As New York Weighs Tenants’ Rights, Landlords Await Rent Stabilization Legislation
Want to get a jump start on upcoming deals? Meet the major New York City players at one of our upcoming events!
About half of the apartments in New York City are rent-stabilized, but finding a rent-stabilized apartment is a daunting task. With the exception of new housing constructed under tax benefit programs, there are almost no rent-stabilized apartments on the market.
Because rent-stabilized tenants are saving thousands of dollars per year in rent compared to their nonstabilized neighbors, it is easy to see why they hold onto their apartments for decades.
The laws that govern rent stabilization in New York are up for amendment or renewal this June. Newly elected officials have placed bolstering tenants' rights high on their list of to-dos, but given the complexity of rent regulation, it remains to be seen how much legislation will actually change.
"Since the midterms, there has been a lot of speculation about what, if any, changes to the rent regulatory laws will be enacted," Rosenberg & Estis Managing Member Luise A. Barrack said. "The Democrats have increased their House seats in New York to a majority, and the real estate industry is bracing for the possibility of changes to the current systems. However, what those changes will be is difficult to divine."
Rent regulations involve a tangled web of interested parties whose priorities often conflict. Long-term tenants report that yearly rent hikes — granted by the Rent Guidelines Board and allowed under stabilization laws — are pricing them out of the neighborhoods where they have lived for years. Meanwhile, landlords of rent-stabilized buildings receive far less than market value on apartments in buildings they own; slow rent growth means landlords struggle to keep up with the rising cost of building maintenance. To complicate the matter further, analysts say that expanding rent stabilization will make rental projects less financially viable for developers, leading to a shortage of rental units and a lopsided, unattractive real estate market.
Tenants in rent-stabilized apartments have the right to renew their leases for a period of either one or two years. Under current RGB guidelines, landlords have the right to raise the rent 1.5% for a one-year renewal lease or 2.5% for a two-year renewal lease. However, landlords are allowed to raise rent by up to 20% if a tenant vacates an apartment, or to rent the apartment at fair market rates if the rent of an outgoing tenant exceeded the current luxury deregulation threshold of $2,733 per month. In addition, landlords can raise the rent of an apartment as the result of the landlord's performance of improvements in the building such as a new boiler, a new roof or new windows.
These last two policies — known as “vacancy decontrol” and “major capital improvements” — could be targets for change. Legislators may raise the rent cutoff point that allows for vacancy decontrol, keeping more rent-stabilized apartments on the rolls for longer. They may also put tighter restrictions on capital improvements to ensure that landlords are not overstating the cost of renovations.
The number of rent-stabilized apartments in New York City has been steadily dwindling for over a decade. Barrack said such a trend is inevitable given the current nature of the laws. As more tenants move out, more apartments will naturally be returned to market-value rent rates. But only time will tell, Barrack said, if the state legislature makes changes to any laws that will accelerate or reverse that trend.
"New Yorkers may only speculate as to what, if any, changes in rent laws can be expected,” Barrack said. "We may be able to better anticipate the changes as we approach June, after New York’s new lawmakers have been inaugurated."
Even though New York City has one of the highest median rents of any U.S. market, rent stabilization is fairly widespread compared to other metro areas. Los Angeles, for instance, has had a law against rent stabilization since the 1980s. The Costa-Hawkins Act, as the law is known, was the subject of a referendum in the 2018 midterm elections. A movement to repeal the act and allow rent stabilization was defeated due to efforts from a coalition of real estate developers, landlords and citizens wary of rising rents and a possible rental shortage.
Despite the recent push for tenants’ rights, Barrack said, it is still very possible that rent stabilization could be curtailed, or that the rules are renewed without changes. Whether legislators empower or limit rent stabilization, developers, owners and landlords will need legal counsel to analyze the new rent rules.
“Depending on what the laws look like after June, our clients will need to know not only what risks their properties face under the new rules, but also what benefits they can expect,” Barrack said. “Our advice is to prepare early for all possible eventualities."
This feature was produced in collaboration between Bisnow Branded Content and Rosenberg & Estis. Bisnow news staff was not involved in the production of this content.