A New Line Of Attack On New York's Rent Regulation Regime

In New York’s large suite of self-destructive public policies, it’s hard to choose which one is the very worst. But an excellent candidate is the regime for regulation of residential rents, mostly going by the name of Rent Stabilization.

Because of rent regulation, New York’s rental housing stock is older, more outdated, and less well-maintained than the housing of any other American city. If you got yourself into one of the regulated apartments a few decades ago, you likely enjoy a significant bargain on your monthly rent versus comparable space, to go along with your 30- or 40-year old kitchen and bathroom fixtures and appliances, and insufficient electricity to run a toaster and a hair-dryer at the same time. Try to upgrade to something a little more up-to-date and you will find that your rent will triple, so you are locked in to this one apartment for life. Meanwhile, kids just out of school who have gotten an entry-level job in New York and try to break into the rental market find that they face the highest rental prices in the country. In other words, it’s the progressive vision of perfect justice and fairness for all.

Another effect of the regulation regime has been to seriously degrade the value of the buildings and apartments subject to the rules. So you might ask, if the price control regime takes away all or most of the value of a property, doesn’t this at some point become a “taking” under the 14th Amendment of the U.S. Constitution, giving the property owners the right to seek “just compensation” from the state for the loss of value? (The Fifth Amendment of the federal Constitution states: “nor shall private property be taken for public use, without just compensation”; and this has been held to apply to the states under the Fourteenth Amendment.)

It turns out that there has been a long-running cat and mouse game between the State of New York and its rent regulations versus landlords trying to claim a taking. So far the State of New York has slipped away without consequences every time. But in the most recent round of statutory amendments in 2019 the State has staked out some exceedingly aggressive positions, and a new lawsuit seeks to catch the regulators on a new theory.

First, some brief highlights of a long and complex history. During World War I, Washington, D.C., had enacted a rent control regime, justifying it on the basis that it was only a temporary imposition to deal with a wartime emergency. This gambit was upheld by the Supreme Court in 1921 in a case called Block v. Hirsch. So when New York decided to enact a rent control regime in 1947, right after World War II, it followed the playbook that had worked for Washington, and declared a “housing emergency,” to justify a statute that only imposed controls for a three-year period. And then New York proceeded to re-declare the “emergency” and extend the statute three years at a time for the next 70 years.

Skipping over many intervening developments, in 2008 a building owner with a rent-regulated tenant on Manhattan’s Upper West Side (Harmon) brought a case seeking to invalidate the then-existing rent regulation regime. The case got a lot of interest in the landlord community, in part because the so-called “emergency” had become increasingly absurd after what was then 60 years, and also because of the hope that an increasingly conservative Supreme Court would take a new look at the takings issue as applied to rent controls. However, the case proved a disappointment. The complaint was initially dismissed by the District Court, and the Second Circuit affirmed in 2011. The main reasoning of the Second Circuit was that Harmon had bought the building at a time when the rent regulation regime was already in place, so he knew what he was getting into. The Supreme Court denied certiorari in 2012.

The Harmon decision then emboldened the New York State Legislature to see how far it could take things. The 2018 election cycle brought big Democratic majorities to both houses. In 2019 the Legislature enacted something called the Housing Stabilization and Tenant Protection Act. That Act made numerous changes to the prior rent regulation regime in ways to make it much more onerous for landlords. As examples, prior provisions allowing for substantial rent increases on vacancies were eliminated; provisions allowing for large rent increases upon the making of major capital improvements were changed to limit the allowed increases to mostly insignificant amounts; provisions allowing for converting rental buildings to co-ops or condos were severely restricted; and so forth.

The statutory changes have been widely reported to have caused serious damage to the value of the rent-regulated housing stock. Landlord groups quickly jumped into the fray with multiple lawsuits challenging the statutory revisions as a taking. And then, quickly, all of those lawsuits got dismissed. The Second Circuit affirmed the dismissals in 2024. Here is one of the Second Circuit decisions. It has a litany of reasons why these important judges just aren’t going to waste their time with these kinds of challenges: there has been no “physical taking” because the landlords had decided to rent their properties to these tenants; co-op and condo conversions had become more difficult, but the landlords could not prove that they were impossible; the statute made terminations of tenancies difficult but not impossible; etc., etc., etc. I believe that the Supreme Court has denied certiorari in all of these cases.

So is there anywhere left to turn? The very clever lawyers at the Institute for Justice have recently (November 2025) begun a new case with the caption Small Property Owners of New York v. City of New York. The link will take you to a copy of the Complaint.

The theory of this case is a new one. SPONY alleges that the rent caps set by the HSTPA are so low that they have made large numbers of rent regulated units impossible to rent economically, since the units must be upgraded after vacancy but the cost of the upgrades cannot be recovered. From paragraph 2:

Owners must incur expenses to put apartments on the market. Amongst other things, apartments typically require repairs and renovations after long-term tenancies before they can be rented again. Indeed, regulations mandate updates. But, after over fifty years of rent stabilization, the regulated rents on some apartments have become so low (in some cases, just hundreds of dollars per month) that it makes no economic sense to incur the expense associated with putting units on the market. As a result, tens of thousands of apartments sit vacant in New York City amidst a housing shortage. These apartments have been regulated off the market.

Note that this theory does not ask the court to declare a taking as to all regulated apartments, but only as to those that are vacant and cannot be re-rented, thus depriving them of all economic value. A request to a court to declare the entire rent regulation regime unconstitutional puts the court in a position of subjecting a million or so tenants to rent increases, so you can see why courts might stretch to avoid such a result. The ruling sought by this case would only apply to vacant units, and thus does not impact any existing tenant directly.

There will be many hurdles for this case to go over on the way to success. However, my comment is that it has been structured to get around the issues that have tripped up many previous cases. It has a real shot.

If the case succeeds, it will not invalidate the entire regime. However, an outcome of effective vacancy decontrol would undo at least half the damage of the rent regulation system, and return tens of thousands of uneconomic vacant apartments to the market.