Leverage, not the rent freeze, is starving New York’s rent-regulated buildings. Someone bought the building with borrowed money, and the loan payment eats the cash that used to fix the boiler. The piece arguing otherwise is John R. Puri’s “Properties Aren’t Property in New York City” in National Review, which treats Mayor Mamdani’s housing agenda — a rent freeze, tightened succession rules, condo-conversion restrictions — as a regulatory taking that has “drained” rent-stabilized buildings of every aspect of private property. The 40-to-50 percent value drop, Puri writes, is “destruction without physical contact.” That’s the argument. Now the receipts.
Grant what’s real, first. Rent regulation genuinely constrains owners. The accreted rules on turnover, succession, conversion, and owner-occupancy make a thicket. The 57,000 “zombie” apartments Puri cites are real — units where the registered rent is so far below market that owners have stopped trying to fill them. The “immediate and compelling necessity” standard for an owner who wants to move into their own building is, on its face, an absurd thing to make a person prove. Rent control does suppress new supply; most economists who study housing agree on this. Small landlords — the people who own a four-family brownstone and depend on the rental income to make the mortgage — get squeezed, sometimes genuinely. None of this is fake.
What’s fake is the conclusion.
The thing breaking the buildings isn’t the rent ceiling. It’s the debt piled on top of it. New York’s rent-regulated multifamily has been through three decades of leveraged buyouts, syndications, and refinancings. Each flip added more debt onto buildings whose cash flow is constrained by the very regulation Puri complains about. Net operating income covers operating expenses by definition — that’s what “net” means. What’s left after operating costs but before debt service is, structurally, what the building earns as an operating asset. Lever the building ten-to-one or fifteen-to-one against a regulated cash flow and the loan payments swallow everything that would have gone to capital improvements. The building decays. Not because the rent is too low. Because the debt is too high.
Let Puri’s own number do the work. A 40-to-50 percent value drop in a regulated asset is exactly what you’d predict from a leverage ratchet, not from a regulatory taking. If the value drop were caused by the regulation, you’d expect the buildings with the least debt to have held their value best — the unleveraged owner would absorb the regulatory hit but keep the asset. The actual pattern runs the other way. The buildings that lost the most value were the most heavily levered. That’s not a coincidence; that’s a finance problem dressed up as a property-rights problem.
Walk through the balance-sheet mechanics once. If you owe the bank $5 million and the building is worth $6 million, you have a million dollars of equity. Cut the operating cash flow ten percent — the way a freeze plus 5.3 percent cost inflation would — and the asset drops ten percent; the bank still wants its $5 million; your equity drops from a million to four hundred thousand, or zero, or negative. The value collapse Puri cites as evidence of “destruction without physical contact” isn’t a regulator stripping your dominion. It’s equity getting stripped out by debt service, one line below the operating income the piece is staring at. NOI excludes financing by construction — that’s why the metric exists, to show what an asset earns independent of how it was financed. Puri never mentions the line below NOI. The piece treats debt service as if it were an act of nature.
Look at the 57,000 zombie apartments. They went zombie because the math doesn’t pencil for the current owner. A well-capitalized owner can fix up the building, raise rents on turnover within the legal framework, and earn a return on operating cash flow. The owners of zombie buildings often can’t, because the existing capital structure — not the rent ceiling — is what kills the deal. The underwriting standard at the last refi priced in rent growth the regulatory regime was never going to deliver. The lender got its points and walked. The building is now structurally underwater. And here’s the part Puri doesn’t mention: those units were zombied by their owners, often by harvesting them through vacancy and harassment to claim deregulation bonuses, then leaving them empty. The vacancy-decontrol regime was a feature of the deregulation game he is defending. The “zombie” is what you get when you give an owner an incentive to empty the building.
Now the Locke bit. Puri invokes Locke and Alchian as if the question were an abstract one about the moral basis of property. It isn’t. It’s a question about who actually owns these buildings, how they came to own them, and what’s happening to the cash the buildings throw off. Locke was writing about a man clearing a field and growing corn. Locke did not have in mind a leveraged buyout vehicle that borrows against tomorrow’s rent to fund today’s dividend. Puri names Alchian’s three elements of private property — exclusive use, exclusive services, exclusive exchange. In any over-levered deal, two of those three already belong to the lender before any rent board gets involved. Due-on-sale clauses limit exchange. Debt-service priority takes services first. The lender is the senior claimant on the cash flow, by contract, and the contract predates Mamdani. Puri thinks Mamdani stripped the third element. He didn’t. The lender was already holding the first two. Alchian’s checklist is a description of a legal concept, not an empirical claim about who actually owns New York’s rent-regulated stock. The empirical question is who holds the mortgage. The piece never asks.
The free-market thinker, outraged at regulation for taking landlord “dominion,” has spent thirty years cheering the financialization that did the actual taking. Who do you think writes the loan covenants? Who do you think sets the LTV ratios that determine how much equity cushion a building has? It isn’t the rent board.
The piece never asks whose cost is being minimized by the telling, either. Puri’s column treats succession rights as a regulatory loophole, and yes, they get abused. They are also the difference between a grandmother keeping her apartment of forty years and her family being forced into a market-rate unit they cannot afford at the moment they most need stability. The piece treats the eviction timeline as a cash-flow problem for the landlord, and it is, but it is also the difference between a family with small children staying in their home and a family with small children on the street in January. The piece names the constraint. It never names the people the constraint was built to protect.
So what do we build instead?
Three moves, in order of difficulty.
First, de-lever the buildings. A city- or state-backed acquisition fund could buy the most distressed properties at current (post-decline) values, write down the debt, and put them on a sustainable capital structure. The federal government did something similar at scale during the savings-and-loan crisis, when the Resolution Trust Corporation disposed of hundreds of thousands of distressed properties, multifamily among them. The fund can keep private ownership and just restore solvency. The rent cap isn’t the problem; the balance sheet is. The New York City pension systems collectively hold well over $200 billion in assets and have already deployed in-house capital into affordable housing preservation. Public banking proposals — at the city and state level — would do for New York what the Bank of North Dakota has done for North Dakota since 1919, but for the rent-regulated mortgage stack: a public counterweight to the leveraged private vehicles that strip the rent roll.
Second, give the buildings to the tenants. New York already has the institutions, and they aren’t socialist. Over 1,100 HDFC co-ops in the city house tens of thousands of New Yorkers under permanently affordable ownership. Mitchell-Lama co-ops. Limited-equity co-ops. Community land trusts. Tenant Opportunity to Purchase gives tenants the first right to buy when a building goes up for sale; it has been used to convert dozens of buildings to tenant ownership, with state-level TOPA legislation expanding the pipeline. Mondragon, in the Basque Country, runs an eleven-billion-euro federation of seventy thousand worker-owners. The housing analog works the same way. If the question is who owns the building, there is already a model where the answer is the people who live in it. When tenants own the building, the Alchian three elements return — to the residents. No private landlord needed. No rent freeze needed. It isn’t the gulag. It’s a housing co-op.
Third, build social housing. Vienna runs about sixty percent of its housing through publicly-owned or publicly-subsidized developments that work — well-built, well-managed, mixed-income, integrated into the city. New York’s own NYCHA does some of this at smaller scale and rougher quality. The hard part is the institutional machinery; you need a city that will run housing, not just regulate it. That’s not a five-year plan. That’s a thirty-year project.
Start with the acquisition fund. Build out the tenant co-ops. Then, over a generation, build the public stock Vienna already has. The cure isn’t to declare the buildings property again and hand the bundle back to the holders of the mortgages. The cure is to take the buildings off the speculative market entirely, so that the next person who needs a home gets a roof and the next owner doesn’t get to borrow against hers. The buildings stay standing because the capital structure carries the operating cash flow, and the operating cash flow keeps the capital in working order.