NAR, NAA Among Groups Pushing For Supreme Court To Strike Down Rent Control

A dozen national real estate groups have joined the fray in New York landlords' legal fight against the state's 2019 rent stabilization laws, filing briefs asking the U.S. Supreme Court to overturn the landmark legislation.

If the groups are successful with the Supreme Court and its 6-3 conservative majority, the case could torpedo rent stabilization laws across the U.S, experts told Bisnow.

“If there has ever been a chance at getting the Supreme Court to take a serious look at the constitutionality of regulation as it exists in New York, this is certainly the court that you could have some hope might take an interest,” said Deborah Riegel, a member attorney at Rosenberg & Estis. “It’s a business-friendly court. It's a more conservative court, and it generally seems to be carving out a mindset of being anti-regulation.”

Two New York-based landlord groups, the Community Housing Improvement Program and the Rent Stabilization Association, have been pushing for the Supreme Court to examine the changes to New York state’s rent stabilization laws enacted in 2019, claiming the Housing Stability and Tenant Protection Act is unconstitutional. So far, judges have rejected CHIP and RSA’s arguments at every turn.

But now, the groups are appealing to the Supreme Court, with 11 other parties — including the National Association of Realtors, the National Association of Home Builders and the National Apartment Association — also throwing their weight behind CHIP and RSA. 

CHIP Executive Director Jay Martin said in an interview that the case’s intention is to force the 2019 additions to the law to be re-examined.

“What we hope to accomplish is that it will set a precedent that sets clear guardrails for governments, primarily in New York, but around the country,” he said.

New York state has had some form of rent regulation in place since 1969, and it has been amended many times since. In New York, rent stabilization limits rent increases and gives tenants perpetual lease renewal rights in apartments built between Feb. 1, 1947, and Jan. 1, 1974. Most other states don’t have rent regulation, and those that do — California and New Jersey — generally don't have regulation as extensive as the Empire State’s.

Rent stabilization is important for the city’s economic health, reducing homelessness as well as demand for city spending on emergency and mental health, said Rodrigo Camarena. In 2019, he served as a public member of New York's Rent Guidelines Board, the mayor-appointed, nine-person body tasked with deciding how much rent-stabilized landlords can raise rents every year.

“These laws were created in response to the market going awry in the 1920s and after World War II, where inflation was pushing tenants out of their homes and causing the kinds of high rates of vacancies that make cities less attractive to live in,” Camarena said. “There are many benefits to rent stabilization that go beyond simply providing affordability for New Yorkers.”

But the 2019 changes to the law have drawn landlords’ ire since before they were even enacted. Lincoln Eccles, a landlord with a small portfolio who owns several rent-stabilized properties in Brooklyn’s Crown Heights neighborhood, said the rules limit his ability to maintain his properties. 

“[The Supreme Court] ruling in favor of already enumerated property rights simply means I’d be able to price my product in line with my actual costs,” he told Bisnow in a text message.

Among other things, the law further limited landlords’ abilities to raise rents and introduced measures preventing landlords from passing maintenance and capital improvement costs on to tenants. The current law “goes well beyond just addressing pricing,” Riegel said.

“It's not just regulating rents; it's regulating whether you could recover your apartment for personal use,” she said. “It's limiting the amount that you can recover if you improve your properties. It's allowing tenants who do not have a need for regulated housing to remain in regulated housing to the detriment of people who may actually need it. That doesn't necessarily go to the constitutionality, but it goes to the flaws in the current incarnation of stabilization — as opposed to what it started out as, which was price relief.”

Still, with living costs rising across the country, other legislatures have started looking to rent stabilization as a means of relief for their constituents who are increasingly rent-burdened. Some legislatures have been looking at rent control since before the pandemic: In response to a housing crisis, Oregon introduced rent control measures in 2019. 

“There's a number of state and local laws cited that are similar to New York's rent control laws and the different rules being put in place there, which prompted our involvement,” said Christie DeSanctis, NAR’s director for federal banking, lending and housing finance policy. “This is not just a New York-specific issue.”

Rent control has also been on the table in Chicago since before the pandemic, despite state-level bans on the measure, with pressure and interest increasing ever since. Rents have risen astronomically in Chicago, shooting up 11% year-over-year from June 2022, with studios and two-beds reaching $1,593 and $2,600, respectively, according to Zumper.

In other cities, the pandemic’s effect on the cost of shelter became the trigger. The Washington Legislature is in the process of introducing rent regulation despite banning rent control in 1981.

Boston Mayor Michelle Wu, elected in 2021 on an affordable housing-focused platform, proposed in February a new law capping rent hikes by between 6% and 10% in response to the city’s rising cost of living. Average rent prices in Boston reached $2,120 for studios and $3,065 for two-bedroom apartments as of June 1. Those prices were $1,810 and $2,577 in January 2020, Boston Pads data shows.

“We are not trying to prevent anyone from making money,” Wu said at a Bisnow event last week. “The idea is to prevent people from being immediately uprooted from their lives by egregious and unnecessary rent increases.”

Measures like those being considered in Washington and Massachusetts are part of the reason that NAR backed CHIP and RSA’s Supreme Court bid. The creep of rent control across the country has been described as “the biggest risk” to the multifamily industry by investment executives.

“We've seen that these rent control laws are being put in place across the country, and some of those are a little bit worse than others,” DeSanctis told Bisnow. “We want to make sure there was that national perspective brought to this case.”

The Supreme Court has upheld rent stabilization in two California cases: 1988’s Pennell v. City of San Jose and 1992’s Yee v. City of Escondido, a northern San Diego County municipality. It is rare for the Supreme Court to overturn its own precedent, but landlord groups hope that this case will be different, both because of the conservative makeup of the court and arguing that both cases differ drastically from CHIP and RSA’s.

“The court was quite clear that the reason that it upheld that statute [in Yee v. Escondido] was that the owner of the property could regain control of the property in a very short time,” said Andrew Pincus, a partner at Mayer Brown LLP who is representing CHIP and RSA. “New York is that dramatically different situation because of the restrictions on the use and the ability of the owner to take back the property for a family member, for themselves or to change the use of the property.”

Nor can the case be compared to Pennell, Pincus said. 

“The court didn't address the question that we raised in the second petition about whether it's permissible to base rent levels on patent ability to pay, because they found that the issue wasn't presented,” he said.

CHIP and RSA, as well as a small group of landlords, first filed suit in November 2019 in the Eastern District Court of New York. The cases centered on the HSTPA, passed earlier that year, with the plaintiffs arguing that the new stabilization laws amount to violating landlords' Fifth Amendment rights — taking private property for public use without “just compensation.”

The District Court rejected the landlords’ arguments, as did the 2nd Circuit Court of Appeals. The NAR and other industry groups filed an amicus brief in appellate court as well, writing that New York’s rent stabilization law “so severely infringes landlords’ property rights that it effects a taking of private property without just compensation.” 

DeSanctis said the Supreme Court’s recent decisions about which cases to take gave her optimism that it will be receptive to the landlords’ appeal.

“For example, NAR weighed in with an amicus brief in another takings case regarding a Minnesota statute that the Supreme Court cited — that's Tyler v. Hennepin County — dealing with a tax foreclosure law that essentially took away the home equity earned by a homeowner through the local statute,” she said. “In that case, the Supreme Court not only took it up, it was decided 9-0 in favor of the homeowner.”

If the Supreme Court takes the case, it could have dramatic implications for both renters and landlords across the country.

A verdict in favor of the landlords would tie local and state regulators’ hands when introducing legislation to tackle housing crises, said Edward Josephson, a supervising attorney with the Legal Aid Society, which defended New York’s rent stabilization laws in the lower courts.

“I think the Court of Appeals described it as an impenetrable thicket, and that's kind of what it's turned into,” Rosenberg & Estis’ Riegel said. “If this is struck down, then the question is: What if other owners and organizations across the country decide to take a shot at striking down their own?”

Undermining rent stabilization’s legal basis, which could further destabilize the national housing landscape, would be an unintended effect, CHIP’s Martin told Bisnow, saying that he 100% supports rent regulation.

“I don't know if stabilization is the absolute best term, but yeah,” he said. “You can be a millionaire and live in rent-stabilized housing, and it's only because you've been there for 20 or 30 years that you have that apartment. Meanwhile, someone who just moved to New York who only makes $25K a year struggles to find an affordable apartment because all those apartments are taken. So that seems like a system that really just does not work.”

Josephson said the prices set by the market largely reflect what landlords think is possible rather than a price that is fair to tenants. The idea that an unregulated rent market arrives at a fair price has been “proven wrong,” he said. 

“The defenders of the market, they keep insisting that market forces will provide,” he said. “But that doesn't explain that in other parts of the country where there hasn't been any rent regulation, why do they have an affordability crisis now? Obviously, the market isn't providing.”

CORRECTION, JULY 5, 5 P.M. ET: A previous version of this article misquoted Deborah Riegel. This article has been updated.