Socialism Through Regulation – OpEd

Government regulations are sold to the public as protective measures put in place to safeguard consumer health and welfare. And sometimes they do. But as we’ve discussed in this column, they often protect incumbent business interests from competition by making it harder for new or smaller competitors to enter the market. 

Then there’s a less discussed third intention—one that reflects the incentives of the regulators themselves: growing the government for its own sake. More regulations expand the need for large enforcement bureaucracies; provide excuses to collect fines and sometimes even bribes; and at their worst, lay the groundwork for government takeovers of “non-compliant” businesses. This tendency—regulation as a road to socialism—surfaced in recent remarks from New York City’s incoming mayor Zohran Mamdani.

The dynamic starts when politicians and unelected officials identify a problem allegedly caused by a lack of regulation, and drastically expand their regulatory power. For Mamdani, it’s unscrupulous landlords and bad living conditions. The new mayor intends to grant the Mayor’s Office to Protect Tenants sweeping power to fine landlords and seize properties. 

He pitched his plan with a campaign video filmed outside a Queens apartment building whose owner had been sued by the city for substandard conditions, such as rodent infestations, lack of heat, and persistent repair failures. Mamdani announced that he’d deal with such situations as follows:

“We will expand the city’s special enforcement programs, doubling fines for hazardous violations and tripling them for conditions that are immediately dangerous. And when a really bad landlord refuses to fix it, the city’s going to step in, make the repairs and send them the bill. If that doesn’t work, the city’s taking over the building.”

On his campaign website, the mayor-elect boasted that he would “ensure fines are actually collected, which will bring at least $800 [million]” in revenue in. He further states “landlords who do not work with the Office to Protect Tenants” will be banned from operating in New York City.

In isolation, this might sound appealing to renters stuck in bad living situations. But for one, New York’s tried a watered-down version of this before, to abusive results. Until 2019, the city seized properties deemed “chronically distressed” under its Third Party Transfer (TPT) programand transferred them to approved affordable-housing nonprofits. Amidst accusations of takings without compensation, racial bias, and insufficient due process, the city paused TPT, although City Council is debating revamping and relaunching the program. Empowering the city to directly operate rental properties would go farther than TPT did.

Moreover, the policy must be seen in the broader context of the new mayor’s ideological goals and broader agenda, which includes stringent rent controls and strictly regulating landlords. It all creates what political commentator Jeffrey Mead called “a self-reinforcing loop” to bring as much of the housing market under government control as possible. 

Mamdani made restricting rent increases a signature issue during the campaign: he plans to freeze hikes for all New York’s rent-controlled units, and do so “throughout his full term,” according to CBS News. 

But there’s ample evidence that rent control makes living conditions worse. In 2017, notes a D.C. Policy Center report, 64% of New York’s rent-regulated units were poorly maintained, compared to 47% of unrestricted ones; these maintenance problems tend to be worse under the type of “fixed price caps” Mayor-elect Mamdani intends to impose. 

The reason: with stricter rent controls, building owners have less revenue to reinvest in maintenance. That’s already playing out with New York City’s rent-stabilized apartments. In 2023, city housing regulators issued nearly a million violations, and landlords of rent-regulated buildings argue they aren’t earning enough to keep up with repairs, even factoring in allowances for repair-based rate hikes. City-wide, 200,000 rent-restricted units are in “functionally bankrupt” buildings. 

And while Mamdani has expressed a commitment to upzoning, he and his ideological fellow travelers plan to lard more regulations onto housing construction, making it harder to pencil. Developers will pull back, and landlords who don’t maintain their properties have less incentive to improve.

Intentionally or not, the plans for more fines and seizing noncompliant buildings thus become a backdoor way to municipalize the housing market. As Mead observes, “[Under] Mamdani’s policies, people can no longer rent their own properties out profitably. … They don’t have the money to take care of these properties. And now these properties are not in good condition. And now Mamdani can come back and say ‘you’re not doing what you need to do, we’re taking that property’ … while he’s quietly seizing the means of production, and making the government more powerful.” Mamdani’s public statements, along with the copy on his website, talk about “public stewardship” of buildings, hinting that he views these regulatory crackdowns as a gateway to government ownership. 

It’s a playbook left-wing governments in European cities followed throughout the last few years. Berlin aggressively capped rents in the early 2020s—paired with an unsuccessful political campaign to municipalize thousands of units. As a result, rents spiked in nearby cities, sellers took many properties off the market, and at least one major property owner lost 10 million EUR. In Barcelona, authorities forced private owners to fill vacant units under threat of seizure, and the city banned short term apartments. In such cases, the template is to create rules that are difficult to comply with, enforce them selectively, and then point to the resulting distress as justification for public acquisition.

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Whether Mamdani’s plan will withstand legal scrutiny remains an open question. State and city law will impose constraints on his efforts to seize private property, especially after the TPT debacle led to lawsuits and forced the city to return property to some owners. 

But even when the process is softer, heavily regulated societies develop dual economies. On the bottom rung are small, independent property owners and businesses who constantly struggle to meet regulatory demands, and thus operate in the shadows, or at least at lower capacity than they could.

On the top rung are large, politically-connected firms or nonprofits who work closely with government, benefit from regulatory complexity, and often secure contracts, subsidies, or favorable enforcement. Even if it doesn’t fit the definition of “socialism,” the outcome resembles state capitalism and creates a powerful administrative state that hampers prosperity and prevents competition.

Either way, Mamdani’s rhetoric alone will likely further discourage private landlords from doing business in the city. And he and his allies on City Council will do everything they can to penalize private landlords. Regulation in this context becomes not merely oversight but a tool for restructuring ownership status. For Mamdani, that appears to be the point.

• This article was published at the Independent Institute