New York property barons lose grip on state politics

New rent-control rules signal an end to a quarter century of domination by big landlords

Joshua Chaffin in New York


The progressive tide in New York thwarted Amazon's plans to build a new headquarters in the Long Island City section of Queens


Beneath the thrum of traffic, the bleat of car horns and the bashing of worksite hammers there was an audible groan in New York City this week. It was the collective wail of the city’s landlords, stung by new rent-control legislation that signals the end of their 25-year grip on state politics.

“I feel like someone just dropped a nuclear bomb on my business and my family,” said Chris Anitheos, who owns nine buildings containing 150 apartments in various Brooklyn neighbourhoods. “It’s just horrific.”

For its success, Mr Anitheos and others blame the same progressive tide that has energised leftwing politics across the state. It has pushed gentrification up the political agenda and unexpectedly thwarted Amazon’s plans this year to build a new headquarters in Queens.

The extreme unpopularity in New York of the country’s developer-in-chief, Donald Trump, also did not help landlords — never the most sympathetic bunch — in their attempt to sway public opinion.

“The culture of New York has moved to the left,” said Mitchell Moss, a professor of urban planning at New York University. The real estate industry, Mr Moss argued, had come to be seen in New York the same way that the tech industry is in some other US cities: as “an opponent of equity”.

The new rules were agreed by Democratic leaders in the state legislature on Tuesday night. In a painful rebuke to New York’s property barons, Andrew Cuomo, the Democratic governor who has readily accepted their campaign donations over the years, turned down a last-minute appeal for help and said he would sign the legislation.

“It’s shocking,” one real estate executive said, remarking on the sudden loss of clout of such leading local real estate families as the Rudins, Dursts and LeFraks.

Broadly speaking, the legislation will make it harder for landlords to remove 1m or so apartments from New York’s various forms of rent control and instead charge market rates. Under the current system, that has been allowed when, for example, an occupant earned $200,000 or more for two consecutive years, or when they vacated a protected unit whose monthly rent exceeded $2,774. No more.

The new legislation will also cap the value of capital spending improvements that landlords can pass on to renters. It will also make permanent rent control laws that, until now, have been subject to periodic renewal.

“The story for the last 20 or 30 years has been the gaming of the market by landlords to get people out of their homes because they had a financial incentive to do so,” said Michael Gianaris, the Democratic state senator from Queens who was pivotal in resisting Amazon. He was motivated, in part, by concerns its arrival would push working-class families out of the neighbourhood.

The new state regulations will hit landlords — particularly those with older rental properties in New York’s outer-boroughs. Yet many observers predicted the ripples would be felt more widely.

“The rules are bad policy, and the signal politicians are sending may ultimately lead to less new construction down the line as capital providers price in greater regulatory risk to any given project,” said John Pawlowski, an analyst at Green Street Advisors, a real estate research consultancy.


A new crop of progressives was elected to the New York state legislature in the same election that vaulted Alexandria Ocasio-Cortez to Congress © AP


EJ McMahon, research director at New York’s Empire Center for Public Policy, agreed. “This puts a chill in the climate for everyone,” he said. “It’s going to be very difficult to walk any of this back in the future.”

New York’s developers have generally held the upper-hand for decades. They played on the widespread fear in the 1970s and 1980s that businesses might flee a bankrupt and crime-ridden city for the suburbs. They cemented their advantage with generous campaign contributions to Republican politicians, who long controlled the state senate until this year.

Rent controls have been a particular obsession. They were instituted during the second world war to prevent profiteering and later to help returning soldiers facing a housing shortage. Developers argue that they worsen the problem by effectively keeping apartments out of the market.

Their arguments fell on deaf ears after Democrats — including a new crop of progressives — took control of the state legislature last year in the same election that vaulted Alexandria Ocasio-Cortez, a young New York socialist, into Congress. As with the Amazon episode, many of those Democrats are inclined to equate development with gentrification, and are sympathetic to growing complaints about the city’s affordability.

“For a long time they thought they could just donate and keep the Republicans in power,” said one lobbyist aligned with the developers. They did not seem to appreciate, this person observed, that their warnings about people fleeing the city no longer resonated after decades of growth that have been accompanied by soaring rents and property prices.

“It’s hard to cry poverty,” the lobbyist said. “The people who are in power [now] weren’t around in the ‘70s or ‘80s. They haven’t lived that experience.”

Today’s New Yorkers are more likely to be rising up against high rents. Last year, the Kushner Companies, the real estate group run until recently by Mr Trump’s son-in-law, Jared Kushner, was sued by tenants in Brooklyn. They accused the company of harassing them into leaving their rent-regulated apartments so it could convert them to unregulated — and more lucrative — condominiums.

The Kushners have denied wrongdoing. “Kushner Companies operates quality properties with the highest level of professionalism. Any accusations involving tenant harassment are false,” a spokesperson said.

Meanwhile, an extensive New York Times investigation found that the Trump Organization used inflated invoices for capital improvements at its properties as a justification to raise regulated rents.

“Things like that happen every day,” Mr Gianaris said, acknowledging that the prominence of Mr Trump and Mr Kushner had served to elevate the issue.

But developers such as Mr Anitheos are convinced that the new rules are a misguided attempt to solve a longstanding problem — and will eventually spawn new problems.
His father, a carpenter, started the family business 50 years ago in the Bay Ridge section of Brooklyn. About half of their 150 apartments are governed by rent restrictions. Each year, Mr Anitheos estimated, two or three would become vacant — typically after 20 or 25 years of occupancy.

Because the buildings are so old, rehabilitations can run to $70,000 or more for each apartment. Yet under the new rules Mr Anitheos could only recoup $15,000 of capital improvements for a single apartment over 15 years. As a result, he argued, he was unlikely to do much more than apply paint in the future.

“It’s mind-boggling that they’re actually capping how much you can invest to improve your buildings,” Mr Anitheos despaired. “Who’s going to suffer? The tenants.”

Jens Weidmann casts a shadow over the ECB

If he simply validated the orthodox German view as president, it would be a disaster

Martin Wolf




Who should succeed Mario Draghi as president of the European Central Bank? That is the most important decision European governments will take this year. It is more important even than how they deal with an idiotic UK. It is more important than dealing with Donald Trump. It is more important than who will be presidents of the commission or council. The next president of the ECB might determine whether there is a eurozone, perhaps an EU, at the end of the term in 2027. Mr Draghi’s period has been that important. His successor’s might be equally so.

In October 2011, I wrote an open letter to Mr Draghi. I argued the ECB must be a lender of last resort in markets for public debt, thereby also stabilising the banks. I concluded that the “eurozone risks a tidal wave of fiscal and banking crises. The European Financial Stability Facility cannot stop this. Only the ECB can. As the sole eurozone-wide institution, it has the responsibility. It also has the power. I am sorry, Mario. But you face a choice between pleasing the monetary hawks and saving the eurozone. Choose the latter. Explain why you are making the choice. And remember: fortune favours the bold.”




Mr Draghi did the right things, above all with his celebrated remark in July 2012 that “within our mandate, the ECB is ready to do whatever it takes to preserve the euro”.

In August 2012, the ECB announced its Outright Monetary Transactions programme, to buy the bonds of distressed governments who agreed suitable programmes. Then, in January 2015, the ECB followed other central banks, by starting quantitative easing.

By reasonable standards, inflation has failed to reach the ECB objective of “below, but close to 2 per cent”. But in other respects, the ECB’s actions were a success. The death spiral of soaring bond yields and enfeebled banks halted. The eurozone economy troughed in 2013 and then largely tracked that of the US, as yields normalised and confidence dripped back.



The recovery of the eurozone from its crisis, perhaps even its survival, owes more to the ECB than any other institution. This is not to deny the role of governments in setting up new institutions and, when push came to shove, backing the ECB. But this was the one eurozone-wide institution with the needed firepower. This will remain true in the future, given the enduring fragility of a eurozone characterised by national — rather than area-wide — politics, weak banks, inadequate fiscal backstops, and persistently divergent economies.

Mr Draghi has transformed the ECB from a descendant of the old Bundesbank into a modern central bank, and from a central bank thinking for a small open economy to one appropriate to a diverse and continental-scale economy. The crucial question then is whether his successor will possess the intellect, flexibility and courage needed to respond to whatever happens. Some of what might happen could indeed be perilous: the world is highly unstable; eurozone inflation is very low; and monetary policy is close to its normal limits. Even today’s slowdown demands action. A worse slowdown might demand heroic action. The next president might have to pull new rabbits out of the hat.



It is doubtful whether any of the candidates meet these high standards. The riskiest by far would be Jens Weidmann, Bundesbank president. Mr Weidmann has opposed many of Mr Draghi’s innovations, including resort to QE. He even testified against OMT before the German constitutional court. The ECB council might be able to force him to do the right thing, in a crisis. But that would be a mad way to run the central bank.

Yet there is an alternative possibility. The one thing that could reconcile Germans to how the ECB must behave is recognition of that reality by a German president. He would have to tell his compatriots some home truths. Most obviously, that inflation has been lower under the ECB than under the Bundesbank. Then he would have to point out that a world of low inflation and generally very low interest rates is not one in which their savings have much economic value.



Finally, such a German president should add that the German private sector has a surplus of savings over investment comparable in scale to that of Japan. It is possible for Germany to have full employment and a budget surplus because Germany has been running a huge current account surplus. That would have been far more difficult if Germany had not been inside the eurozone: a floating Deutsche Mark would surely have appreciated hugely, Germany would now be in deflation, much more of its export-oriented production would have moved out and its monetary policy might be like Japan’s.



In brief, Germany has been a huge economic beneficiary of the euro. A Mr Weidmann who had said that again and again, and had also strongly backed the actions taken by the ECB, could have made a big difference to eurozone politics. Unfortunately, such a Mr Weidmann has not been in evidence. Instead, he has represented and so validated the sceptical German view. If that is what he would do as president, it would be a disaster. If he took the broader view, it would be a blessing. This, and not his nationality, is the issue. There can be no objection to a German president. On the contrary, a realistic and reasonable German president would be a great boon.




So which would Mr Weidmann be? Only he knows. Above all, this decision must not be the product of horse-trading among governments. The question is whether the next president can and will do the job as Mr Draghi defined it. Everything else is noise.

Europe Must Fix Its Fiscal Rules

In an environment of persistently low interest rates and below-potential output, economic policymakers must rethink the prevailing approach to public debt. For the eurozone, this means creating a common budget, or at least overhauling the fiscal rules that have tied member-state governments' hands for no good reason.

Olivier Blanchard




TRENTO – Earlier this year, I argued that in countries where interest rates are extremely low and public debt is considered safe by investors – making it less costly from both a fiscal and economic standpoint – larger fiscal deficits may be needed to make up for the limitations of monetary policy. The eurozone has now reached this stage.

After the 2008 financial crisis and subsequent euro crisis, monetary policy played a key role in stabilizing and reviving the eurozone. It took pragmatism, creativity, and political flair on the part of European Central Bank President Mario Draghi to accomplish this feat. But while monetary policy hasn’t quite run out of fuel, it cannot be expected to serve the same role again.

By contrast, fiscal policy, the other key component of sound Keynesian macroeconomic management, has been underused as a cyclical tool, with the result that eurozone output still is not at its potential level. This is an urgent problem that cannot be solved by any one country alone; it demands a concerted eurozone response. But while the need for a common eurozone budget from which to draw additional spending is more pressing now than in the past, this would entail risk-sharing among the member states, which is a politically difficult issue.

Still, there are other measures the eurozone could pursue, starting with a fiscal rule change. With interest rates so low, a 60% debt-to-GDP limit is not the right target (if it ever was to begin with). Not only should it be higher, but the requirement that member states that exceed the limit adjust back to it at a certain speed should be loosened. Moreover, because monetary policymakers have little room to maneuver, the European Union must grant governments more freedom to stimulate demand through fiscal policy. That means loosening the 3%-of-GDP limit on fiscal deficits, too.

To be sure, governments should not be given carte blanche; but they should not have their hands tied so tightly, either. What the EU needs is a new rule-making philosophy. The eurozone has gone so far in piling up constraints, on the assumption that governments will always misbehave or try to cheat, that the result is sometimes incomprehensible.

As a first step, the European Commission should stop micromanaging member states’ fiscal policies. The Commission should intervene only when a government is on a trajectory toward amassing truly unsustainable debt (which certainly can happen under irresponsible leadership). Otherwise, the Commission’s main job should be to provide information to the markets about the health of a member state’s economy and its likely path of debt.

This way, the markets would decide. Fiscal space, after all, is in the eye of the investor. Japan has a large public debt, but investors do not seem worried; Italy, where investors are now demanding a large risk premium, is another matter. The challenge for a member-state government, then, would no longer be to please the Commission, but to convince investors that it is operating responsibly with respect to the debt.

As a second step, the eurozone must improve its fiscal- and monetary-policy coordination. (In fact, it has always needed to do this; but now the matter is especially urgent.) At this stage, monetary policy cannot do the job alone. Stimulus must take the form of a fiscal expansion to make up for what the ECB cannot provide. Yet no country has an incentive to do this on its own, because, with member states so deeply integrated, some share of any fiscal expansion will inevitably be lost to spillover in the form of increased imports.

What is needed, then, is either a coordination device through which each country commits to a larger, self-financed fiscal expansion, or, preferably (but more controversially) a common budget, funded by euro bonds, which can then be used to finance higher spending in each country, when and if needed.

The stakes are high. Without higher limits on debt and better coordination – through a new mechanism or a common budget – fiscal policy will remain too tight, economic activity too low, and the risk of populists emerging to offer simplistic solutions too high. That is the last thing the eurozone needs.


Olivier Blanchard, a former chief economist of the IMF, is Professor of Economics at MIT and Senior Fellow at the Peterson Institute for International Economics. He is the co-editor (with Lawrence H. Summers) of Evolution or Revolution? (MIT Press, 2019).

No, This Isn’t Hong Kong’s Tiananmen Moment

For the moment, Beijing is content to let the Hong Kong government handle growing protests on its own.

By Phillip Orchard

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On the Black Sea

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