High Stakes: The Looming Battle over New York's Housing Laws

High Stakes: The Looming Battle over New York's Housing Laws

High Stakes: The Looming Battle over New York's Housing Laws
November 14, 2014

Mayor Bill de Blasio’s battle to build or preserve 200,000 units of affordable housing—the ambitious, $41.1 billion goal he announced in May that will likely be the signature policy initiative of his administration—will be fought over the next decade, neighborhood by neighborhood, even lot by lot.

Yet a more important battle will take place much sooner, 140 miles north.

On June 15, New York’s rent regulation laws and other key real estate measures are due to sunset. The revised laws that emerge will shape the market in which de Blasio’s housing initiatives play out and determine whether the city’s new housing truly adds to the stock of affordable apartments or merely replaces rent-stabilized units leaving the system.

During the run-up to Election Day, tenant groups responded to that looming deadline by sending volunteers to upstate Senate races, while lobbyists representing landlords cut massive campaign checks to party accounts. Now the fight moves to Albany, where Republican control of the Senate changes the drama, but doesn’t end it. The issue of who won control of the upper house on Nov. 4 does not alter the essential questions facing tenant advocates: Can the Assembly be counted on to push hard for stronger regulations? What role, if any, will Gov. Andrew Cuomo play? And does de Blasio have any leverage left for this all-important lift in the State Capitol?

What is certain is this: Years down the road, experts will look back on what happened in Albany in the late spring of 2015 as a hugely important—maybe even deciding—factor in determining whether New York carves out a place for the working class, or permits lower- and moderate-income people to continue getting priced out of the five boroughs.

Shoring up the rent laws is “absolutely essential to the future of affordable housing in New York City,” said Benjamin Dulchin, executive director of the Association for Neighborhood and Housing Development. “The mayor is not going to achieve his goal of a more affordable city unless he is effective at strengthening rent regulations. It’s the thing that matters most.”

Just over two-thirds of New York City’s 3 million housing units are rentals, and 46 percent of those—some 960,000—are rent stabilized, collectively home to 2.3 million people. Among the poorest 40 percent of city residents, nearly half live in stabilized housing.

Restrictions on rents began in New York City amid a housing shortage during World War I. That system, known as “rent control,” would wax and wane over the next 50 years, eventually covering more than 1 million units. In 1969 the city enacted a separate system of rent stabilization to cover newer apartments. Both of these rounds of regulations were weakened during the 1970s by a measure that allowed vacant units to be deregulated. Then, in 1974, the laws were again strengthened when the Emergency Tenant Protection Act ended so-called vacancy decontrol.

Two decades later, rent regulations would swing dramatically in landlords’ favor. Legislators in 1993 instituted what is known as high-rent vacancy decontrol, allowing property owners to take an apartment off the regulated list once it reached a legal rent of $2,000 or more and went vacant. They also approved high-income decontrol, which permitted landlords to remove an occupied unit from stabilization if it surpassed the $2,000 rent threshold and its tenants’ income was $250,000 or more.

Again taking on rent regulations, in 1997 Albany saw what one analysis characterized as “one of the most bitter state legislative battles of the 20th century.” The Legislature briefly let rent laws expire, then gutted the rules, lowering the threshold for high-income decontrol, making high-rent decontrol easier and creating a “vacancy bonus” that permits landlords to jack up rent 20 percent when a stabilized tenant leaves. Another round of changes in 2003 further strengthened the landlords’ hand—though in 2011 tenants won stricter limits on which apartments could be deregulated.

The net effect of these shifts has been a considerable decline in the number of regulated apartments. From 1994 to 2003, the city lost a net 50,000 regulated units. In the past 10 years, a net 54,000 units have left the system—slightly more than the number of new affordable units built over that period under Mayor Michael Bloomberg’s affordable housing initiative.

Of course, not every deregulated apartment can be considered “affordable.” An apartment renting at $2,500, the current threshold for vacancy decontrol, would only be deemed affordable for households earning $100,000 or more. Indeed, vacancy bonuses, and other changes that permit landlords to raise rents beyond the annual increases approved by the city’s Rent Guidelines Board, can push an apartment out of affordability even if it remains in the stabilization system. Owners can raise rents to cover building-wide expenses through major capital improvements (MCIs), or pass on the cost of unit-specific repairs to renters through “individual apartment improvements.” Each increase moves an apartment closer to the exit door.

And that, tenants say, is the root of the problem. The option of vacancy decontrol creates an extra incentive for landlords to use those other mechanisms to push rents higher. “What they want is vacancy decontrol,” said Dulchin of the landlords’ motivations. “The individual apartment improvements are the way to get there.”

The Rent Stabilization Association (RSA), which represents landlords, argues that MCIs and individual apartment improvements reflect the real costs property owners face. Compelling owners to eat those costs while dealing with the record-low 1 percent one-year rent hike approved in June by the Rent Guidelines Board only encourages them to defer maintenance, RSA argues. “It’s just this myth that you’re going to preserve those units at that level,” said RSA’s director of government affairs, Frank Ricci. “It’s an artificial preservation.” Better to have well-maintained units with rising rents than to let the housing stock deteriorate, Ricci contends. After all, he notes, affordable housing programs may produce tens of thousands of units, but rent stabilization encompasses hundreds of thousands.

“Nothing’s going to limit increases in water and sewer charges, which together account for about a third of your operating costs,” said RSA vice president Jack Freund. Pointing out that about a quarter of rent-stabilized units rent for less than their legal rent, Freund sees a growing tension between bare-bones costs and what tenants can afford. “If wages and incomes don’t increase, you can’t collect more from your tenants to counter those increases in operating costs. Somewhere down the road, if those trends keep on track, there’s real trouble brewing.”

Kathryn Wylde, president and CEO of the Partnership for New York City, wonders if the rent laws fight might become linked with the growing debate over the structure of city property taxes. Some research indicates property taxes disproportionately burden multi-family buildings, adding to the costs landlords face regardless of what rent regulations look like.

Tenant leaders acknowledge that income is part—but only part—of the affordability problem, and insist that stronger rent laws are essential to alleviating it.

City Hall draws a distinction between the rent regulations battle in Albany and the affordable housing plan taking shape in the Big Apple. “In terms of our specific goal of 200,000 units built and preserved, reauthorization [of rent regulations] doesn’t necessarily impact our ability to reach that figure,” a spokesperson said. “But obviously what we shed in terms of affordability over the next 10 years has a very consequential impact on the affordability of the city and the lives of families, so that matters to us in and of itself.”

“[Mayor Bill de Blasio] is not going to achieve his goal of a more affordable city unless he is effective at strengthening rent regulations,” says Benjamin Dulchin of the Association for Neighborhood and Housing Development.

Tenant advocates, however, see the looming fight in very stark terms. “If things keep going the way that they’re going and we don’t close these loopholes and repeal vacancy deregulation, in five or 10 years there will be nothing left,” said Delsenia Glover, campaign manager of Alliance for Tenant Power. “As far as rent-regulated housing is concerned, this is a crisis situation. This year is pretty much do-or-die.”

Glover and her allies are pushing for a transformative set of changes. They want to end vacancy bonuses, turn MCIs into temporary surcharges rather than permanent bumps in rent and require more oversight of individual apartment increases. They are also pressing to align rent increases for the rent control system—which now covers only 38,000 apartments— with the hikes the RGB approves for stabilized units.

Preferential rents present another issue. When landlords charge less than the legal rent on a stabilized apartment, the fact that they can impose the legal rent on a new lease creates an opportunity for massive one-time rent increases, a possibility tenant advocates want to curtail.

One item conspicuously absent from the tenant organizations’ wish list is repeal of the Urstadt Law, which prevents the city from running its own rent-regulation system. De Blasio has called for scrapping the measure. But for tenant proponents, repeal—which is highly unlikely—is “not a priority,” according to Katie Goldstein, executive director of the advocacy group Tenants & Neighbors.

Landlords have their own priorities, including pushing back at the regulations imposed by the state Division of Housing and Community Renewal after the 2011 rent law renewal, which they say impose onerous burdens on owners. The RSA’s Ricci is also concerned about a “lack of standards” for Gov. Cuomo’s Tenant Protection Unit, which Ricci said pursues landlords arbitrarily and has failed to make clear what it expects of property owners.

But while each side has its wish list, vacancy decontrol is what most concerns both. The RSA wants to preserve or even extend decontrol, lowering the threshold at which apartments leave the system. Anyone who can afford $2,500 a month does not need stabilization, they argue. Tenant groups want to repeal vacancy decontrol and reregulate units lost to vacancy deregulation. Tenants PAC treasurer Michael McKee said he and his allies are still researching legal constraints on how far back in time the reregulation mechanism could go.

As the debate over rent regulations accelerates, developers and advocates will also be keeping an eye on other laws that expire either with the rent regulations or later in 2015. June 15 is also the sunset date for the 421-a tax break, a property tax abatement given to residential developers. Critics say 421-a is enormously expensive and ineffective at producing affordable housing. Meanwhile, the J-51 tax exemption, which gives owners who are renovating their properties a tax break if they enroll in rent stabilization, sunsets June 29, while the co-op and condo tax abatement, which allows owners of those properties a rebate on their property taxes, needs to be renewed by June 30. Reform and renewal of these programs could get linked to rent stabilization.

It should be a busy spring.

In fact, the city’s housing advocates are already busy. Tenants & Neighbors’ Goldstein said the group has been meeting with allies in the housing movement and the Legislature for months. It has also held preliminary discussions with upstate affordable housing organizations on banding together to increase pressure on legislators. Even if every New York City-based legislator backed the tenant position, advocates would not be able to get their agenda passed without help from suburban or upstate districts.

The city is currently experiencing a reinvigorated tenant movement, according to Goldstein, who said the successful campaign last spring to get the RGB to hold down rent increases for stabilized units helped to energize people who are increasingly concerned about affordability. “This is translating into more of a citywide movement. In neighborhoods in the West Bronx, in Elmhurst in Queens, in Crown Heights, in Bushwick—all of these neighborhoods that actually weren’t getting anywhere close to the vacancy decontrol threshold are now hovering right around it,” she said. Median stabilized rents in the outer boroughs may still be well shy of the decontrol threshold, but the outer-borough share of units lost to vacancy decontrol has doubled in the past 10 years.

As for the landlords’ side, RSA PAC spent about $422,500 from January through Election Day on campaign donations, much of it in huge contributions to the Senate Republicans and the Independence Party. McKee’s Tenants PAC reported $47,550 in spending, primarily directed to six key state Senate races.

Chair of the Assembly’s Housing Committee Keith Wright acknowledged that the rent fight is a high-risk affair this year.

Historically dominated by upstate Republicans, the Senate tends to be a landlord ally in fights over rent regulations. In 1997 Republican Majority Leader Joe Bruno gave Democratic Assembly Speaker Sheldon Silver a choice between letting the rent regulations die altogether or accepting a slew of pro-landlord changes. To preserve the stabilization system, Silver swallowed the expansion of decontrol, along with other bitter pills. Four years later Bruno quietly passed a bill at the end of the legislative session that further eroded regulations—then left town, again forcing Silver to choose between a sunset or a rather gloomy dawn. The Speaker picked daylight.

Over the years the Assembly has consistently supported pro-tenant legislation. Recently, however, the RSA feels it has been gaining more traction in the lower house. “Over the past couple years what we’ve noticed is, yeah, whatever the Speaker’s agenda is ultimately going to pass,” said Ricci. “But the votes are much, much closer because a lot of Democrats in the Assembly realize that when you start talking about MCIs or individual apartment improvements, these are jobs for people who actually live in their districts and vote for them.”

Speaking with City & State on the sidelines of the SOMOS conference earlier this month in Puerto Rico, Assemblyman Keith Wright of Harlem, the chair of the Assembly’s Housing Committee, said the Assembly had always stood up for tenants. But he acknowledged that this year the rent fight is a high-risk affair.

“Housing advocates should always have a degree of trepidation. We should all have a degree of trepidation,” Wright said. “And we should all go into that room knowing that we are fighting for our lives at this moment—and the lives of the middle class and the lives of working people and the lives of low-income New Yorkers who are just trying to live in New York City.”

Any way you slice it, however, the Senate is the house that really matters in the rent regulations fight. If the Democrats had won control of the chamber, McKee was planning to push to get the Senate to pass Tenants PAC’s bills early in the year to ease the way toward favorable negotiations with the Assembly and governor. A Republican victory, McKee said in late October, would mean “we need to activate 15 or 20 of Shelly Silver’s members to put pressure on him to actually deliver something.” Otherwise Silver might be too likely to compromise, he said.

The strategy will shift now that advocates know who is in charge—but they insist the goal will not. Goldstein said last month that regardless of who controlled the Senate, her group would still push for full repeal of vacancy decontrol.

The fact is, even in a Democratic Senate, stiffer rent regs were not going to be a “gimme.” “It’s an issue that even in the best of circumstances will still be a hell of a fight,” Dulchin said.

And while it is less likely that tenants will get what they want from a Republican Senate, tenants find hope in the fact that almost all Albany endings involve horse-trading among the Assembly, Senate and governor. In the end, what happens when the three men enter the room might be more important than whose caucus is bigger.

One area of confusion in the wake of Election Day is whether the Independent Democratic Caucus will still wield clout on this issue. Two IDC members, state Sens. Diane Savino and Tony Avella, are considered allies by tenant groups, but tenant advocates do not trust Sen. Jeff Klein. A Klein spokeswoman said he “has a strong voting record on tenants’ rights.” Yet when asked about repealing the Urstadt Law during a debate this summer, Klein punted. “I will weigh every issue as [it comes],” hedged Klein, according to The New York Observer. “I support rent stabilization, I support everything that protects tenants. I think we need to take a good hard look at the MCI law. There’s a lot of things that are out there.”

There is no doubt that the governor’s position is now an even more critical variable, however.

Cuomo received enormous sums from real estate interests for his re-election campaign. But the 2011 rent laws renewal occurred on his watch, delivering the first strengthening of regs since the ’70s. The Cuomo administration would go on to promulgate new tenant-friendly rules for administering rent stabilization, launch the Tenant Protection Unit, which has served subpoenas on landlords and management companies, and reregulate at least 25,000 units that had illegally been taken off the stabilization rolls.

Those changes infuriated landlords, who found hypocritical the move to push the threshold for high-income decontrol from $175,000 to $200,000. “At the same time you’re hearing all these invocations of affordable housing,” laments RSA general counsel Mitch Posilkin, “they turned around and they protected the wealthiest, which is really kind of striking.”

Yet vacancy decontrol, vacancy bonuses and other elements of the three previous rounds of rent law renewals were left unchanged in 2011. Tenant organizations were hoping then—and hope now—for more. “This is a real test for him,” said Goldstein of Cuomo. “This year, we want something a lot bigger.”

Some wonder if de Blasio’s affordable housing aims have left him between a rock and a hard place. He wants stronger rent regulations to preserve existing affordability, but he also needs to create new affordable housing by leveraging private sector money, and investors might see permanent rent regulations as a disincentive to committing equity to projects.

Nonetheless, City Hall says in addition to seeking repeal of the Urstadt Law—so unlikely as to be a meaningless goal—the mayor supports repealing vacancy decontrol. But can a mayor who struggled to get Albany to deliver progressive policies last winter expect to fare better now that the Democrats are an outright minority and Cuomo is safely re-elected? Can de Blasio and tenant advocates even win a defensive battle to prevent further weakening of the rent laws?

One school of thought among political insiders is that, for all the dramatic talk, little is going to change in June—that a closely divided upper chamber is unlikely to deliver big wins for either tenants or landlords. In light of Republicans gaining an outright majority in the Senate, Manhattan Borough President Gale Brewer told City & State in an interview at SOMOS, “We all hope to have vacancy decontrol done away with.” But she adds: “I am realistic. I think we are just going to be able to get a continuation of the current rent regulations—let’s hope to God we get that—over a million units are at stake.”

New York City Mayor Bill de Blasio and Gov. Andrew Cuomo could find themselves at odds over housing policy in the upcoming session.

Even as a best-case scenario, the status quo, with vacancy decontrol still in place, is troubling to tenant advocates. Still, these groups may have reason to hope they will find a more receptive audience in Albany than they have in the past—not because they have great political cards to play but because of the underlying policy reality.

“I think that the mayor’s arguments for preservation of affordable units are going to be compelling, on both sides of the aisle, just because of their understanding of how deep the housing crisis runs in the city just now,” Wylde said. “I think the housing crisis is such that there’s going to be a broad constituency looking to protect and expand rent laws and regulations.”

With homeless shelter numbers approaching 60,000, rising concern over housing the city’s aging population, and Section 8 and public housing under constant pressure, there is ample public clamor de Blasio can leverage in Albany to help make his case.

“You assume the real estate industry is going to call in its chits, that the tenants will be active and aggressive. But ultimately [elected officials] are going to be looking to editorial coverage, press coverage, what the broad sentiment seems to be,” said Wylde. “It depends, at the point in time next spring [when the renewal vote occurs], where the pressure points are. It’s not something that can be orchestrated.”

“Ultimately,” she said, “it’s going to depend on the crisis.”

Jarrett Murphy is executive editor and publisher of City Limits.

Jarrett Murphy