC went bankrupt. What does that have to do with rent control? They weren't the landlords.

And even if the worst days of New York, say about 1980-1995, it never had as much blight as the other cities we have been talking about. And what northeastern city would you like to compare it to if not Detroit and Philly (which I picked because they are the nearest cities closest in size.) Buffalo? Cleveland? Boston? Balitmore? Washington D.C.? There's a counterexample to the 'financial services industry' argument. Government has certainly done very well but D.C. is still pretty blighted. Granted, part of it is they don't have any voting representatives in Congress who can hand out pork like the rest of the country has-- if a bridge is needed somewhere but not in a place where it directly impacts members of Congress in D.C., it remains unbuilt.

JCJim said...

Eli, never been to NY have you? You do know NYC includes The Bronx, Brooklyn, Queens and Staten Island? If you did visit you never went out of Manhattan or above 100th St or over to Alphabet City. Whole neighborhoods were abandoned. NYC was the proof positive of why Rent control didn't work. Why do you think so many changes were made to the laws?

The major problem with your example is you assume no one will put up a building next door. See that is how markets work. 'nuff said I'm movin on.

Verification word: elmmzz
Rap Trees?

Anonymous said...

The author's original statement suggests a misunderstanding of basic economics.

To quote the erstwhile local baseball coach here: "What little league team do you coach, son?"

Eli hasn't figure out you pay property taxes, maintenance, security, and assorted fees on vacant apartments, too. With no rent to cover it. Why don't you talk to him?

Maybe you guys went to the same schools and had Kevin Barrett teach you guys economics in between the thermite lectures.

You're right, I missed out on all that.

Revenant said...

Eli hasn't figure out you pay property taxes, maintenance, security, and assorted fees on vacant apartments, too. With no rent to cover it.

Those things represent an unavoidable expense that must be paid regardless of rental income. The goal is to maximize R-X, or at least have it be positive, where R is net rental income and X is the overhead you mentioned. X being a constant, that means we're focused solely on maximizing R.

And Eli's quite correct in saying that the maximum for R is often found at less than full occupancy. The fact that empty rooms have overhead simply isn't relevant. Indeed, if overhead is high enough (due to, say, high taxes) and the demand for housing is high it is possible for apartment owners to find themselves in a position where the only way to break even is to charge so much rent that many of their rooms lie empty. In Eli's example this would happen if the monthly overhead for the complex was, say, $720,000.

Hey said...

Shocking, the lefties on the board don't understand economics! Do you know how people rent out a building?

Rental economics and pricing are not the same as a regular prodcut market, where you produce under 100% capacity. Instead it's a wasting asset business, just like airlines and hotels. Now would someone please explain to me how it makes more sense for an airline to sell less than every seat on the plane! Or how hotels prefer to have empty rooms, rather than take on additional revenue!

To quickly recap, rental agreements are long term, with high switching costs. This is exactly the type of market where the vendor can excercise exquisite price discrimination. People don't hop around apartments very frequently, thus there's a massive incentive to cut prices to rent out those last few apartments (just like almost last minute hotel rooms and plane tickets). It's even more so since there are no variable costs to fill an empty apartment, unlike hotels and airlines that have some marginal costs.

A building isn't a full permanent auction. Instead there's a small %ge of units that are available at any one time, hence owners are price takers in a monopolistically competitive market (just like hamburger restaurants, hotels, etc where there are some variations between equivalent products such as quality, service, and location as well as price).

If you force down the price of rents below the market rate, you get two major results: maintenance and renovation spending drops (hoo boy does it drop!) and new building stops. What happened in NYC? Maintenance ended (all those luxury buildings that turned into slums... rent control.. the rent strikes and other such things... rent control) and investors stopped building apartments (if your government has requirements for "affordable" housing to be constructed for people making less than 150k when building other units... investors have stopped building regular apartments!)

What has been built in NYC since rent control? Condos and "luxury" apartments, most of which are barely above the minimum rent to escape rent control. Why are there so many co-ops in NYC? That was the only way for landlords to get out from under impossible situations. Now you can also do condo conversions, and so you see condo conversions rather than co-ops, given the many problems with co-ops.

I also love that you're dismissing finance's role in supporting Manhattan. You're aware of what starting salaries are in Finance and Corporate Law right? 150k+ Even at those levels, most young professionals have roommates so that they can live in Manhattan! Regular people have abandoned Manhattan and only returned to the outerboroughs after rent control was (mostly) defanged and circumvented. Your policy prescriptions led to Brooklyn and Manhattan townhouses being just as burnt out as those of Philly and Detroit. With a successful and VERY rich industry, NYC has been able to claw its way back. Detroit, where people make small fractions of Finance wages in white collar positions, never mind at the factories, has continued to decline as the Big 3 have spiralled downward.

Revenant said...

Now would someone please explain to me how it makes more sense for an airline to sell less than every seat on the plane!

Um, ever notice how most flights have empty seats on them? Funny, that.

The reason they have empty seats is that, if the airline dropped the ticket price enough to put a butt in every seat, the overall revenue for the flight wouldn't cover their operating costs. They'd rather be 90% full at $500 a ticket than 100% full at $100 a ticket.

So yes, it quite often makes sense for an airline to sell fewer than the maximum possible number of tickets. The same applies to hotels, which in my experience virtually always have rooms available in spite of the fact that they could fill every room if they dropped their prices enough.

Anonymous said...

It never makes sense for an airline to intentionally sell less than every seat on the plane. There are enormous costs for each flight, but relatively low costs for each additional passenger.

So, the normal strategy for airlines is to start selling tickets very early on as a base price, and then raise prices until shortly before the flight, at which point they try to sell as many of the remaining seats as possible, at almost any price. It's difficult to do, because not everyone is willing to take the risk of not getting a seat on the plane, but it happens.

Next time you fly, try asking (if you are willing) everyone how much they paid for the flight, and when they bought it. The price will also difer depending on where each passenger bought the ticket, and when. Airlines often offer discouts if you buy directly from them, which makes sense because companies like priceline need to make their money from somewhere (they take a cut, and the airline accepts less. They are willing to do this because it allows them to sell more tickets because of the visibility of those sites, and the fact that people would rather go to one site to check pricing than go to 10.

Anyway, the same process happens with hotels and apartment buildings. Obviously, the fixed and variable cost mixes are different, but it's generally the same principle. In fact, landlords and hotel managers have the ability to engage in much more price differentiation than the airlines do, because they can talk with each customer and see how much they are willing to pay...it's know as bargaining.

Anyway, enough econ. Maybe I'll come back and explain more later...

Anonymous said...

"The reason they have empty seats is that, if the airline dropped the ticket price enough to put a butt in every seat, the overall revenue for the flight wouldn't cover their operating costs. They'd rather be 90% full at $500 a ticket than 100% full at $100 a ticket."

-Price discrimination means that prices vary. Planes fill (for example) 20% of seats at $500 a ticket, and 30% of seats at $400 a ticket, and 40% of seats at $200 a ticket, and 10$ of seats at $100 a ticket. Obviously the airline would rather sell 100% of tickets at $500, but then they would have empty seats.

The real reason there are empty seats on some planes is that the air-travel market is relatively competitive, and that it's almost impossible to price-discriminate perfectly (it's theoretically possible, but realistically unlikeyly)

There, I think I did a better job explaining it in this comment...

Revenant said...

It never makes sense for an airline to intentionally sell less than every seat on the plane.

You might not think it makes sense, but airlines deliberately sell less than every seat on the plane every single day. Every hour planes take off with empty seats that the airline chose not to fill by selling cut-rate tickets.

There are good reasons for doing this, which I have already described and am bored with reiterating. Back to Econ 101 with the bunch of you.

I think I see what the problem is, here. You're not noticing that deliberately choosing to set ticket prices at a price that insures that seats will often go unsold IS "intentionally selling less than every seat on a plane". If a plane takes off and there's even ONE person who would have bought a ticket on it but didn't because the price was too high, the airline running that flight has intentionally sold less than every seat on the plane. It isn't like they're sitting there, as the plane takes off, thinking "huh, that's damned peculiar... how come there were empty seats on that flight?".