FTC Staff Comment Before the New York City Office for Economic Development Concerning Int. 734, 581, and 204 to Regulate the Renewal of Certain Commercial Tenant Leases

Federal Trade Commission
Office of the Regional Director
~6 Federal Plaza, ~~nd Fl.
New York, New York 1027R
(21~) 2()4-1200 	r1a r chI 2, 	1987 	.... '., 	.
. . ",tl\ ";. h;""f~" __ ,"~,., .. \ A;:THiJRiZt~
Eli 	Dickson, 	Director
Policy 	Analysis 	Division
New 	York 	City 	Office 	for 	Economic
Development
52 	Chambers 	Street
New 	York, 	New 	York 	10007
Dear 	Ms. 	Dickson:
The 	staff 	of 	the 	Federal 	Trade 	Commission 	is 	pleased 	to
accept 	your 	invitation 	to 	comment 	on 	Int. 	No. 	734, 	a 	proposed
local 	law 	to 	amend 	the 	administrative 	code 	of 	the 	City 	of 	New
York. l 	The 	bill 	would 	allow 	certain 	commercial 	retail 	and
service 	tenants 	whose 	leases 	are 	due 	to 	expire 	to 	obtain 	a 	one-
year'lease 	extension 	at 	no 	more 	than 	a 	15% 	rent 	increase 	in 	the
event 	renewal 	terms 	cannot 	successfully 	be 	negotiated. 	This
measure 	reflects 	an 	alternative 	to 	Int. 	Nos. 	581 	and 	204, 	which
are 	more 	stringent 	rent 	control 	proposals 	requiring 	longer 	term
lease 	extensions 	and 	binding 	arbitration 	to 	establish 	renewal
rents 	for 	commercial 	premises •
.,' 	We 	urge 	rej ection 	of 	all 	three 	leg islative 	proposals,
although 	Bill 	734 	is 	less 	troublesome 	than 	the 	other 	two. 	Rent
control 	in 	any 	form 	will 	not 	promote 	consumer 	welfare 	and 	will
serve 	only 	to 	assure 	that 	the 	actual 	demand 	for 	rental 	space 	will
not 	be 	met.
1 	This 	letter 	presents 	the 	comments 	of 	the 	New 	York 	Regional
Office 	and 	the 	Bureaus 	of 	Competition, 	Economics 	and 	Consumer
Protection 	of 	the 	Federal 	Trade 	Commission. 	The 	views 	expressed
are 	not 	necessarily 	those 	of 	the 	Commission 	or 	of 	any 	individual
Commissioner, 	although 	the 	Commission 	has 	authorized 	the
presentation 	of 	these 	comments.

Eli 	Dickson, 	Director
I . 	Introduction
- 	2 	-
The 	Federal 	Trade 	Commission 	is 	charged 	under 	15 	U.S.C.
§ 	45 	with 	preventing 	unfair 	methods 	of 	competition 	and 	unfair 	or
deceptive 	acts 	or 	practices 	in 	or 	affecting 	commerce. 	Pursuant
to 	this 	congressional 	mandate, 	the 	Commission 	seeks 	to 	serve 	the
public 	interest 	and 	protect 	the 	marketplace 	from 	unreasonable
restraints 	of 	trade. 	Our 	efforts 	include 	providing 	comments 	to
federal, 	state 	and 	local 	legislative 	and 	administrative 	bodies 	to
advocate 	competition-based 	approaches 	to 	various 	policy 	issues.
The 	Commission 	has 	had 	a 	long 	and 	varied 	experience 	in 	~nalyzing
the 	effects 	of 	price 	controls, 	including 	rent 	controls.
Accordingly, 	we 	offer 	our 	comments 	to 	assist 	you 	in 	identifying
how 	the 	various 	legislative 	proposals 	may 	affect 	the 	commercial
rental 	market 	in 	New 	York 	City.
II. 	Background
Three 	commercial 	rent 	regulation 	bills 	are 	currently
before 	the 	City 	Council. 	The 	most 	stringent 	proposals 	are
reflected 	in 	Int. 	Nos. 	581 	and 	204. 	These 	bills 	would 	require
mandatory 	lease 	extensions 	for 	a 	minimum 	of 	five 	years 	and
binding 	~rbitration to 	establish 	renewal 	rents 	for 	commercial
tenants. 	The 	most 	recent 	proposal, 	Bill 	734, 	was 	introduced 	to
the 	~ew York 	City 	Council 	at 	Mayor 	Koch's 	request 	by 	Council
Member 	Jay 	O'Donovan 	on 	November 	20, 	1986. 	It 	would 	require 	that
landlords 	engage 	in 	negotiation 	and 	non-binding 	mediation
concerning 	lease 	renewal 	for 	certain 	retail 	and 	service 	premises,
and, 	in 	the 	event 	renewal 	terms 	cannot 	be 	agreed 	upon, 	that
tenants 	covered 	by 	the 	proposal 	have 	a 	right 	to 	a 	one-time 	one-
year 	lease 	extension 	at 	no 	more 	than 	a 	15% 	rent 	increase. 	We
2 For 	example, 	the 	Commission 	staff 	testified 	before 	the
District 	of 	Columbia 	Council 	on 	the 	proposed 	Rental 	Housing 	Act
of 	1985.
3 	Int. 	No. 	581 	was 	introduced 	to 	the 	City 	Council 	by 	Council
Member 	Ruth 	Messinger 	on 	April 	10, 	1986. 	A related 	proposal,
Int. 	No. 	204, 	had 	been 	introduced 	earlier 	by 	Council 	Member
Gerges 	on 	January 	22, 	1986, 	and 	denominated 	the 	"Small 	Business
Preservation 	Act." 	Proposal 	204 	would 	provide, 	in 	addition 	to
"last 	offer 	binding 	arbitration" 	administered 	through 	a
commercial 	rent 	mediation 	panel, 	that 	commercial 	tenants 	seeking
lease 	renewal 	receive 	a 	"right 	of 	first 	refusal." 	This 	right,
which 	would 	arise 	if 	the 	landlord 	has 	secured 	an 	agreement 	with 	a
new 	tenant, 	would 	entitle 	the 	existing 	tenant 	to 	renew 	the 	lease
by 	matching 	the 	rent 	agreed 	to 	by 	the 	prospective 	tenant.

Eli 	Dickson, 	Director 	- 	3 	-
understand 	that 	this 	proposal 	is 	intended 	as 	a 	transitional
measure 	primarily 	to 	aid 4 small 	merchants 	facing 	possible 	non-
renewal 	of 	their 	leases.
We 	do 	not 	believe 	that 	rent 	control 	in 	any 	form 	is
consistent 	with 	consumer 	welfare, 	even 	if 	it 	is 	intended 	to 	be
temporary 	in 	nature. 5 	Rather, 	rent 	control 	gives 	rise 	to 	market
distortions 	which 	have 	negative 	long-term 	economic 	consequences
that 	may 	be 	more 	serious 	than 	any 	short-term 	problems 	it 	seeks 	to
resolve. 	Rent 	cont~ol reduces 	market 	incentives 	to 	increase 	the
supply 	of 	rental 	units. 	It 	ulti~ately works 	to 	the 	detriment 	of
those 	sought 	to 	be 	aided 	by 	the 	legislation 	and 	produces 	a
negative 	impact 	on 	the 	competitive 	environment.
As 	discussed 	more 	fully 	below, 	the 	effects 	of
commercial 	rent 	control 	may 	include 	the 	diversion 	of 	investment
capital, 	artificial 	reduction 	in 	the 	space 	available 	for 	new
businesses, 	and 	deterioration 	of 	commercial 	rental 	properties.
Additionally, 	if 	rent 	control 	legislation 	is 	enacted, 	uncertainty
could 	exist 	as 	to 	whether 	such 	measures 	will 	be 	retained 	or
extended, 	further 	exacerbating 	these 	market 	distortions.
Moreover, 	to 	the 	extent 	that 	legislation 	stems 	from 	a 	concern 	for
those 	merchants 	who 	are 	facing 	special 	financial 	hardships 	as 	a
result 	of 	lease'termination, 	a 	public 	policy 	response 	that 	would
avoid 	the 	unintended 	costs 	associated 	with 	rent 	control 	should 	be
considered. 	(See 	discussion 	in 	Section V.)
"
III. 	Impact 	of 	Rent 	Control 	on 	the 	New 	York 	City 	Economy
Rent 	control 	artificially 	reduces 	the 	rate 	of 	return 	on
investments 	in 	rental 	space, 	thus 	reducing 	incentives 	to 	supply
pnd 	maintain 	such 	space. 	Investors 	are 	likely 	to 	respond 	to 	such
measures 	by 	seeking 	other 	locations 	or 	types 	of 	investment 	where
they 	can 	expect 	a 	higher 	rate 	of 	return. 	This 	could 	adversely
affect 	the 	economic 	growth 	and 	well-being 	of 	the 	city, 	eroding
!
4 The 	measure 	applies 	only 	to 	retail 	leases 	where 	the 	premises
do 	not 	exceed 	10,000 	square 	feet. 	(Int. 	Nos. 	581 	and 	204, 	in
contrast, 	would 	apply 	stringent 	regulatory 	measures 	to 	all 	non-
residential 	leases 	including 	offices.) 	Bill 	734 	also 	expressly
limits 	the 	scope 	of 	its 	requirements, 	containing 	a 	sunset
provision 	that 	excludes 	from 	its 	coverage 	any 	retail 	lease
expiring 	after 	January 	1, 	1992 	(Sec. 	22-605).
5 	While 	our 	comments 	here 	are 	directed 	primarily 	to 	Int. 	No.
734, 	our 	views 	supporting 	a 	free 	market 	are 	equally 	applicable 	to
Int. 	Nos. 	581 	and 	204.

Eli 	Dickson, 	Director 	- 	4 	-
the 	tax 	base, 	skewing 	investments 	away 	from 	the 	commercial 	rental
market, 	and 	leaving 	demand 	for 	such 	space 	unsatisfied. 6
To 	the 	extent 	that 	landlords 	are 	locked-in 	to 	regulated
commercial 	rentals, 	they 	can 	be 	expected 	to 	respond 	to 	what 	they
perceive 	as 	a 	less 	than 	adequate 	rate 	of 	return 	by 	reducing
costs. 	Cost 	reduction 	often 	takes 	che 	form 	of 	reduced
maintenance 	or 	renovation. 	Such 	reductions 	harm 	the 	community,
and 	work 	particularly 	to 	the 	detriment 	of 	tenants 	who 	would 	be
willing 	to 	pay 	for 	better 	quality 	space 	thet 	is 	unavailable 	in
sufficient 	quantities. 	This 	also 	tends 	to 	increase 	costs 	to
prospective 	tenants 	who 	must 	search 	longer 	for 	rental 	space.
Shortages 	of 	rental 	space 	will 	deter 	efficient 	relocations 	and
formation 	of 	new 	businesses.
Another 	problem 	associated 	with 	rent 	control 	relates 	to
reduction 	of 	local 	tax 	revenues. 	Controlling 	the 	income 	earned
by 	commercial 	rental 	property 	will 	make 	it 	less 	valuable.
Because 	the 	land 	is 	less 	valuable,"total 	tax 	revenues 	raised 	at 	a
given 	property 	tax 	rate 	will 	be 	reduced.
Further~ when 	leases 	expire 	in 	a 	context 	in 	which 	lease
extension 	is 	required 	by 	law, 	some 	landlords 	can 	be 	expected 	to
react 	by 	reducing 	the 	duration 	of 	any 	lease 	they 	negotiate
to 	the 	minimum 	term 	permissible. 	In 	addition, 	where 	tenants
have 	the 	right 	to 	mandatory 	lease 	extension, 	they 	may 	be 	able 	to
extract 	lump-sum 	payments 	from 	landlords 	in 	return 	for
surrendering 	that 	right. 	Such 	distorting 	forces 	not 	only
interfere 	with 	freedom 	of 	contract, 	but 	also 	with 	the 	market
6 	The 	market 	distorting 	effects 	of 	rent 	control 	have 	been
recognized 	by 	economists 	for 	many 	years, 	primarily 	in 	relation 	to
residential 	rent 	control. 	The 	consensus 	among 	those 	who 	have
studied 	the 	subject 	is 	that 	rent 	control 	in 	any 	context 	injures
competition 	and 	consumers, 	imposing 	costs 	that 	far 	outweigh 	any
benefits 	that 	some 	individuals 	receive. 	See,~, w. 	Block 	& E.
Olsen 	(eds.), 	Rent 	Control: 	Myths 	and 	ReaITties 	(The 	Fraser
Institute, 	1981) 	(this 	compilatlon 	lncludes 	a 	chapter 	by
T. 	Dienstfrey 	discussing 	residential 	and 	commercial 	rent 	control
initiatives 	in 	Celiforr.ia); 	C. 	Baird, 	Rent 	Control: 	The
Perennial 	Follv 	(Cato 	Institute, 	1980); 	Moorhouse, 	"Optimal
Housing 	Maintenance 	Under 	Rent 	Control," 	The 	Southern 	Economic
Journal 	(July 	1972); 	Olsen, 	"An 	Econometric 	Analysis 	of 	Rent
Control," 	Journal 	of 	Political 	Economy 	(Nov./Dec. 	1972).

Eli 	Dickson, 	Director 	- 	5 	-
return
failure
There
considerations 	that 	ought 	to 	govern 	lease 	negotiation. 	Rent
control 	may, 	for 	instance, 	create 	an 	incentive 	for 	landlords 	to
discriminate 	in 	choosing 	tenants, 	since 	characteristics 	other
than 	a 	willingness 	to 	pay 	become 	~ore 	important 	in 	the
.relationship 	between 	the 	parties. 	In 	addition 	to 	these
undesirable 	effects, 	there 	are 	the 	costs 	associated 	with
administering 	the 	rent 	regulation 	program, 	which 	are 	usually
passed 	on 	at 	least 	in 	part 	to 	taxpayers.
Measures 	that 	would 	regulate 	price 	and 	rate 	of
are 	norm~lly justified 	only 	if 	~here 	is 	a 	general 	marke§
such 	as 	may 	occur 	under 	conditions 	of 	natural 	monopoly.
is 	no 	evidence 	that 	this 	is 	the 	case 	in 	the 	New 	York 	City
commercial 	rental 	market. 	In 	the 	absence 	of 	regulatory 	control,
all 	market 	participants 	are 	appropriately 	subject 	to 	the 	risks
and 	rewards 	of 	changing 	conditions 	in 	which 	the 	market 	over 	time
will 	be 	most 	efficient 	and 	effective 	in 	achieving 	an 	equilibrium
betwee,n 	supply 	and 	demand.
Legislatures 	sometimes 	adopt 	rent 	control 	proposals 	in
order 	to 	protect 	or 	assist 	a 	special 	class 	of 	constituents,
rather 	than 	maximize 	consumer 	welfare 	in 	the 	aggregate. 9 	Such
proposals 	may 	seem 	appealing 	by 	virtue 	of 	the 	fact 	that 	most 	of
the 	direct 	costs 	of 	rent 	control 	are 	borne 	by 	private 	parties.
Rent 	control, 	however, 	will 	fail 	to 	resolve 	and 	may 	seriously
exacerbate 	economic 	problems 	over 	the 	long-term. 	We 	see 	no
persuasive 	justification 	for 	risking 	this 	result.
IV. 	Report 	of 	the 	Small 	Retail 	Business 	Study 	Commission
In 	1985 	the 	Small 	Retail 	Business 	Study 	Commission
("SRBSC") 	was 	~onvened to 	examine 	the 	commercial 	lease 	situation
in 	New 	York 	City. 	The 	SRBSC's 	efforts 	resul~ed 	in 	a 	Final
7 	This 	effect 	of 	rent 	control 	- 	a 	tendency 	to 	encourage
discrimination 	in 	the 	rental 	market 	- 	is 	often 	overlooked. 	It
has, 	however, 	been 	recognized 	by 	many 	commentators. 	See, 	e.g.,
Ault, 	"The 	Presumed 	Advantages 	and 	Real 	DisadvantagesOT Rent
Control," 	in 	Block 	& Olsen, 	supra 	note 	6, 	at 	61-62.
8 	See, 	e.g., 	F. 	Scherer, 	Industrial 	Market 	Structure 	and
Economic 	Performance 	482 	(1980).
9 	See, 	e.g., 	Olsen 	& Walker, 	"Alternatives," 	at 	268-69, 	and
Dienstfrey, 	"The 	Politics 	of 	Rent 	Control 	in 	the 	United 	States:
A 	Program 	at 	the 	Yellow 	Light," 	in 	Block 	& Olsen, 	supra 	note 	6,
at 	6.

Eli 	Dickson, 	Director 	- 	6 	-
Report 	issued 	in 	June 	1986 	(hereafter 	"Final 	Report") 	reflecting
the 	views 	of 	a 	majority 	of 	SRBSC 	Commissioners 	against 	rent
control 	and 	in 	favor 	of 	the 	measures 	now 	embodied 	in 	Bill 	734. 	A
separate 	minority 	Report 	of 	the 	Dissenting 	Commissioners
expressed 	the 	view 	that 	the 	commercial 	rent 	situation 	in 	New 	York
City 	constituted 	an 	emergency 	that 	threatened 	the 	viability 	of
many 	merchants lO 	and 	warranted 	strong 	regulation 	(as 	reflected 	in
Int. 	Nos. 	581 	and 	204).
We 	believe 	that 	the 	market 	research 	undertaken 	by 	the
SRBSC, 	which 	include6 	a 	citywide 	survey 	of 	retail 	merchants 	and 	a
survey 	of 	merchQnts 	and 	consumers 	in 	twelve 	selected 	city
neighborhoods,ll 	did 	not 	reveal 	an 	emergency 	warranting 	a 	broad
market 	intrusive 	response. 	The 	surveys, 	which 	covered 	a 	variety
of 	issues 	including 	merchant 	expectations 	concerning 	lease
renewal, 	as 	well 	as 	merchant 	and 	consumer 	perceptions 	of 	their
neighbo~hoods, disclosed 	a 	great 	deal 	of 	variation 	in 	market
condit~ons in 	particular 	neighborhoods 	and 	divergent 	perceptions
among 	both 	merchants 	and 	consumers-of 	those 	conditions.
According 	to 	the 	Final 	Report, 	the 	surveys 	did 	not
reveal 	a 	signific~nt 	positive 	correlation 	between 	rates 	of
merchant 	turnover 	and 	rent 	levels. 12 	Turnover 	was 	comparatively
low 	in 	some 	relatively 	high 	rent 	neighborhoods 	and 	comparatively
high/,in 	some 	relatively 	low 	rent 	neighborhoods. 	Moreover, 	most
10, 	According 	to 	the 	Dissenting 	Report, 	almost 	half 	of 	the
renting 	merchants 	in 	New 	York 	City 	face 	a 	lease 	expiration 	in 	the
years 	1986-1989. 	However, 	survey 	results 	presented 	in 	the
SRBpC'S 	Final 	Report 	sugges~ that 	most 	such 	merchants 	expect 	to
renew 	their 	leases. 	See 	note 	13, 	infra.
11 	The 	neighborhood 	survey 	covered 	retail 	merchants 	with 	leases
due 	to 	expire 	in 	1986, 	1987 	or 	1988.
12 	According 	to 	the 	SRBSC, 	"lilt 	seems 	clear, 	in 	short, 	that
recent 	turnover 	rates 	cannot 	be 	explained 	exclusively, 	or 	perhaps
even 	primarily, 	by 	rent 	levels. 	Nor 	can 	they 	easily 	be 	explained
by 	recent 	rates 	of 	rent 	increases. 	.." 	Final 	Report 	at 	11-
8. 	The 	Report's 	"Executive 	Summary" 	further 	states 	that
"because 	of 	the 	relative 	similarity 	of 	rent 	as 	a 	proportion 	of
sales 	across 	the 	twelve 	[surveyed] 	neighborhoods, 	we 	can 	say 	that
rent 	as 	a 	proportion 	of 	sales 	does 	not 	appear 	to 	be 	a 	factor 	in
intentions 	to 	move 	or 	go 	out 	of 	business. 	Other 	operating 	costs
and 	profit 	levels 	appear 	to 	playa 	bigger 	role." 	Appendix 	C 	at
12.

Eli 	Dickson, 	Director 	- 	7 	-
14
merchants 	in 	the 	twelve 	neighborhoods 	surveyed 	expected 	to 	renew
their 	leases. 13 	There 	was 	no 	indication 	from 	the 	survey 	results
that 	there 	would 	be 	widespread 	dislocation 	of 	neighborhood
merchants 	as 	a 	result 	of 	rent 	increases 	or 	non-renewal.
Regarding 	consumer 	perceptions, 	surveyed 	consumers 	were
generally 	more 	likely 	than 	not 	to 	view 	retailer 	turnover 	and 	the
entry 	of 	new 	stores 	as 	a 	positive 	development 	that 	enhanced 	the
neighborhood 	availability 	of 	retail 	services 	without 	resulting 	in
price 	increases. 14 	Dissatisfaction 	with 	price 	and 	the
aVdilability 	of 	services 	was 	more 	likely 	to 	be 	voiced 	by
residents 	of 	low 	income 	neighborhoods 	where 	residents 	and
merchants 	face 	complex 	economic 	constraints 	and 	prob!Sms 	that
cannot 	be 	linked 	to 	retail 	rent 	levels 	and 	turnover. 	It
appears 	that 	incentives 	for 	investment 	and 	long-term 	economic
change 	will 	be 	far 	more 	likely 	to 	enable 	these 	neighborhoods 	to
13 	The 	SRBSC's 	research 	disclosed 	that 	only 	a 	relatively 	small
percentage 	of 	surveyed 	neighborhood 	merchants 	expected 	to 	sell 	or
go6ut 	of 	business, 	or 	to 	relocate, 	as 	a 	result 	of 	landlord 	rent
demands 	or 	refusals 	to 	renew. 	The 	percentage 	expecting 	to 	sell
or 	go 	out 	of 	business 	exceeded 	2% 	in 	five 	of 	the 	twelve 	surveyed
neighborhoods: 	the 	Upper 	West 	Side 	(7%), 	Forest 	Hills 	(5%), 	the
East 	Village 	(4%), 	Riverdale 	(4%), 	and 	Morningside-l25th 	Street
f3%). 	The 	percentage 	expecting 	to 	relocate 	exceeded 	2% 	in 	two
neighborhoods: 	the 	Upper 	West 	Side 	(8%) 	and 	Bay 	Ridge 	(3%). 	See
Final 	Report 	at 	11-3-11-4 	(June 	1986).
See 	Final 	Report 	at 	1-7, 	11-15-11-16.
15 	The 	"Executive 	Summary" 	contained 	in 	the 	Final 	Report 	states
that 	"if 	there 	is 	a 	problem 	with 	the 	accessibility 	of 	goods, 	it
appears 	to 	be 	occurring 	in 	the 	neighborhoods 	not 	associated 	with
gentrification 	(i.e., 	Brownsville, 	Morningside, 	and 	Mott 	Haven),
where 	residents 	are 	significantly 	more 	likely 	to 	complain 	about
prices. 	"See 	Appendix 	C 	at 	16. 	Note 	that 	these 	three
communities 	were 	characterized 	by 	relatively 	low 	resident 	income,
merchant 	perceptions 	that 	crime 	is 	the 	most 	serious 	problem 	they
face, 	relatively 	high 	merchant 	turnover, 	and 	a 	range 	of 	rent
levels 	(from 	below 	the 	median 	for 	the 	surveyed 	neighborhoods 	to
above) 	as 	well 	as 	a 	range 	of 	rates 	of 	rent 	increase 	(0%, 	9% 	and
11% 	respectively 	over 	a 	two 	year 	period 	- 	all 	substantially 	below
the 	neighborhood 	and 	citywide 	medians).

Eli 	Dickson, 	Director 	- 	8 	-
experience 	the 	benefits 	of 	revitalization 	than 	measures 	that
maintain 	the 	status 	quo. 16 	Moreover, 	the 	SRBSC's 	survey 	results
indicated 	that 	rent 	and 	non-renewal 	problems 	are 	"not 	likely" 	to
affect 	the 	availability 	of 	r1sential 	goods 	and 	~ervices in 	any 	of
the 	surveyed 	neighborhoods.
v. 	Alternatives 	to 	Rent 	Regulation
While 	the 	overall 	results 	of 	the 	research 	undertaken 	by
the 	Small 	Retail 	Business 	Study 	Commission 	indicate 	that 	most
merchants 	e~p€ct 	to 	renew 	their 	leases, 	a 	minority 	of 	retailers,
especially 	smaller 	merchants 	with 	relatively 	low 	sales 	volume,
anticipate 	difficulty. 	To 	the 	extent 	that 	relocation 	is 	desired
or 	necessary 	for 	some 	merchants, 	the 	commercial 	market 	for 	rental
property 	can 	provide 	a 	measure 	of 	accommodation. l8 	Where 	special
assistance, 	however, 	is 	needed 	to 	enable 	merchants 	to 	relocate
within 	the 	city, 	we 	believe 	that 	alternatives 	to 	rent 	regulation
will 	be 	more 	efficient 	and 	cheaper 	in 	the 	long 	run 	than 	a 	policy
resulting 	in 	diminished 	and 	deteriorated 	rental 	stock.
In 	its 	report, 	the 	Small 	Retail 	Business 	Study
Commission 	recommended 	supply 	expansion 	measures 	as 	the 	most
sensible 	means 	of 	meeting 	market 	demand. 	Such 	measures 	include
policies 	that 	would 	relax 	zoning 	restrictions 	and 	authorize
secopd 	story 	retail 	uses 	in 	more 	neighborhoods, 	and 	measures 	to
facilitate 	disposition 	of 	city-owned 	properties 	to 	retail
merchants 	who 	would 	provide 	needed 	neighborhood 	services. 	We
support 	these 	recommendations 	and 	believe 	they 	would 	benefit
merchants, 	consumers 	and 	the 	community 	at 	large 	while 	avoiding
the 	anticompetitive 	f~d 	anticonsumer 	effects 	associated 	with 	rent
control 	legislation.
16 See, 	e.g., 	Ault, 	"The 	Presumed 	Advantages 	and 	Real
Disadvantages 	of 	Rent 	Control" 	in 	Block 	& Olsen, 	supra 	note 	6, 	at
55.
17 	See 	the 	"Executive 	Summary" 	contained 	in 	the 	Final 	Report,
Appendix 	C at 	8.
18 	Eighteen 	percent 	of 	the 	retail 	businesses 	responding 	to 	the
SRBSC's 	citywide 	survey 	and 	eight 	percent 	of 	those 	responding 	to
the 	neighborhood 	survey 	had 	in 	fact 	moved 	within 	the 	past 	five
years. 	See 	Final 	Report 	at 	1-11.
19 See, 	e.g., 	Olsen 	& 	Walker, 	"Alternatives" 	in 	Block 	& 	Olsen,
supra 	note 	6, 	at 	276-78; 	see 	also, 	Scherer, 	supra 	note 	8, 	at 	485-
86.

Eli 	Dickson, 	Director
VI. 	Conclusions
- 	9 	-
For 	all 	these 	reasons, 	we 	recommend 	against 	adoption 	of
any 	rent 	control 	legislation. 	Of 	the 	three 	proposals, 	Bill 	734
entails 	the 	least 	intrusion 	into 	the 	market 	for 	commercial 	rental
properties, 	but 	even 	it 	may 	be 	expected 	to 	produce 	some
undesirable 	distortions 	in 	market 	operations.
We 	hope 	that 	your 	office 	and 	the 	City 	Council 	will 	find
these 	comments 	of 	assistanc~ in 	your 	consid..::ration 	of 	the
proposed 	legislation. 	Please 	feel 	free 	to 	contact 	us 	if 	you 	have
any 	questions 	or 	would 	like 	further 	information.
Very 	truly 	yours,
E~~7!~A~~
Edward 	Manno 	Shumsky
Regional 	Director
cc: 	Ms. 	Leslie 	Garfield
Counsel 	to ,the 	Committee 	on 	Economic 	Development
The 	City 	of 	New 	York
250 	Broadway
23rd 	Floor
New 	York, 	N. 	Y. 	10007
I