Capitalism for Developers, Communism for Landlords
Zohran Mamdani is attempting this synthesis — one with some basis in our city's housing policy history — but I doubt it's one he'll be able to implement.
Dear readers,
You’ve probably seen news this week about Cea Weaver, the rent-control activist Zohran Mamdani appointed to lead his brand-new Office to Protect Tenants. Weaver’s now-deleted Twitter profile featured a lot of provocative far-left bangers circa 2019 and 2021, like “elect more communists” and “private property including any kind of ESPECIALLY homeownership is a weapon of white supremacy” and “there is no such thing as a ‘good’ gentrifier, only people who are actively working on projects to dismantle white supremacy and capitalism and people who aren’t.” Fun stuff!
Weaver was also in the news last month, but if you don’t closely follow housing policy debates in New York, you probably didn’t notice. What she was doing last month might surprise you: the “elect more communists” lady who says “homeownership is a weapon of white supremacy” was getting herself to the right of our city council on various issues related to real estate development.
In the waning days of the Eric Adams administration, the council considered various bills that would impose costly mandates on affordable housing developments (sometimes new construction, sometimes conversion of existing buildings) which the city spends about $2 billion a year subsidizing. These bills had strong support from the council, especially its most left-wing members — one such bill would require buildings to contain more units that would be spacious enough for families; another would require more units to be priced for the lowest-income tenants. But some Mamdani allies tried to discourage the bills’ passage, understanding that these mandates would make projects more expensive for developers and therefore make it more difficult for the incoming mayor to deliver on his promise of more affordable housing. Weaver was one of the objectors. “I’m worried about things that are extraordinarily well-intentioned but could make it very difficult and more expensive for the agency to get money out of the door,” she told Crain’s New York Business.
Four years is a very long time on Twitter, and it can be a long time in politics. Mamdani has moderated a lot on housing issues and, in certain ways, Weaver seems to have too. Asked by The New York Times last June to name an issue he’s changed his mind about, Mamdani cited “the role of the private market in housing construction,” elaborating that he understands the government needs to enact policies and zoning reforms that foster more private housing development. Many far-left New Yorkers have evolved along with Mamdani toward a more market-oriented approach to development, much to the annoyance of left-NIMBYs like comedian Kate Willett, who tweeted after the election: “I can’t believe I petitioned and canvassed to have a real estate lobbyist doing all of Zohran’s housing hires.”1 So I actually don’t find it that surprising that someone who was tweeting about “dismantling capitalism” in 2021 would be issuing technocratic warnings in 2025 about how ordering developers to make housing more affordable could actually hurt the cause of affordable housing.
(By the way, I had a conversation about this Cea Weaver controversy at the end of this week’s episode of Central Air, and you should take a listen.)
All this said, Mamdani and his ideological allies are now aiming for a weird — and probably unworkable — synthesis of capitalism and communism. They see developers as productive allies in the fight against the housing shortage. They are sensitive to the need to attract private capital to invest in new housing developments, they want to loosen zoning regulations so private capital can be more easily deployed to build more homes, and they are cognizant of the ways that nice-sounding government regulation might drive up costs and make it too hard to deliver new homes. But they see owners of existing rental housing — the dreaded landlords — as rentiers whose assets can be expropriated without imposing economic cost on anyone else.
In 2019, progressive lawmakers fought for and passed a drastic tightening of New York’s rent control laws that has pushed swathes of our city’s stock of rent-regulated buildings into financial distress and sometimes foreclosure.2 Tens of thousands of dilapidated apartments are now held off the market because landlords cannot charge enough rent to justify the cost of bringing them up to code. According to data from the city’s Rent Guidelines Board, 10% of rent-regulated buildings had operating and maintenance expenses that exceeded their rental revenue in 2023, up from 5% in 2017.3 Effectively, these buildings are financially worthless even if they have no debt on them, and the finances of regulated buildings are only going to get worse if Mamdani delivers on his promise to freeze regulated rents through his mayoralty.
Mamdani says he will seek to help landlords cut their operating costs at the same time that he freezes rents, but the main way he proposes to do so is through property tax reform. This should be a red flag for anyone who follows New York City politics: New York mayors, both centrist and leftist, have said for decades they would reform property taxes and then failed to do so. Mamdani’s core observation is the same one we’ve heard from prior mayors: our city’s property tax system taxes rental apartments at a much higher rate than owner-occupied homes, which is an unfair burden on landlords and tenants. Fair enough. The problem is, to fix that unfairness, you either have to raise taxes on homeowners (hideously unpopular) or you have to cut property taxes overall (hard to do when you’ve also promised a raft of new spending programs). There’s a reason mayors tend to talk about property tax reform, ask a blue ribbon commission to look at what can be done, and then not do anything. The commission Bill de Blasio established to look into the issue literally issued its report with recommendations three days before he left office.
Mamdani also says he wants to help landlords with skyrocketing insurance costs, but to cut the cost of insurance you have to cut the cost of claims, and the reforms that would do this tend to draw a lot of opposition from trial lawyers and unions.
The area where I think Mamdani is most likely to succeed at providing operating cost relief to building owners is if he seeks to reform our city’s bizarre façade inspection regime — these are the rules that cause New York’s sidewalks to be uniquely festooned with scaffolding, at great expense to building owners — but even this could be challenging because our city council has shown a surprising attachment to these only-in-New-York rules, in significant part because the scaffolding companies have themselves become a serious political lobby.
So if Mamdani freezes rents, the likely outcome is that even more apartment buildings will have operating expenses that exceed rental income — that is, they will be worthless. But for some tenant activists, that crisis actually looks like opportunity: it creates a situation where the city can foreclose on apartment buildings for unpaid property tax and turn them into public housing, or where non-profits can acquire those buildings in foreclosure at fire-sale prices. Indeed, Weaver wrote in favor of the former option back in October. Mamdani’s administration is also this week seeking to block a proposed sale of a portfolio of buildings in the bankruptcy auction of the landlord Pinnacle, arguing that a bid of approximately $80,000 per unit is implausibly high because of the very low regulated rents on Pinnacle’s buildings, meaning the new for-profit landlord is likely to be unable to maintain the buildings and stay out of bankruptcy itself. ($80,000 per apartment, an implausibly high valuation in New York City! That just goes to show how punitive our rent-control regime is.) The endgame here appears to be to try to get the Pinnacle portfolio into city or non-profit hands instead.
Obviously, I see problems with the approach of “capitalism for developers, communism for landlords.” One is that today’s developer is often tomorrow’s landlord — the financial calculations that make a developer willing to build rest on an expectation that sufficient rents can be collected once a building is operating. Another is that, while a literal landlord (in the sense of someone who rents agricultural land, perhaps to a feudal serf) really does collect payment merely for owning capital, an apartment building is a business where landlords collect income in exchange for providing services that carry ongoing costs.
That said, I don’t think it’s crazy to think you can bifurcate this market and induce developers to invest while regulating away at least some of landlords’ profits. Cities have done it in the past: They impose rent controls only on old buildings, while promising not to regulate rents on newly built ones, and they often offer tax abatements as inducements for new construction. New York City has had some form of rent control for several decades, and that hasn’t stopped developers from building new rental apartments, mostly because rent controls apply only to buildings that were built before 1974 or where a developer voluntarily accepts rent control in exchange for a tax abatement or subsidy. A government also doesn’t need to be able to credibly promise developers that it will never regulate the new buildings — because of the discounted value of future cash flows, the earliest years’ revenues are the most important revenues for determining whether it’s worth building a new building, and so it’s good enough to convince developers that any rent regulations on new buildings are at least several decades away.4
But the aggressiveness of the 2019 rent regulation reforms, combined with Mamdani’s promise to hold rent increases below inflation (i.e., at zero), put us in uncharted territory. The city isn’t merely holding down rents and reducing landlord profits; it’s effectively engaging in a slow-motion expropriation of a huge swathe of the city’s housing stock, regulating its value all the way down to zero and putting itself in a position to socialize many existing private buildings. As Eric Kober writes for the Manhattan Institute, the city may regret doing this: when the city or various non-profits step into landlords’ shoes, they’ll still have to deal with the fact that these buildings’ rent rolls don’t cover expenses, and the buildings’ operating deficits could turn into a gaping maw that eats up tax dollars that are therefore unavailable for Mamdani’s other ambitions, like universal child care. (Confiscating the buildings will also take them off the city’s property tax rolls, reducing revenue.) And then there’s the question of how developers will react to a city government that appears to have moved beyond the ambitions of the 1970s-era rent regulations toward a policy where some private property effectively gets expropriated. Maybe they will no longer believe promises that new buildings will be excluded from the anti-landlord agenda for the foreseeable future. Weaver, for one, told Ben Max on his “Max Politics” podcast last October that she’d like to see rent control extended to newer buildings.
Meanwhile, our city council has been less than helpful: it ignored Weaver’s warnings and passed all those bills with the new unit-mix and rent-cap mandates that would make publicly subsidized affordable housing developments more expensive to build.5 More helpful to the new mayor was the outgoing mayor, Adams, who vetoed the bills. But in a testament to the power of the construction trade unions, Adams allowed another bill — this one setting a $40 hourly wage-and-benefit floor for the workers building the developments — to become law, imposing a mandate that will nearly double the amount of subsidy the city needs to provide to get an income-restricted affordable housing unit built. This is likely to seriously hamper Mamdani’s promise to massively scale up the city’s production of new affordable housing units, and is exactly the kind of trade-off that progressives in New York routinely fail to grapple with.
Like Matt Yglesias, I am much more impressed with Mamdani than I was six months ago. I’ve been heartened with the ways he has shifted toward the center on policing and education. But while I think he has his head on straight about real estate development, his (and Weaver’s) approach to landlords is a big problem. Rent increases have already been restricted below inflation for several years running and his plan to further reduce rents in real terms (which is what a “rent freeze” amounts to) is unsustainable without major reforms to reduce landlords’ operating costs, which he is unlikely to deliver. He would be wise to take some advice from Bill de Blasio, hardly a market fundamentalist, who told the New York Editorial Board last year that the 2019 rent law needs to be loosened — specifically, to allow landlords to raise rents more when they make capital upgrades to buildings — in order to make a freeze on base rents viable and discourage landlords from allowing their buildings to fall into disrepair.6 And he should worry more than he appears to about whether an expropriative attitude toward landlords will scare off the developers he acknowledges he needs to attract to build the new homes this city so badly needs.
After all, it’s pretty hard to credibly promise you’ll hold together a political coalition to ensure a system that’s capitalist and communist at the same time.
Very seriously,
Josh
P.S. Check out this week’s episode of Central Air, which ends with a discussion of life in Mamdani’s New York.
Willett is referring here not to Weaver but to Annemarie Gray, who isn’t actually a real estate lobbyist but runs the pro-development, pro-upzoning group Open New York. Gray said on a podcast last year that her group doesn’t take money from developers and got its seed funding from Open Philanthropy (since renamed Coefficient Giving), a foundation started by Facebook co-founder Dustin Moskovitz. Gray and Weaver are political allies — Gray has been on social media this week arguing that Weaver isn’t the communist you’d expect from her tweets praising communism — which isn’t surprising because in New York these days, the movements for rent control and increased development increasingly include the same people, seeing both policies as components of an overall agenda to make housing more affordable.
Naturally, this law was signed by Andrew Cuomo, who presented himself in the mayor’s race as the antidote to Mamdani’s socialist agenda.
The operating and maintenance expenses for a regulated apartment building — including property taxes but excluding mortgage interest — averaged $1,111 per unit per month in 2023, according to the Rent Guidelines Board. This is the amount of rent a landlord needs to collect to break even, even if he has no mortgage to pay. So when you read in the newspaper about rent-stabilized tenants paying rents under $1,000, you’re typically looking at apartments that have negative value even if they bear no debt — this is not a financially sustainable business.
Of course, we haven’t built enough rental apartments, but I tend to agree with the consensus view that the main barrier to development has not been worries about future rent control — instead, the key problems have been zoning rules that made it hard to build tall enough, the extremely high cost of construction in our city (partly a result of public policy), and cost-adding regulations from parking mandates to wage floors to historic preservation to inclusionary zoning set-asides. And on at least some of those topics, Mamdani has the right ideas: he wants to upzone, he wants to remove parking mandates, and his allies at least tried to get the city council not to impose uneconomic mandates on affordable housing.
Mamdani’s effort to stop the bills was a little half-assed — he never publicly took a position, even as he had his allies make phone calls — but Mamdani’s earlier failure to influence the race for council speaker suggests he might not have gotten his way even if he had personally pushed.
This reform would have to be made by the state legislature, but Mamdani hasn’t been shy with his ideas about what the legislature should do in other areas.
I'm struck by the contortions required of landlords to fit themselves into the city's byzantine rent control ordinance and the other legislation that flows from that. It strikes me as highly distortionary - much like tariffs. I wonder now, that the Mamdani administration has made clear that rent control really is a "taking" under the Constitution, might SCOTUS decide to end the enter rent control regime, nationwide? LA and NY's recent actions seem to be have crossed the line of what is allowable under our laws.
Of all the costly unintended consequences of Local Law 11, the very worst is the fact that the regulation can require a building to erect a scaffold that extends onto a neighboring property, but does not require the neighbor to accept a scaffold to be erected.