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Saturday, September 27, 2014

Price Discrimination or Fitness Apartheid?

In New York City there are a number of rent-stabilized apartment buildings that are slowly transitioning to market-based ones. Tenants who moved in while a building was rent-stabilized continue to pay the rent-stabilized rate, but when they move out or die, the owner can charge new tenants the market rate. Stonehenge Village is one of those apartments. Old tenants pay about $1,000/month in rent, while new ones pay $3-4,000. To entice people to rent an apartment, Stonehenge Village built a nice fitness center on the first floor that tenants get to use for free. Except there's a catch. Only the new tenants get to use it. Tenants paying the rent-subsidized rate do not. There owners have posted a sign outside the gym door just in case there was any doubt:
Please do NOT hold the doors open for other residents. ALL Residents MUST use their keycard to gain entry. Please make sure that the door fully closes behind you. Thank you and Enjoy.
Not surprisingly, the older tenants are crying foul and calling what Stonehenge Villa's owners are doing, "Fitness Apartheid." Some economists might call it, "price discrimination." As one economist notes, the price of the gym is included in the extra rent paid by the new tenants, so it's not really free (economists have a saying -- there aint' no such thing as a free lunch (TANSTAAFL). However, the owners probably would've been a lot smarter if they would have broken the rent down between rent for the apartment (e.g., $3,950 per month) and rent for the gym (e.g., $50 per month), an then offered the tenants paying the rent subsidized rate gym memberships at $50 per month.

But they didn't and now they have a mess on their hands, not to mention the attention of the folks at Freaknomics, which features the Stonehenge Village controversy in its latex podcast ("Fitness Apartheid"). It can be downloaded from iTunes or the Freakonomics website. The podcast also looks at a 33-story residential building being built in New York that will have 219 luxury condos and 55 affordable-housing units that will have a separate entrance for the affordable-housing tenants, an entrance that is is now being called the "poor door." It's hard to believe this kind of stuff still happens.

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