Compassion versus greed

Why do we permit investors to latch on to apartments and neither live in them nor put them up for rent?


In order to have a better society, we need to have one based on compassion and sharing.  But we don’t; we have one based on greed.  Let me demonstrate this with a simple example.

New York City has 63,000 homeless men, women and children.  Are they homeless because there aren’t enough residences?  No.

New York City has almost 250,000 vacant apartments.  Why?  “A key reason for this is the sharp increase in NYC rental rates over recent years: on average, the yearly increase is twice as high as inflation.”  This explanation means that landlords won’t lower rents even if their property is vacant, and that seems unreasonable.  Another reason is “warehousing.”  “David Kalbfeld, vice president and account manager with Halstead Management Company, says that the phenomenon of landlords sitting on vacant apartments—a practice known as “warehousing”—typically occurs when they find it would be more lucrative to convert their rental building to condos or co-ops. “They don’t want to keep the apartments empty, but at the end of the day, they’d rather sell than rent,” he explains.

“In other cases, landlords may earn so much income from a retail tenant that they don’t actually need to rent other units—and deal with the costs of maintaining them. Back in 2011, for instance, the New York Times wrote that even in the midst of rapid gentrification in Harlem, some landlords there were leaving residences in their mixed-use buildings empty, as they were collecting sufficient rent from ground-floor commercial tenants; a local architect told the Times these landlords didn’t want the “hassle” of renting to residential tenants.”

 So no one lives in them

Then there are the foreign investors who buy apartments to launder money.  “The flood of outside cash rolling into New York real estate has numerous downsides. Most obviously, it drives up prices for actual New Yorkers who are looking to buy. But it also drives up rents, by keeping many perfectly good apartments empty. Many foreign investor properties are rented out, but many are not.” 

Why do we permit investors to latch on to apartments and neither live in them nor put them up for rent?  Because the apartments are “private property,” and therefore we say they can do what they want with them.

But removing 250,000 apartments from the market for no reason other than speculation results in a big increase in rental prices, because there is a shortage of apartments.  Not only for the homeless, but for ordinary people who are seeking to live in New York City.  It also reduces the customers for services (restaurants, movie theaters, taxi cabs, etc.).  In other words, it makes New York City less habitable due to higher rent prices, and it has an indirect negative effect on local businesses.

“Lack of affordable housing is one of the main challenges for the NYC government, since it brings two additional problems: displacement and traffic congestion. Due to the high rental rates, many people who work in NYC must live in surrounding towns and cities.”

Is there a solution?  Yes, and a fairly easy one.  New York City has to make it unprofitable to buy an apartment and neither use it nor put it on the rental market.  Pass a law which says that if you buy an apartment in the city, you must move in within 60 days, rent it within 60 days, or offer it for rent at a price no greater than the highest price in the neighborhood.  (The city will post the highest prices for each neighborhood in the city).  If the apartment does not rent within 90 days, then you must lower the rent by 5%.  You must keep lowering the rent by 5%  every 90 days until you have a tenant.  If you fail to abide by these rules, then the city is authorized to rent the apartment to a homeless person at a rent consistent with that paid for housing the homeless.

Oh, yes – and you can use the apartment for an Air B&B, but you have to show that you are making money at it.  The whole point of the law is to make the vacant apartments part of the real supply of apartments, thereby lowering rents overall and (hopefully) getting places available for the homeless.

There’s another step that the city can take to help solve the homeless problem.  Even vacant apartments in New York City are subject to high real estate taxes.  But the city could offer a waiver of taxes applicable to an apartment if the owner allows the city to use it to house a homeless family.  So the owner can hang onto the apartment without paying high taxes, plus know that he is helping the city care for the homeless.  Before the homeless family moves in, the city will take pictures of the entire apartment and will be responsible for any damage that the tenants cause.  Also, the city will insure the apartment for damage and liability to protect the apartment owner.

I think that this would be a good solution, because it would force down the prices on rentals while at the same time helping to solve the homeless problem.  In addition, the burden doesn’t fall entirely on the landlords because the city is willing to sacrifice some of the taxes it might collect.  In other words, everyone is involved in showing compassion to the homeless, and overall we boost the amount of housing available at a reasonable price.


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