City lawmakers are running after stopping Gotham’s economic recovery on the COVID track by pushing the same form of rent regulation for commercial real estate that has locked the city’s homes into an eternal “crisis.”
At a hearing Friday, the city council will raise a couple of wildly devastating bills – one to set up a “commercial rent guideline” that would set annual rent increases for shops and offices under 10,000 square feet and manufacturers under 25,000 square feet and another to grant automatic one-year leasing extensions at the request of a commercial tenant.
The most efficient market is, of course, a market that is allowed to adapt itself without government intervention: when pulses engage and set artificial rents, it creates all sorts of perverse, unintended consequences.
Example: Although it is intended to protect small businesses, rent regulation can actually hurt them because big companies (think Starbucks or big bank branches) often take small seats. These companies would be more desirable tenants than less financially secure mother-and-pops, especially if rent increases need to be curtailed.
Commercial landlords can even defer rent to anyone until the economy grows hotter, knowing that their rents could largely be frozen by the panel if members would be elected by the mayor.
What a time for such madness: The pandemic and lockdowns forced many businesses to close, leaving shop windows vacant and rented out. It’s actually one tenants’ market: In June, the Real Estate Board in New York reported that rents for retail space fell in 16 of 17 sections in Manhattan, some by as much as 37 percent.
“There’s never a good time for legislation like this, but commercial real estate in this city is in a particularly precarious position right now,” notes East Midtown Partnership President Rob Byrnes. The bills are “driven by a view of the real estate industry that is almost completely separate from reality.”
“What COVID-19 did not achieve by undermining our retail and real estate sectors over the past 18 months, these legislative initiatives will do,” fears Grand Central Partnership chief Fred Cerullo.
Sure small businesses could use help and there are many smart ways to help them – like ending the commercial rent tax and mandates like paid leave and the minimum wage of $ 15.
But New York pols are often lured instead by simple, socialist style recipes like rent control that only make things worse. Cross your fingers, they make sense and nix these bills early.