Landlords v. Tenants: A Shift in the Balance of NYC Rent Legislation Power

In a city where the cost of living has long outpaced residents’ ability to pay rapidly rising rents, this past summer, on June 14th, New York Governor Andrew Cuomo signed the Housing Stability and Tenant Protection Act of 2019 into law. This new piece of legislation, having closed many of the loopholes in a rent-stabilization system that has complicated the lives of everyday New Yorkers struggling to pay their rents in New York City for decades, is a welcome sight for tenants. More significantly, this legislation is universal in  that it applies to the entire state of New York such that tenants are protected everywhere. Furthermore, eviction protections are now being offered to renters and manufactured-housing residents (individuals living in mobile homes or other prefabricated living arrangements) throughout New York State. This new piece of legislation is perhaps the most comprehensive and strongest attempt made in New York State’s history to protect the rights of tenants.

Throughout the city, there are many people celebrating these reforms made to improve a broken system, but there are others who see these reforms as an attack on the real estate industry that further limits the ability of small property owners to make a profit. Despite the city’s efforts to build multi-family homes and provide affordable housing in attempts to combat the housing crisis, existing loopholes allowed many landlords to discontinue rent regulation in their apartments. This tragic mistake allowed for an estimated net loss of 142,446 rent-stabilized units since 1994, the first year of data collection for this information. Overall, an estimated 300,000 units have been lost throughout New York City since passing of the Rent Stabilization Law of 1969. With processes such as gentrification on the rise and the displacement of many long-time residents, reform protections and guarantees on affordable housing have become a dire situation.

         Even more significantly, these newer reforms have been made permanent, much to the dismay of those working in the real estate industry. In the past, rent regulation laws were examined and reviewed only if the city deemed it necessary due to a current, or impending, housing crisis. The irregularity of these checks meant that reviews could be held anytime between a four to eight-year period, which is why, coupled with the loopholes that have now been closed, so many rent stabilized buildings have been deregulated throughout the years.

The contentious history between landlords and tenants in New York City has, as a result of this new legislation, witnessed a significant shift in the balance of power heavily in favor of tenants. The implementation of these reforms is the result of a seismic shift not only in the relationship between landlords and tenants but also the political landscape of Albany. As a result of united tenant activism in recent years and both the New York State Senate and New York State Assembly being controlled by the Democratic Party, the progressive policies and ideology of the current political climate have superseded the influence of real estate lobbyists in the capital. The Housing Stability and Tenants Protection Act of 2019 left individuals, as well as major organizations and interest groups, on each side of the aisle either very hopeful or rather outraged by the reforms that have been introduced.

One of the most prominent communities in New York that has been outspokenly opposed to the implementation of the Housing Stability and Tenant Protection Act of 2019 is the real estate industry, for obvious reasons. On the day that the legislation was signed into law by Governor Andrew M. Cuomo on June 14, 2019, John H. Banks, the president of the Real Estate Board of New York, released the following statement

“The harmful impact of this legislation will be profound for New York City’s economic future. There are many losers including small property owners, contractors as well as tenants. This legislation will keep rent lower for some, but also significantly diminish housing quality and lead to less tax revenue to pay for vital government services. It will worsen the City’s housing crisis.” 

This immediate response, coming from the most influential authority on the real estate industry in New York City, echoes fears that small property owners and other small businesses that contribute to the maintenance of these buildings would go out of business seeing that landlords have lost the incentive to invest in their regulated units if the profitability margin has decreased so significantly. According to the president of the Rent Stabilization Association, Joseph Strasburg, “You will see a slow erosion in the quality of housing going out in three or four years,” speaking on behalf of some 25,000 landlords throughout New York City. In one of the parts of the new legislation, the amount of money has been capped on individual apartment improvement spending to $15,000 over a 15-year period. Previously, individual apartment improvements, or IAIs, served as a loophole through which landlords were able to collect significant permanent rent increases on vacant apartments for making physical improvements to the units. This new section also lowered the rent increase cap for major capital improvements, or MCIs. An MCI constitutes any improvement that benefits all the tenants in a building, such as repairs made to roofs, replaced boilers, pipes, or circuitry. These rent increases made from MCIs have now been lowered from six percent to two percent in New York City, which reduces the profitability for landlords but still incentivizes them to maintain their buildings as best as they can.

Upon reviewing the status of MCIs and IAIs, this controversial incentivization has become a palpable concern. If landlords were capped at $15,000 for a 15-year period to make improvements to an apartment and were not able to increase the rent on that unit by adding appliances or furniture, then what is the point in doing so? Some argue that if the appliances still work, such as cabinets, doors, or refrigerators, despite being a few decades old, there is no benefit for the landlord to update these appliances. Similarly, MCIs that could increase the rent revenue for an entire building being capped at 2% instead of at the 6% they had been previously, is too low for some landlords. All of the real estate lobby’s arguments against tenant rent-stabilization and protections, currently and in the past, have been concerned with these improvements’ profitability.

Real estate lobbyists and trade groups have been warned that by reducing profitability for landlords, and increasing the influence of the Division of Housing and Community Renewal Board, or DHCR, many units and buildings will fall into disrepair as landlords will no longer be able to afford proper maintenance. . Previously, the law only permitted the DHCR to investigate instances of rent overcharge that occurred within the last four years. Given that every complaint is entitled to an investigation, and that the DHCR has received remarkable numbers of complaints, the agency has been severely backlogged with cases– the waiting list for a case review can now be as long as twenty-four months before it even receives a primary assignment within the agency. Now the legislation extends the investigation period allowing the DHCR to look back six years, and it removed the ability for landlords to avoid penalties if they decided to voluntarily recalculate the overcharged rent and refund their tenants, a system which landlords exploited without be apprehended or fined. Now city agencies can hold landlords and developers accountable for malpractice and have made it much more difficult for them to avoid apprehension. Other groups, such as the Taxpayers for an Affordable New York, a coalition of four major real estate groups, have said that “this legislation fails to address the city’s housing crisis, and will lead to disinvestment in the city’s private sector rental stock,” which is a genuine concern for many developers and landlords, some of which are predicting an economic depression in the near future. The reactions from these real estate lobbyists were overwhelmingly opposed to the new legislation, and they quickly acted against its implementation.

Understandably, the real estate industry and landlords are feeling personally attacked and economically threatened by the new legislation, but their heraldry of an economic demise is unfounded. Ever since the passing of the first pieces of legislation that protected tenants in New York City at the turn of the 20th century, members of the real estate industry have always warned against the fiscal repercussions of granting such rights to tenants. Whether it was the first effective building code in 1901, which granted basic safety precautions and health standards, or the Emergency Tenant Protection Act in 1974 (the precursor to the current bill), fierce advocates of tenant groups have instilled major changes despite the opposition of major conservative forces with business interests. Yet in the decades that followed each of these bills, there have been substantial increases in residential construction not too long after each of these bills were passed.

On July 15, 2019, just one month after the act had been signed, the Rent Stabilization Association, or RSA, and the Community Housing Improvement Program, or CHIP, as well as numerous private landlords, filed a lawsuit in the United States District Court, Eastern District of New York. They wanted to challenge the constitutionality of the legislation by claiming the new rent laws were an unjustified seizure of private property given how much autonomy landlords had lost as a result of the legislation enacted. They stated that the legislation, which was advertised with the intent of providing more affordable housing units for the city, had failed and that it benefitted tenants to such an extent that it violated their Fifth and Fourteenth Amendment rights, denying landlords due process and control over their own property. Furthermore, the inability of landlords to now exclude others as a result of new requirements that mandate them to renew leases has limited their right to freely control and use their property. The goal of the RSA and CHIP is to be granted an oversight role in the enforcement and application of the act, which would appear counterintuitive to the general public and policymakers who fought to have this legislation enacted. One of the primary points that they are trying to emphasize in their complaint, and in their rhetoric, is that the new legislation will “exacerbate New York’s housing shortage by preventing the redevelopment of existing buildings to the full capacity permitted by zoning regulations,” which will have adverse effects on New Yorker’s rents not living in rent-stabilized apartments, and will hurt the lower and middle class tenants significantly more than wealthy New Yorkers. They assert that, by regulating rents on newly constructed units and strengthening protections on existing rent stabilized units, it will affect their profitability so much so that real estate that is not rent regulated will be susceptible to increases in order for them to maintain their current level of profitability. Additionally, they asserted that the new legislation deprived landlords of their rights by denying them due process, giving them little to no recourse in regard to evictions or rent control over their own property.

The efforts made by the members of the real estate industry, such as the RSA, CHIP and many other private landlords, to challenge the new legislation has not gone unmatched. According to Adriene Holder, a lawyer at the Legal Aid Society, “This package of legislation will reverse decades of rampant landlord abuse and enact much-needed protections for hundreds of thousands of tenants,” which is a common opinion amongst tenant advocacy groups. Michael McKee, the treasurer of the Tenants PAC, one of many advocate groups that came out in favor of the legislation, offered his support to the city and state of New York, requesting they be added as a party in the lawsuit. McKee believes that, by doing so, the members of the Tenants PAC could offer their own rent records to prove exactly how profitable many of these buildings were, challenging realtors claims that the new legislation would significantly hinder their ability to maintain buildings, let alone their profits. Those in support of the legislation are very confident in their ability to win the fight in the Eastern District of New York Court. McKee himself commented, “Every time the real estate lobby has challenged the constitutionality of New York rent control, they have lost. They have lost in state courts and lost in federal courts,” because the strategy of the real estate lobby has always been to delay the effects of new legislation that has negative effects on their profits and, if possible, get them reversed.

This time, however, there seems to be a sliver of hope for the real estate lobby. Even though some have criticized the real estate lobby’s lawsuit as “an ironic symbol that underscores the fact that landlords’ profits are exorbitant if they are willing to waste their money on frivolous litigation such as this,” there is a precedent for the current case in a separate incident that took place in New York City. In 2012, a couple of landlords, James D. and Jeanne Harmon, operated a brownstone in the Upper West Side of Manhattan, but, due to rent-stabilization, the rent they were collecting was 60% below market value. Similar to now, they claimed that it violated their 5th Amendment rights since the regulations imposed on them was taking away revenue from them despite their control over the property. The court, however, turned down the Harmon’s case because they argued that they had the right to demolish the building, reclaim the apartments for personal use or evict tenants and that the city did not physically or permanently occupy their residence or force the occupation of the tenants on them when they purchased the building. In other words, the state contends that they knew exactly what they were getting themselves into when they purchased the building. Now, however, with many of the new provisions in place, many of the options that the Harmons had are no longer possible according to the new legislation, which could potentially influence the case today.

Today, there are about 1 million rent-stabilized apartments in New York City, inhabited by an estimated 2 million New Yorkers, despite decades of decline and deregulation. The primary goal of the legislation enacted, as the RSA and CHIP pointed out in their lawsuit against New York challenging the constitutionality of the act, was to increase the accessibility of affordable housing throughout the city. Although the legislation did not call for a specific number of units to be built or mandate that more units be included in new constructions in accordance with the Mandatory Inclusionary Housing Act, it achieves its goal by placing tight restrictions and regulations on landlords, preventing them from deregulating their units. By preventing the deregulation of rent-stabilized units throughout the city, the annual decrease in units should slow significantly, if not stop altogether. As long as the current units do not disappear and the real estate industry continues to build and develop new projects throughout the city, the net change in rent-stabilized units should increase over time.

As debate and conflict arise from the new Housing Stability and Tenant Protection Act of 2019 throughout New York City and in the Eastern District of New York, the potential effects of this new piece of legislation are highly anticipated by the general public. As of right now, the policies are still too new to have shown any significant effect yet, and, as the constitutionality of the legislation is being discussed in court, it is fair to make the following two predictions: the legislation will successfully control landlords and help tenants to afford their rents, or the legislation will cause the real estate industry to stagnate and spur an economic recession. Despite being signed back in the middle of June, many of the rent-stabilization policies did not go into effect until October 1, 2019, meaning these policies have only been active for a few months at this point.

While it is true that the new provisions do limit the autonomy of landlords, restrict how much they are able to control rent and make it much more difficult to evict tenants with due cause, the real estate industry will remain an economic force to be reckoned with in New York City. While lobbyists within the real estate industry continue to complain about the profitability of small property landlords, major developers and contractors will not be deterred from breaking ground in New York City. Although the signing of the Housing Stability and Tenant Protection Act of 2019 in June had some negative effects on the real estate industry in the second quarter, Forbes announced that the market has bounced back and stabilized in the beginning of the third quarter. Moving forward, the real estate market seems to have already self-corrected and is looking for investments to prepare for the new stage of its life in a heavily regulated society.

The New York State Senate is very optimistic that the new legislation they introduced will combat the housing crisis efficiently and effectively. They hope that, by keeping rents low and empowering tenants to stand up for themselves, more people will be able to find rent-stabilized housing and manage to stay given the significantly reduced rates of deregulation. In the coming months, it is imperative that average New Yorkers educate themselves on the new piece of legislation as it may be beneficial for tenants facing difficult, or predatory, landlords still trying to take advantage of people who are unfamiliar with the new system. Tenants, who have shown overwhelming support for the bill, have formed interest groups to have their voices heard through many governmental and non-governmental organizations. They are also extremely hopeful for what the future of this bill holds. Legislators and tenants alike anticipate a steady growth in the access to affordable housing and rent-stabilized units, especially now that the provisions extend to all dwellings in which rent is due. Through the adapting real estate market, developers and contractors will not cease building and development operations but instead be forced to collaborate with the tenants and their respective communities at large in order to increase their revenues once again and, in turn, provide more affordable housing to the citizens of New York City.

 

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