By Paul V. Profeta
Attached is a Star-Ledger article that ran on the front page of the New Jersey section entitled “City Council OKs rent control on new apartments.” Newark Mayor Ras Baraka must have snuck into our recent seminar — The Newark Redevelopment Update — and heard the buzz about this proposed resolution because it appears he ran out and got it enacted into law immediately.
What is so silly about his maneuver is the fact that it is clearly illegal and will be more than likely overturned rather quickly. So why pass such a resolution in the first place?
The only reason that I can think of is to pander to his electorate in order to help create another Sharpe James dynasty. Unfortunately, this resolution is not going to help the electorate that the Mayor wants to assist. In fact, this legislation will help middle- and upper middle-class renters moving to Newark to occupy the new luxury apartments that have recently been built, not the “longtime Newark residents who can’t afford rental increases” whose interests the Mayor claims he is trying to protect. If the Mayor does not want “Newark to become like Jersey City and Brooklyn Heights” (as he is so often quoted as saying), this legislation will only accelerate that transformation because it protects “those people” from significant rent increases.
Worse, this resolution is a shot across the bow to any developer thinking of getting involved in a Newark project, whether residential, office or retail. This kind of resolution discourages potential developers and their new developments because it radiates a hostile attitude toward new projects. It increases the risk premium a developer would need to achieve before dipping his or her toe in the Newark market. It creates the kind of skepticism that dampens potential development, creating a shortage in apartments, which in turn escalates the rents of existing apartments.
Think of the Barry brothers who just completed Newark Urby. They must be very happy about the Mayor’s latest announcement. The same must be true of Jack Klugmann, who is currently under construction at the old Newark Bears Stadium.
This resolution also hurts other forms of development because, by discouraging new residential construction, it places a lid on the growth of the tenant population, which in turn diminishes retail and office space which thrive on the influx of new tenants. And finally, a rent-controlled apartment is worth much less than a non-rent-controlled apartment, which will effectively decrease the city’s tax assessment level and diminish its tax revenue.
It does not appear to me that a lot of deep thinking went into this ordinance, but rather appears to be a grandstand play by the Mayor to his electorate.
Paul V. Profeta is the publisher of Real Estate NJ and the president of Paul V. Profeta & Associates Inc., a Roseland-based commercial real estate investment firm.
