A crucial fix for rent regulation

Housing legislation has moved to center stage in Albany, with proposals to provide aid for everything from granny flats to new, subsidized construction on the table. But one especially surprising, common-sense change in the state’s rent regulation appears to be attracting bipartisan support. A state Senate plan would permit up to 6% rent increases following major capital improvements to apartments. Such increases have been restricted since passage of the 2019 version of rent controls. This has meant that property owners have not been able to recover the costs of even state-mandated upgrades, such as lead paint removal, or investments such as new boilers or roofs.

The law has led small property owners especially to respond by taking apartments they can’t afford to fix up when they become vacant off the market entirely.

At a hearing last week of the City Council Housing Committee, members presented with the most recent city Housing and Vacancy Survey were told that 6,586 rent-stabilized units were “not available” because they need “major renovations.” Some 13,680 such units overall were “off market” for 12 months or more. This is what some call apartment “warehousing” — but reflects costs that are too high to make renting profitable.

That some of those numbers have declined from the high-vacancy COVID year of 2021 is no cause for celebration. Indeed, there is good reason to worry that, absent reform, an increasing number of rental units will stay empty.

Small property owners, especially in the outer boroughs, are pinched by rent regs. “Janice” owns four pre-war buildings, with 100 rent-stabilized apartments, near Kings County Hospital in East Flatbush. She reports losing money even on her occupied units. Her per-unit taxes, insurance and utilities average $1,100-$1,200 a month but rents are set by law at $800-$900, with some as low as $400.

When units become vacant, owners must comply with such mandates as lead paint abatement, which “Janice” estimates at $25,000 per unit. There’s more: new appliances, electric upgrades and plumbing older units need. “It costs $60,000 to put the basics in place,” she estimates. “We’re not charities. It’s the city that’s pushing units off the market.” If any of her units becomes vacant, she’ll keep it empty, she adds.

The Housing Survey also reports that almost twice as many rent-stabilized as market units have rodents, broken plaster or peeling paint, leaks or heating breakdowns. Even if a unit is not vacant, owners have an incentive not to maintain — and tenants suffer.

What’s more, the squeeze on rent-regulated owners is linked to the latest banking crisis — that of NYCB, the former New York Community Bank. As Investopedia’s Christiana Sciaudone reports,

“NYCB has a big red flag that many other regional banks don’t have: an $18.3 billion portfolio of loans made to rent-regulated multifamily buildings in New York City. That equaled roughly 22% of all of the bank’s loans at the end of December.” Continues Sciaudone: “High interest rates, persistent inflation and plummeting property values are putting owners of such buildings in a bind, jeopardizing their ability to pay back loans.”

The city has offered a supposed lifeline: the “Unlocking Doors” pilot program to help landlords pay for upgrades. To date, reports the Department of Housing Preservation and Development, it’s received a grand total of one application — maybe because to participate owners would have to agree to accept recipients of housing vouchers, including the homeless, who could alarm other tenants.

A year ago, Council members were up in arms about “warehousing.” Owners of rent-regulated housing were said to be licking their chops at the prospect that the U.S. Supreme Court would declare rent controls unconstitutional — so they were keeping units empty, awaiting their chance to gouge new tenants.

Said Brooklyn Council Housing Committee member Lincoln Restler, “We need to pass legislation in Albany to require that landlords pay fines ... when they leave apartments vacant.” Now that even a conservative Supreme Court has allowed rent regulation law to stand, Restler is quiet on the subject. It’s good to see, however, that some in Albany recognize that if landlords are not allowed to operate profitably, they’ll simply stop renting.

There’s never been any guarantee that low-income households are the major beneficiaries of price controls on nearly 1 million rent-stabilized units. As NYU’s Furman Center puts it delicately: “Although many rent regulation systems aim to protect low-income renters, in practice, rent regulation alone may prove too blunt an instrument to reach these households.”

But if rent stabilization is here to stay, lawmakers need at least to make sure that property owners can stay in business.

Husock is a fellow at the American Enterprise Institute. He is writing a book on the history of public housing.