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The Rich in New York and Their Out-Sized Apartments

Everyone Must Share, Not Just Charlie Rangel

by MOSHE ADLER

Free market rents in NYC are notoriously high, and as a result about half of the rental units are subject to "rent stabilization." When it comes to these units everybody is a social engineer. US representative Charles Rangel had not one but four rent-stabilized apartments. "Shame," the headlines cried. "None of your business," Rangel shouted back (while vacating one of those apartments).

Well, isn’t taking so much space, when space is so tight, wrong? Of course it is. But this is true for everybody, not just Charles Rangel, and for every apartment, regardless of whether it is rent stabilized, a market-rate rental, a coop or a condo.

Stories about outsized apartments have filled the New York papers since the mid 90′s. But these have been in the Home or Real Estate sections rather than on the front page. And rather than vilified, the owners of these apartments were admired for the power of their money. A British financier, David Martinez, bought two whole floors of the large-footprint Time-Warner Center, and knocked the floor of the upper unit in order to get a higher ceiling in the lower one. Calvin Klein lives in an apartment that occupies three whole floors in a tower overlooking the Hudson in Chelsea, while Martha Stewart owns two floors in the same building. Swimming pools are the latest rage. Two-hundred forty-five East 58th Street is an apartment building with a full gym and a swimming pool on the third floor, but the resident of the penthouse in the same building has a 16 by 25 feet pool all to herself. Film director Marcus Nispel learned how to smash idols on the set of his remake of "The Texas Chainsaw Massacre." He built a swimming pool right inside his five-story town house because "space in New York is something very holy," as he told David Chen of the New York Times. He also likes to create beauty: "I love water, and I love the idea of how it contrasts with the city." The businessman Jonathan Leitersdorf, who has a 25 x 12 x 6 foot swimming pool in his triplex near NYU, recommends a swimming pool to anybody who wants to give a good party.

The hunger of the rich for space has real consequences for the rest of us. Since 1995, the price of a square foot in Manhattan grew seventy percent faster in large apartments with four or more bedrooms than in apartments with only two bedrooms. Since then the footprint of all apartment types — studios, one bedroom, two bedrooms and three bedrooms — has been decreasing, with one glaring exception: The footprints of apartments with four bedrooms or more has been increasing. My own calculations, based on for sale and for rent data, show that if Manhattan apartments were limited in size to 1,200 square feet, then without constructing even a single new building the supply of apartments for ownership would immediately increase by 32% and the supply of apartments available for rent would increase by 16%. Even if this overstates the actual proportions somewhat because fewer small apartments get listed with brokers, it is clear that large apartments have a significant negative effect on the availability of apartments in the city.

Rent stabilized apartments are of course regulated by the city government. What can the government do about the free market? Like smoking, the consumption of space is harmful to others. The government should curb it exactly the way it curbs smoking; by taxing it. Up to a particular threshold (which could be adjusted according to family size) space would be tax exempt. But beyond this threshold the tax should be sufficiently high to deter excess consumption even by the very rich. To gain an appreciation of how high this tax would have to be in order to make a difference, it’s worth noting that a square foot in a large apartment in Manhattan commands a price premium of on average $662. (Part of this premium is due to location.) A tax of this order of magnitude would remove the incentive of developers to build out-sized apartments, curb the appetite that the rich have for them, and would make room for more of the rest of us.

MOSHE ADLER is the Director of Public Interest Economics.  He can be reached at ma82092@gmail.com.