Will rent regulations be tightened?
Will rent regulations be tightened?
New York’s rent regulation laws are up for renewal in June, and with Democrats in control of both legislative chambers and the governor’s mansion, housing advocates are hopeful that changes they’ve long sought will finally pass.
Rent regulations in New York are complicated, and they have a long, and at times convoluted, past. Here’s a guide to the history of those laws, what they say now, and where they may go from here.
What are rent regulations?
Rent regulations are laws put in place to keep rental units affordable for tenants. They largely have their roots in housing crises, when government instituted price controls to combat rapidly inflating costs. In New York, modern regulations go back to the World War II era, when the federal government imposed rent control across the nation. The federal law expired in 1950 and New York state continued and codified these laws over the following decades. While a number of municipalities across the state participated, and continue to participate, in the rent control system from the 1940s, current rent stabilization laws only apply to New York City and the counties of Nassau, Westchester and Rockland. Today, rent regulations encompass both rent-controlled and rent-stabilized units.
What’s the difference between rent control and rent stabilization?
Rent control imposes far stricter regulations on landlords than rent stabilization, only allowing rental increases to a finite rent threshold at the request of the landlord with government approval, and giving tenants the right to stay in their apartment through statute, rather than through a lease. Through a system called maximum base rent, each rent stabilized apartment has a maximum rent landlords are allowed to charge, although they are legally allowed to raise the rent by 7.5% every year until the apartment hits the maximum base rent. Only buildings built before 1947 can be rent controlled, so the stock of apartments is both finite and decreasing. Today, a tenant would have need to have lived in their apartment continuously since 1971 – or be a legal successor, such as the child of a rent-controlled tenant who lived with them and inherited the lease upon their death – for it to be rent controlled. Rent-controlled apartments have cheaper rents, on average, than rent-stabilized apartments. When it becomes vacant, the apartment gets decontrolled. It enters the rent stabilization system if the building has six or more units and is in a locality that has opted into the Emergency Tenant Protection Act. Today, there are only about 22,000 rent controlled units left in New York City.
The 1974 Emergency Tenant Protection Act set up rent stabilization as a less stringent and more market-friendly regulatory system. The law applies only to New York City and the counties of Nassau, Westchester and Rockland and affects buildings with six or more units built before 1974. Rent-stabilized tenants have a right to a lease renewal, but their protections from evictions are not as strong as rent-controlled tenants. Additionally, the local Rent Guidelines Board decides on an accepted yearly percentage rent increase that landlords may impose on their tenants – usually a few percentage points, to adjust for inflation. About 1 million apartments in New York City are rent stabilized and, unlike rent-controlled apartments, they remain regulated when a new tenant moves in – but the landlord can raise rents more significantly between tenants.
How do rent-stabilized apartments get deregulated?
It’s a major point of contention for housing rights advocates. The state established vacancy decontrol in 1971, which at the time meant that any regulated apartment would become deregulated if the tenant left. This was especially impactful in New York City, which had already set up a rent stabilization system through local law in 1969. The ETPA in 1974 not only did away with vacancy decontrol, but reregulated any apartment that had been taken out of the system during those three years.
Fast forward to 1994 in New York City. The City Council had limited control over its rent laws thanks to the 1971 passage of the Urstadt Law, which left those decisions in the hands of the state. But it still allowed the city to make the regulations in place less strict, leading to the modern system of vacancy decontrol. With a contentious vote, the City Council made it so that if a rent-stabilized apartment became vacant after the rent hit $2,000, it would get deregulated. Landlords began taking advantage of loopholes in the law. For example, performing extensive renovations, because the law allowed for rents to be increased to cover the cost of renovation -- which helped get it above the decontrol threshold. Or, for example, trying to push tenants out so that they could raise the rent more between tenants over and over until passing the rent needed to achieve deregulation. Although the City Council tried to clarify the law was only meant to apply to apartments that already rented for above $2,000 when a tenant leaves, the state Legislature codified vacancy decontrol into state law and determined that if a landlord can increase rent high enough after a tenant leaves through improvements, he or she can deregulate the apartment.
The Rent Act of 2011 raised the decontrol rent level to $2,500, and the Rent Act of 2015 raised it again to $2,700 with early increases based on the local Rent Guidelines Board percentage rent increase. In New York City, the threshold sits at $2,774.76 in New York City as of January 2019.
So does that mean rent-stabilized apartments are disappearing?
Yes, studies have estimated about 300,000 apartments have left the regulatory system in New York City and the surrounding counties affected by the ETPA. However, unlike with rent control, new rent-stabilized buildings and units are being constructed thanks to tax incentive programs like 421-a (now called the Affordable New York Housing Program) in New York City, which gives developers tax breaks for a set number of years in exchange for making a certain percentage of units in the building affordable. Those apartments are subject to rent stabilization laws for the duration of the tax exemption. However, that program in particular has received much criticism from housing advocates, in part because the affordable units are often quite expensive and intended for “moderate-income” households making six-figure salaries. Rather than giving tax breaks to developers for apartments that may not even help the lowest-income New Yorkers find housing, they say the city should invest in building more in deeply affordable public affordable housing.
How are landlords increasing rents above the threshold?
Landlords are able to do this a number of ways, generally through improvements to the building, called Major Capital Improvements, or to individual units, called Individual Apartment Improvements. After an Major Capital Improvements, a landlord is allowed to impose part of the cost of the project on each tenant in the building through a steeper rent increase than would typically be allowed each year. Individual Apartment Improvement generally happen after a tenant leaves an apartment and allow the landlord to pass on a percentage of the improvements’ cost to the new resident through a rent increase. Landlords also receive what is referred to as a vacancy allowance or vacancy bonus when a tenant leaves, allowing them to raise the rent by as much as 20% for the new occupant. The bonus incentivizes landlords not to keep tenants on. Advocates and tenants, especially in gentrified or gentrifying neighborhoods, complain that landlords employ illegal harassment methods to get occupants to leave.
What do affordable housing advocates want?
Advocates have long tried to pass reforms that they believe will protect people living in rent-regulated apartments. The Upstate-Downstate Housing Alliance, a coalition of housing advocates, tenants and the homeless, has a clear platform laid out for what they want done when rent regulations get renewed this year. They have six goals directly relating to the current system, although three get the most attention. Perhaps most importantly, advocates want to do away with vacancy decontrol and to reregulate apartments that have already left the system. Advocates have been attempting to undo the 1994 decision to create vacancy decontrol essentially since it began. Even the New York City Council, the body that created the rule, has since approved four separate motions appealing to the state Legislature to repeal it.
The second proposal is to make what is known as preferential rents permanent. Currently, landlords can offer rents below the legal limit if the surrounding market rate apartments go for cheaper. But landlords are allowed to raise the rent to the legal limit at any time. If the market improves, for example, they may impose a steep increase on the tenants. Under proposed legislation supported by advocates, any rent increases would be based on the agreed upon rent, rather than the legal limit.
The third part is to eliminate permanent rent increases as a result of Major Capital Improvements and Individual Apartment Improvements, arguing that such improvements are necessary after years of neglect and that the programs are often abused through inflated costs and, at times, outright lies about the work done. Lawmakers have introduced legislation to address each of the issues, and Assembly Speaker Carl Heastie has expressed his support for many of them.
What does the real estate industry have to say about this?
Unsurprisingly, the industry is pushing against much of the Upstate-Downstate Housing Alliance’s policy agenda. In particular, real estate industry members want to keep major capital improvement rent hikes. Real Estate Board of New York President John Banks said that the introduced legislation does not take into account the increasing costs associated with maintaining and improving buildings, well above the yearly allowed rent increases. He added that landlords spend $10 billion every year through the MCI program to improve New York City’s housing stock.
REBNY and pro-landlord group the Rent Stabilization Association have also put out an ad campaign broadly opposing the slate of reforms currently proposed, instead advocating for what they call “responsible rent reforms” they say will help both the landlords and the people living in their buildings.
What’s “universal rent control?”
The Upstate-Downstate Housing has two parts of their agenda that are not directly related to the current regulatory framework. One is to expand the Emergency Tenant Protection Act to the entire state, allowing municipalities and cities in every county to opt in to the rent stabilization system. The second, which most directly correlates with the idea of universal rent control, is to establish so-called “good cause eviction” for nearly every rental unit not already covered by some form of rent regulation. The legislation introduced would effectively cap yearly rent increases most market-rate apartments, while giving tenants the right to a lease renewal except in cases made explicit in the law. Advocates say that the law would help protect tenants living in smaller buildings not covered by rent stabilization without necessarily adding new burdens to landlords, while opponents say that such a law would disincentivize developers from building new apartments and would decrease already-low turnover rates in New York City, making the housing crisis worse, while adding that housing needs in other parts of the state require solutions tailored to their needs.