The NY state budget deadline is upon us and there are whispers and leaks that lawmakers are close on passing good cause eviction—a euphemism for regulating rent increases for free market apartments. If it does pass, what does it mean for the real estate community and housing market? A few of my thoughts below:
- Cap on free market rents: Increases to rents for free market apartments are likely to be capped at the lesser of: i) 10% per year and ii) 5% plus CPI. This mirrors the law in California which is more onerous on landlords than NJ where “unconscionable” increases are prohibited. The meaning of that isn’t entirely unclear but it’s certainly more favorable to landlords than what is currently being proposed.
- The return of 421-a: A version of 421-a is likely to pass as well as it would be incredulous to think that more moderate lawmakers would accept good cause eviction without 421-a. This may be a Pyrrhic victory for developers and tantamount to a defeat as good cause eviction may take more than 421-a gives.
- Unrenovated apartments trapped: Landlords with free market units that are below market rate (i.e., undermanaged, unrenovated) may be trapped at rents well below fair market value. The unrenovated four bedroom apartment worth $4,000, if renovated, but only charging $2,000 may be stuck with annual increases off the $2,000. You snooze (on renovations), you lose so says Albany.
- The new rental caps may be optional: A recent NY Post article suggests landlords would “not technically be barred from raising rents” above the level described above, but they could be dragged into court if they do. That’s like saying you can rob a bank and steal from the blind, but you may be dragged into court if you do. Ok, maybe not quite but it’s either legal to increase above these levels or it isn’t. Or are these caps merely suggested guidelines owners should abide by and if you don’t you are being naughty.
- Arrival of universal rent control: NYC landlords would have to abide by both the rent stabilization rules for those units that are rent stabilized (DHCR filings and annual rental increases determined by the Rent Guidelines Board), as well as this new regime for free market apartments (i.e., the lesser of 10% and 5% plus CPI). Will this require more paperwork for landlords similar to DHCR filings, penalties if you overcharge, etc.?
- Tying 421-a with good cause eviction may have unintended consequences: 421-a tethered to good cause eviction may not satisfy developers nor prompt new housing developments as legislators are intending. You can fool the voters with linguistic dexterity but not bulge bracket banks that will see good cause eviction for what it is: universal rent control. In other words, any new project would be 100% regulated albeit under separate legislative regimes and this will no doubt impact borrowers’ cost of capital for new construction projects.
- Lawsuits anyone: No doubt lawyers for landlord groups will call this an unconstitutional “taking” and take their cases through the judicial system and perhaps all the way to the Supreme Court. But California already has a similar good cause eviction law and I imagine landlords would ultimately be on the losing side of this battle.
I love an experiment as much as the next guy but this would be a bold new frontier for New York City that is likely to have implications far and wide: some foreseeable and others less so. Buckle up as this could be one hell of a ride for NYC’s housing market and no stakeholder will be spared.
Source:
Golden, V. (2024, April 8). Kathy Hochul gets on board with key parts of NY “Good Cause” rent-control bill as state budget housing deal nears. New York Post. https://nypost.com/2024/04/08/us-news/kathy-hochul-gets-on-board-with-key-parts-of-ny-good-cause-rent-control-bill-as-state-budget-housing-deal-nears/
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