Just about everyone in a big city knows a tenant and/or a landlord. If you are fortunate enough, you are either one. In fact, being a tenant in a big city is a rite of passage for many, regardless of the cost of rent or the mind broadening experience of having your bed a few short feet away from your refrigerator. On the other hand, despite the common criticisms frequently offered against landlords, the position is a source of income across a wide range of socioeconomic classes and not all criticisms are necessarily true of all landlords. Landlords are in a unique position to take advantage of vulnerable tenants, and serious issues can arise when that occurs. Similarly, tenants can also take advantage of rent-regulation laws put in place for deserving and unfortunate tenants to the detriment of honest landlords. Where is the balance? Though the updated rent regulation laws, under the Housing Stability and Tenant Protection Act of 2019 (HSTPA), aim to help deserving tenants who have been unfairly treated by landlords, it may come at the undesired and unintended expense of honest landlords.[1]
The 3.5 million-unit New York City housing stock is divisible into three roughly equal categories: owned residences, unregulated market-rate rentals, and rent-regulated stock.[2] Just about one million New York City apartments are rent-stabilized, accounting for about 44 percent of NYC’s total rental stock.[3] In mid-2019, approximately 2.4 million people occupied New York City rent-regulated apartments.[4] With an estimated New York City population of 8.4 million residents in 2018, rent-regulated occupants account for almost 29% all New York City residents.[5] Fearing a shortage of affordable housing units, striking a debate of inequality across the nation (and other cities), Democratic leaders in Albany announced a landmark bill in June of 2019 to strengthen New York’s rent laws and tenant protections, with the a focus on rent-regulated apartments.[6] The Housing Stability And Tenant Protections Act of 2019 is worthy of consideration by all current, or potential, landlords and tenants in New York City.
HSTPAof 2019 was touted to strengthen rent-stabilization laws already on the books, and also extend them to even more rent-burdened tenants across New York State – and codify them permanently, rather than having the laws sunset every few years.[7] The bill includes many of the protections that tenant advocates have pushed for under the banner of “universal rent control,” including ending high-rent vacancy deregulation, narrowing the preferential rent loophole, and putting more protections against unnecessary majority capital improvements (MCIs) and individual apartment improvements (IAI) in place.[8] What would qualify as an unnecessary improvement is not clear, and is part of the ongoing debate amongst landlords and tenants. Nevertheless, the law also contains a host of tenant protections that apply to non-rent-regulated units, including limits on security deposits, late fees, credit check charges and “blacklists” used by landlords to screen prospective tenants.[9] The rent-regulated provisions appear to be comparably more controversial and are stirring considerable debate.
Unsurprisingly, the bill was a significant blow to the real estate industry, which contended that the measures would lead to the deterioration of the condition of New York City’s housing.[10] Real estate trade groups called the legislation an existential threat to building owners, warning that the changes could put small landlords out of business because they would be unable to increase rents to deal with escalating costs.[11] Taxpayers for an Affordable New York, a coalition of four real estate groups, addressed concerns “the legislation fails to address the city’s housing crisis and will lead to disinvestment in the city’s private sector rental stock consigning hundreds of thousands of rent-regulated tenants to living in buildings that are likely to fall into disrepair.”[12]
A few short weeks after the changes in the city’s rent-regulation laws, the Blackstone Group represented it would stop non-urgent improvements on the 11,000-unit housing complex it bought in 2015 in New York City’s Stuyvesant Town and Peter Cooper Village.[13] Urgent improvements or fixes such as water leaks and heating problems would not be halted.[14] The moratorium is primarily a result of the new law, making it virtually impossible for landlords to recoup investments by raising current tenants’ rent or by using vacancy decontrol to move the units to market rates.[15] The Real Estate Board of New York calculated that in five years, assessments will have to be adjusted downward enough to cost the city $1 billion in annual property taxes, although it is expected mayors would make up the different with higher rates on coops, condos and single family homes.[16]
Almost immediately following the passage of the updated rent-regulation laws, landlord groups filed a U.S. constitutional challenge, alleging that state and city governments had, in effect, taken over nearly a million rent-regulated apartments with its new law.[17] The complaint alleges the rent laws are “arbitrary and irrational,” violate constitutional protections against government actions, such as deprivation of property without due process of law, and violate constitutional protections against the taking of private property without just compensation.[18] In response, tenant leaders vowed to mobilize against the constitutional challenge, claiming that landlord assertions about lost profits have been greatly exaggerated.[19] Mike McKee, tenant organizer and treasurer of TenantsPAC, stated “[landlords]won’t make as much or as fast, but it will still be profitable.”[20] It is worth noting that, according to legal scholars, similar constitutional challenges have been rejected over the years, and the latest suit faces a high burden.[21] However, given the current composition of the Supreme Court, a successful challenge against HSTPA may not be impossible.
No matter what side of the spectrum you are on, it is hard not to argue that a balance should be struck. The price of housing in New York City, as well as other cities, is outrageous. However, landlords themselves are not immune to the similarly high costs associated with operating a building in New York. It is important to understand that not all landlords are major corporations looking to make aggressive profits. There are “mom and pop” residential housing owners as well. On the other hand, there are deserving tenants that should be afforded the protections of rent-regulation as well. Arbitrarily raising the rent on these individuals can force them to pick up and move from their home, which raises other unwarranted costs as well. Balance is the name of the game, and it does not appear at first glance that these new rent laws are balanced.
Endnotes:
[1] A8281. Assemb. Reg. Sess. 2019-2020. (N.Y. 2019)
[2] Mark Willis, NYC rent reform is a step – but in which direction?, (June 25, 2019), https://thehill.com/opinion/finance/450078-nyc-rent-reform-is-a-major-step-but-in-which-direction
[3] Emily Myers, The insider’s guide to rent-stabilized apartments: Essential knowledge for New York renters (September 24, 2019), https://www.brickunderground.com/blog/2015/01/rent_stabilization_misconceptions
[4] Luis Ferre-Sadurni, Jesse McKinley and Vivian Wang, Landmark Deal Reached on Rent Protections for Tenants in N.Y., (June 11, 2019), https://www.nytimes.com/2019/06/11/nyregion/rent-protection-regulation.html
[5] Alexandre Tanzi, New York City’s Population is Shrinking: Demographic Trends, (April 18, 2019), https://www.bloomberg.com/news/articles/2019-04-18/new-york-city-s-population-is-shrinking-demographic-trends
[6] Luis Ferre-Sadurni, Jesse McKinley and Vivian Wang, Landmark Deal Reached on Rent Protections for Tenants in N.Y., (June 11, 2019), https://www.nytimes.com/2019/06/11/nyregion/rent-protection-regulation.html
[7] Amy Plitt, New York’s ‘historic,’ pro-tenant rent reforms pass with Cuomo’s approval, (June 14, 2019), https://ny.curbed.com/2019/6/14/18679507/rent-regulation-new-york-state-reform-legislation-passed
[8] Id.
[9] Mark Willis, NYC rent reform is a step – but in which direction?, (June 25, 2019), https://thehill.com/opinion/finance/450078-nyc-rent-reform-is-a-major-step-but-in-which-direction
[10] Luis Ferre-Sadurni, Jesse McKinley and Vivian Wang, Landmark Deal Reached on Rent Protections for Tenants in N.Y., (June 11, 2019), https://www.nytimes.com/2019/06/11/nyregion/rent-protection-regulation.html
[11] Id.
[12] Id.
[13] Greg David, Rent-reform fallout has already begun-and will only get worse, (July 22, 2019), https://www.crainsnewyork.com/greg-david-new-york/rent-reform-fallout-has-already-begun-and-will-only-get-worse
[14] Id.
[15] Id.
[16] Id.
[17] Josh Barbanel and Will Parker, Landlords Challenge New York’s Rent-Control Law in Federal Court, (July 16, 2019), https://www.wsj.com/articles/landlords-challenge-new-yorks-rent-control-law-in-federal-court-11563274921
[18] Id.
[19] Id.
[20] Will Parker, More States Are Pursuing Rent Control. That’s Bad News for Landlords, (April 23, 2019), https://www.wsj.com/articles/more-states-are-pursuing-rent-control-thats-bad-news-for-landlords-11556024401?mod=article_inline&mod=article_inline&mod=article_inline
[21] Id.
