A self-perpetuating housing emergency

Today the City Council will be holding a hearing in order to determine if there is a “housing emergency” in New York City. A declaration of such an emergency is the legal predicate for rent regulation to continue.

Technically, an emergency is supposed to be triggered when there is a vacancy rate of less than 5%. The 2017 city survey found the vacancy rate is less than 4%, but that figure is considered suspect by many in the real estate industry inasmuch as it excludes various classes of housing.

I have been practicing law for more than 40 years, with an emphasis upon the representation of owners, developers and managers of multifamily housing. That experience has shown me that rent regulation is an irrational housing policy that fails to serve the needs of owners or tenants.

New York State’s highest court once described the city’s rent regulations as “an impenetrable thicket.” That thicket has only grown denser and more unwieldy as the years have gone by. It is time for pruning.

The old joke goes: A boy kills both his parents and then comes before the court. The judge asks the boy if he has anything to say. The boy says: “Yes, Your Honor. Please be merciful, for I am but an orphan.”

Today, the City Council asks: “Is there a low vacancy rate?” The answer is “Yes,” but, like the murderous orphan in the bad joke, the real question is: How did this come to be?

After 75 years of fostering apartment gridlock, granting benefits to those without demonstrable need, creating disincentives to housing development and an ever-growing phalanx of strangling regulations, the answer is clear: Rent regulation is not a cure to a low vacancy rate and a lack of affordable housing. It is, in my opinion, a paramount cause.

Because of the below-market rent, regulated tenants will generally remain in place, even after the apartment far exceeds the tenant’s housing needs. The tenant who moved into the two- or three-bedroom apartment and raised a family now lives alone in that same size apartment, even after becoming an empty nester.

Compare that with other subsidized housing programs like Section 8 or Mitchell-Lama, where income is tested to determine need and apartments are usually sized to fit the number of people in occupancy. Means-testing and proper sizing seem so rational in the context of these other housing programs. Why not for rent regulation? And what if a property owner wishes to demolish a small regulated building in order to build a larger building with a far greater number of apartments? Even if the owner is willing to pay large stipends to the tenant or provide the tenant with relocation to another nearby apartment, comparable in size and rent, and have a portion of the new building contain affordable apartments, the owner does not automatically get the right to proceed with its plans.

Instead, the owner must endure a protracted and expensive legal process; it can take three to five years or more, with no assurance of outcome. As a result, the declared housing emergency actually stymies the creation of new and affordable housing. Even the potential for deregulation is no panacea for the obvious irrationality of rent regulation. An apartment occupied by a high-income regulated tenant cannot be deregulated unless the regulated rent exceeds $2,733.75 per month (as of Jan. 1, 2018). Think about that for a moment. A tenant with a high income (defined as more than $200,000 for each of the most recent two years) cannot be deregulated if that tenant’s rent is too low.

As an example, a regulated tenant earning $200,000 can be deregulated if the rent is $2,733.75; meanwhile, his neighbor, earning $2 million, cannot be deregulated because, by being in the right place at the right time, the neighbor got a rent-stabilized apartment years ago and the rent is still only $1,500.

In essence, the notion of means-testing is turned on its head. The less the regulatory protection is needed, the more the protection is granted.

The city has declared a self-perpetuating emergency since the end of World War II, as if the repetitive cry of “housing emergency” will be enough to end that condition. But it has not and it will not. Doing the same thing over and over and expecting a different result is insanity. The time has come to look for new, real and rational solutions.