New York's paper war on property owners

Real Estate Weekly, May 17, 1995 by Vincent S. Castellano

Yet the proposals that will emanate from the dimmer lights of government will only serve to make housing less affordable and less available to the seven million people that live here. No doubt some enterprising reporter will seize upon this to now accuse me of advocating for dangerous living conditions. Nothing could be further from the truth. But over-regulation of the real estate business has not produced an abundance of safe, affordable housing. Expensive regulation is the cause of the problem, not the solution.

For example, a recent report by the Citizens for a Sound Economy has argued that over-regulations of the housing market in New York City has driven down rates of return and forced capital to find more hospitable locales. In the decades before the Rent Stabilization Law was passed in 1969, more than 30,000 apartments were built every year. In the decade after, 30,000 were abandoned every year, the vast majority low-cost apartments that provided affordable housing. Yet this empirical evidence of the effects of regulation has not convinced big government zealots.

Today in 1995, rental housing is subject to the jurisdiction of 19 city agencies, three state agencies and four federal agencies. Twenty-six agencies to make sure the hot water is hot enough and the refrigerator is cold enough. And in the case of refrigerators, if the governing agency does not have a standard, they will make one up.

These agencies have literally created thousands of pages of regulations. The property owner is expected to know his obligations and comply. Yet any professional who knows all of the regulations, exceptions and amendments of just one agency is considered an expert able to command large fees for his expertise. How can any mere mortal hope to keep up with the complex web of overlapping regulations from 26 agencies?

Large property owners have adjusted to this paperwork nightmare by employing large numbers of people at headquarters simply to make sure the forms are filled out and filed by the deadline. This adds to the cost of housing and makes new investment in housing less attractive.

Small property owners typically discover regulatory obligations by being served with a violation notice. A perfect example of that is the Department of Building Boiler Inspection. Just a few years ago the Building Department sent out an inspector to check the boiler and you were sent a bill. It was simple, cheap and straightforward. Facing budgetary reductions, the department decided to go to a new method that made their life easier and the owner's life more difficult. Now the property owner must pay a certified inspector AND the city! And God help you if you file the form late! That's another free of up to $5,000. The fine is not for operating an unsafe boiler. The fine is for not filing the form! Regulatory agencies have become preoccupied with the paper-work instead of the substance of the issue.

There are many ways to measure the extent of regulation and how it has expanded over time. In fact, one local publisher has made a rather handsome living simply by publishing a book of checklists and forms for property managers. The only thing that has grown faster than the number of pages in the book (up 45 percent since 1989) is the price (up 51 percent since then).

But the popularity of this book indicates that property owners have a genuine need to understand their obligations and how to comply. Each of the 26 agencies has its own rules, it own forms, its own deadline and of course its own penalties. How else to maximize the size of the bureaucracy? In fact, the only concession to the paperwork burdens placed on property owners that I'm aware of is that the NYC Department of Finance will accept the income and expense statement filed with the Tax Commission, provided of course that the proper form is submitted electing this option.

The encyclopedia of rules was intended to make regulation fair and equitable. In fact, because of its complexity and sheer length, it has made regulation dependent upon the memory, and the mood, of the inspector. This strategy has not made housing safer, only more expensive and enforcement more whimsical.

But take heart. You can always file another form to obtain relief from the bureaucracy our taxes support. All I can say is that God must love bureaucrats, because he created so many of them.

I want to take this opportunity to announce that Real Estate Nightmares is coming to talk radio. On Wednesday, June 7th the radio version of Real Estate Nightmares will debut on WEVD (1050 AM) at 8 p.m. This will be the only weekly show on radio addressing issues of concern to property owners and managers in the tri-state area. You will also get the opportunity to add your thoughts by calling in. See you then.