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Expect more $20K broker fees if NYC doesn’t fix its housing-market mess

The Post’s report that a Manhattan real-estate broker charged a $20,000 fee to get a prospective tenant a rent-regulated apartment on the Upper West Side will probably prompt calls for new consumer-protection laws and cries for that agent’s license. Far better for New Yorkers to thank broker Ari Wilford — for helping to make clear how rent regulation distorts our housing market and invites profiteering.

Manhattan’s median rent has hit an all-time high of $4,150 a month — but Wilford offered a sweet regulated one-bedroom apartment for just $1,725. There’s a lesson here, but it’s not the one housing-regulation advocates are likely to draw.

Just as water flows downhill, markets will assert themselves. When the list price of a good is so far below its actual value to the consumer, shadow markets develop. That’s what we have in New York’s rent-regulated pseudo-market. It’s a phenomenon familiar to citizens of dysfunctional countries like Argentina, where governments try to control their currencies’ value to make imports cheaper and control inflation — but black markets in US dollars develop instead.

Rent regulations have helped lead to a distorted housing market in New York City.
Rent regulations have helped lead to a distorted housing market in New York City.
Christopher Sadowski

Price controls make it impossible for supply and demand to balance — and the results include $20,000 broker fees.

That sky-high fee would, in a saner world, be a message to Albany: Rent regulation has never been a good idea and never will be. Those who look closely and clearly at the Manhattan housing market know that rent stabilization offers such a good deal for the lucky winners in its game of apartment musical chairs that they stay more than twice as long in their units as those in nonregulated ones. That means there are plenty of under-occupied units on the very same Upper West Side where brokers dine out on desperate tenants.

A city historically known for welcoming ambitious newcomers is home, in reality, to legions of older tenants whose artificially low rents allow them to stay put — while their home-owning counterparts deal with rising property taxes and must decide whether they still need a big house now that the kids have left home.

It’s a story well-illustrated by the Steve Martin send-up of Manhattan life in Hulu’s “Only Murders in the Building.” The real-life luxury Belnord apartment where the series was shot famously deteriorated under rent-regulation; a developer investing millions to renovate it was forced to buy out rent-stabilized tenants, to the point of purchasing a house in New Jersey for one to persuade him to leave.

The fixes pols promote to mend a housing market distorted by nearly a million rent-regulated units would just make things worse. As the city builds more and more “affordable” — that is, subsidized — housing, more and more tenants will have an incentive to cling to a housing life-preserver.

But “affordable” subsidies in so-called “inclusionary” buildings, which include both income-restricted units and “market-rate” apartments, are just a recipe for higher rents in the “non-affordable” apartments, so developers can make projects work out financially. It simply adds new chapters to that notorious tale of two cities: the very rich and very poor.

The real challenge in the New York City housing market is to find a politically practical path toward the sort of undistorted market that characterizes most American cities, where rents rise but also fall and which don’t face an endless housing “crisis.”

That could mean a return to such commonsense steps as vacancy decontrol — deregulating apartments when tenants move out; exempting high-end units whose rent-regulated price passes a top-end threshold from further regulation; making it impossible for rent-regulated tenants to pass on their unit as an inheritance (“succession rights”). Tenant holdouts in buildings being redeveloped should be required to accept fair prices to vacate.

Put another way, we will only be able to free the New York housing market if those who benefit from its distortions are offered reasonable protection — but not a never-ending bargain.

We can’t allow the system to continue in perpetuity. If it does, we haven’t seen the last of $20,000 broker fees.

Howard Husock is a senior fellow at the American Enterprise Institute.

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