New York Tightens Up Its Rent Regulation
/A couple of weeks ago, I reported that there was “excitement in the air” here in New York. The cause of the excitement was the prospect of significantly tightened and expanded rent regulation, made possible by the ousting in the 2018 election of what long had been a narrow Republican majority in the state Senate. Now the state Senate would have a comfortable Democratic majority, joining the already-existing large Democratic majority in the state Assembly.
Being a Democratic legislator in New York means believing that preventing increases in rents makes housing “affordable,” and also has no meaningful downside consequences such as disinvestment in the regulated housing. Therefore, tight rent regulation is a key step in the march toward perfect justice and fairness in the world. Obviously then, tightening and expanding rent regulation would immediately rise to the top of the agenda in the newly constituted legislature. My previous post reported on bills on the rent regulation topic that were getting floated in May. Now, it looks like both houses of the legislature have passed a lengthy “reform,” with the title of “Housing Stability and Tenant Protection Act of 2019,” which the Governor promptly signed. Here is a link to the as-passed bill on the legislature’s website, with an indication that it is what the Governor has signed.
How bad is it? Believe it or not, it could have been even worse. But, it is plenty bad.
I’ll start with a couple of things that could have been worse. One of the previous proposals was a provision that any rental unit in the whole state — whether or not previously subject to regulation — would be subject to a requirement of “good cause” eviction. Of course, there was no precise definition of what “good cause” might consist of. But clearly, the idea was to outlaw the practice of a landlord saying, “I only rented to you for one year, and the year is up, so please leave.” The provision would have imposed a form of regulation, unspecific in its dimensions, on all the unregulated apartments in the state. It has disappeared from the final bill.
Also not making it into the final bill was a proposed provision bringing all of upstate into the rent regulation system. As passed, the bill would allow upstate cities to opt in to the regulation system, but only if the local vacancy rate exceeds 5%. As far as I can tell, most upstate cities have vacancy rates in excess of 5% — although Buffalo may be an exception. Let’s see if they are dumb enough to opt in to this.
On the negative side, the new law contains numerous provisions that disincentivize any and all investment in rent-regulated apartments; make it more difficult to impossible to remove regulated apartments from the regulation system; and make dealing with rent regulated tenants yet more difficult than it already is. Examples:
Previously, owners who made “major capital improvements” to their buildings (examples: new roof, new windows) would get a permanent increase in the rents of stabilized tenants of 6% of the value of the improvements. That now becomes 2%. Do they think that anyone is actually going to make such an investment for a 2% return?
The return for an owner who makes a capital investment in an individual apartment (example: new bathroom or kitchen) is reduced by a factor of more than four, and the amount of such investment in any given apartment is limited to $15,000 over a 15-year period. Is any rent-regulated tenant ever again going to get a new bathroom or kitchen?
Previously, there was a 20% special rent increase allowed on vacancy. Also, there was a provision for luxury de-control, where an apartment would leave the system on landlord request if the tenant’s income exceeded $200,000 and the legal rent for the apartment exceeded an inflating number that most recently was $2774. Those are ended.
Penalties for any rent overcharges are dramatically increased (treble damages!), and the statute of limitations extended from four to six years.
The Wall Street Journal on June 13 does us all a favor with an article by Josh Barbanel analyzing, from Census data, who gets the benefit of these changes. In a conclusion that should surprise no one, Barbanel finds that almost all of the alleged “benefit” of the changes goes to a handful of wealthy or near-wealthy Manhattanites renting regulated units at far-below-market rates.
The biggest beneficiaries of rent regulation in New York aren’t low-income tenants across New York City, but more affluent, white residents of Manhattan, an analysis by The Wall Street Journal found. These Manhattan renters get a steep discount from market rents in the same neighborhood: about $1,000 a month per apartment, up to nearly $2,000 a month in Manhattan’s Upper West Side. In many less affluent working-class neighborhoods, regulated rents are no different than, or only slightly below, market rate rents in the same locale, providing little direct benefits to tenants, an analysis of U.S. Census Bureau data shows.
Particularly notable is the elimination of luxury de-control, which by definition only benefits a small number of people with incomes of $200,000 and above, who therefore are within the top 1% or 2% of the income distribution. More broadly, the Journal’s analysis of all rent-regulated tenants with rents in excess of the $2774 found the following:
Nearly 18,500 tenants in older buildings had rents above that [$2774] threshold. They had median household incomes of $150,000 a year and average household incomes of about $210,000 a year, the Journal analysis found.
So what happens now with these older rent-regulated apartments, still containing close to 1 million apartments in New York City. Here are a couple of easy predictions: In better neighborhoods, landlords will figure out that their best option under the new rules is to empty the building and build something new. Watch for that process to incite a new level of acrimony between landlords and tenants. In less fancy neighborhoods, watch for landlords to just leave buildings to decay.
As a long time homeowner, all I know is that 20 or 30 different things go wrong and need to be fixed every year. Who is now going to fix those things in New York’s regulated housing stock, I have no idea. I also have no idea why anyone thinks this dynamic is a good thing for low-income tenants. A very similar dynamic sure hasn’t worked out very well over at the New York City Housing Authority.