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by Ben Luxon June 18, 2019 7 min read

Last Tuesday (11th June) the New York State Senate and Assembly announced they’ve agreed on legislation to not only extend the current rent laws and protection but to codify them permanently.

The sweeping legislature agreement shifts the balance sharply towards the tenants and has brought a fierce reaction from landlord groups.

In a city where real estate values and rents have an obsessive hold upon its residents, the package of bills limits landlords’ ability to raise rents or remove units from regulation.

One immediate result is shares of banks that lend to landlords declined in New York trading as confidence in the market dropped. Signature Bank fell as much as 4.7%, while New York Community Bank dropped about 5.25%.

The legislature largely looks at and repeals “loop-holes” that landlords have been using over the past decades to remove rental properties from regulation. For example, eliminating ‘vacancy bonuses’ which allows landlords to hike rents as much as 20% every time the property becomes vacant.

One of the main retaliatory statements from landlords groups is that the provisions in this package remove any incentive for a landlord to improve or even properly maintain the property. Which arguably does with the provision that landlords can no longer increase the rent after undergoing improvements for the benefits of the tenants. And by stopping rent raises an added challenge is added to the landlords pocket - costs will likely be cut from the bottom line, and improvements will be the first to go.

Tenants have been asking and shouting for legislation to protect them from overzealous landlords for decades and City Mayor Bill de Blasio said this legislature overturn is “a remarkable achievement that will halt displacement, harassment, and unjust evictions.” Over the last decade, alone thousands of apartments have been removed from rent-stabilized status, sending rents skyrocketing as neighborhoods gentrified.

An analysis of the housing market prepared by a tenants’ advocacy group, the Association for Neighborhood & Housing Development, found Central Harlem lost 500 rent-stabilized units in just one year between 2015 and 2016. Astoria, Queens lost 634 such units and Bedford-Stuyvesant, Brooklyn, 460 units.

A Closer Look at the Old Laws

New York has two forms of rent regulation: rent control and rent stabilization. Both are mandated by the New York State government The ideas is and always has been to stop dramatic rental increases that would price old tenants out.

The old laws problematically made it advantageous for landlords to push out old tenants to allow them to increase rents. Exploiting loop-holes like the “vacancy bonus”, high-income deregulation, and the “owner use” loop-hole.

We will go into more detail as to what these loopholes were and how the new legislation addresses them below.

Find out more about New York Landlord and Tenant Laws

NYC new rental regulations

Rent Control: Quick Summary

This makes up an incredibly small part of the market, less than 2% even. To be designated as a rent-controlled unit, the apartment must be located in a building built before 1947 and have been occupied by the same family since 1971. These apartments can only be passed down within a family — but only to a family member living in the unit for two years before the existing tenant leaves or passes away. It’s NYC’s own strange form of nepotism.

Rent Stabilization: Quick Summary

Most rent-stabilized properties (though not all) are 6+ unit buildings built before 1974 and were priced below $2,000 before 2011 or below $2,700 today. Once an apartment is stabilized by the government, the landlord can only increase the rent by a small percent.

However, there are several loop-holes that can allow a landlord to take a unit out of regulated status. If the tenant's income exceeds $200,000 for two consecutive years, for example, this means the landlord can deregulate the apartment and bring it up to market-rates. Part of this law dictates that even if the tenant is a complete nightmare, the landlord is forced to renew their lease annually. For that reason, landlords are extremely picky with tenants in rent-stabilized apartments.

What problems do the changes address?

The new legislation aims to put a stop to big rent increases across the board. It shores up those afore-mentioned loop-holes that landlords have been exploiting.

More about these loop-holes:

  • Vacancy Decontrol: When the legal rent for a rent-stabilized apartment reaches a certain rate, currently $2,774 per month, it could revert to market-rate if there is a vacancy. The rule has led to the deregulation of more than 155,000 units since it was enacted in the 1990s. This practice would be ended.
  • The Vacancy Bonus: Landlords for rent-stabilized apartments have been able to hike rents by as much as 20 percent after tenants moved out. The new rules would prevent that.
  • The Major Capital Improvements (MCI) loophole: Landlords who make major renovations can raise rents by 2 percent (rather than 6 percent as before), and it narrows the scope of what constitutes an MCI.
  • Misuse of “preferential” Rents: Landlords of rent-stabilized apartments can offer units to tenants for a price lower than the legal regulated rent. But they can no longer raise the rent to the legally mandated limit when a lease is renewed, a practice that was pushing tenants out.
  • High-income Deregulation: If a tenant in a rent-stabilized unit earned over $200,000 a year in two consecutive years, the landlord could deregulate the unit. That will no longer be allowed.
  • The “owner-use” Loophole: Landlords and their family members have been able to remove rent-stabilized tenants from multiple units to use them as residences, a rule sometimes abused by landlords as a way to ultimately raise rents. Now, landlords will only be able to claim “owner use” for one apartment for use as their primary residence.

Find out more About Tenant Rights 

What does this mean for landlords?

It’s difficult to quantify what this is going to mean in the future for landlords. The unfortunate truth is some landlords were abusing their powers. In fact, the villainous New York landlord is a commonly used trope in modern fiction. Think about Peter Parker’s landlord in the Toby Macguire films, always harassing the superhero in his rundown, dingy and broken apartment (no one ever seems to think about Peter Parker being a nightmare tenant, never paying rent - dodging his landlord and keeping very unsocial hours).

RelatedNotice 2019-07: What Does It Mean For Rental Real Estate?

New York new rental regulations

Most landlords though are just struggling to make their property profitable - which is surely the entire point of a rental investment.

The New York trade groups and lobbyists have unsurprisingly warned of dire consequences. Suggesting that smaller landlords could be run out of business because of the new limits on rent increases and restrictions on raising the rent after improvement. “This legislation fails to address the city’s housing crisis, and will lead to disinvestment in the city’s private sector rental stock, consigning hundreds of thousands of rent-regulated tenants to living in buildings that are likely to fall into disrepair,” said the Taxpayers for an Affordable New York, a coalition of four real estate groups.

On top of this, it’s not a giant leap to imagine the New York housing market to drop in value as the resale market for rent-regulated apartments decreases in value as a result of the change. 

The Bottom Line

Rent control isn’t a bad thing. It stops rent prices from crazily spiraling out of control as people fight to keep their properties at the “appropriate” market value. And many of these legislations extend way beyond just rent regulations - addressing issues such as security deposits (1 month only), blacklisting tenants, and unlawful evictions.

However, many apartment buildings in New York are old. They are expensive to purchase, and they need high-quality maintenance, and all that comes out of the landlords pocket.

Owning rentals is seen by many as an investment opportunity and by others as a business in and of itself. The other side of the coin though is the social impact. People need shelter, they need to be able to afford to live and have the right to live comfortable lives, and the biggest cost of living, especially in a place like New York is rent.

The simple fact is that raising the rent is always going to upset people. However, if you don’t raise the rent in line with things like inflation, then the landlords business begins to fail, and the property falls into disrepair.

The question then isn’t whether these new regulations are good, or fair for landlords. Nor is it about making sure there is plenty of affordable housing.

The question is, is this a social or an economic debate? Because the two are linked and both deserve equal measures of care and attention if anyone is truly to benefit.

Unfortunately, it’s not been approached as either. It’s a political debate and the politicians have appealed to their voters with these new regulations. Placing responsibility and blame for homelessness on landlords, whilst giving a surprising break to many wealthy NYC residents.

New York needs a new property code, one that favors full-time occupied rental housing. It needs an overhaul of everything from the antiquated rent-stabilization laws to the equally poorly aged property tax system. This though is probably quite far away.

RelatedNotice 2019-07: What Does It Mean For Rental Real Estate?

Thanks for reading and we hope you found this blog interesting! However, do note that the purposes of this article is for general information. We are not licensed financial or legal professionals and as such nothing in this article should be understood to be financial or legal advice. If you are in need of financial or legal assistance please seek the help of a competent professional.

If you are already a New York landlord we’d love to hear your thoughts on the topic and how this is going to affect the rental market in the coming years.

Ben Luxon

"Ben is a co-founder, author and real estate enthusiast. His interest in all things entrepreneurial has led him to work with real estate professionals all over the world, distilling their knowledge into articles and Ebooks. His love of travelling has taken him to over 10 countries in the last year, where he has sampled the craft beer of them all."

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