Those who care about housing policy and the future of New York City will be paying close attention this fall to see if the Supreme Court decides to take up a serious challenge by apartment owners to the Big Apple’s big blunder: rent regulation. At stake is a law which regulates rent prices and tenant rights for nearly one million apartments in the nation’s largest city—and in other cities which have similar regulation.
New York is the case study for the legislation’s unfortunate repercussions. Although rents are kept low by law, owners of NYC’s rent-stabilized units are under no obligation to rent to lower-income tenants. The Census Bureau’s June, 2022 New York City Housing and Vacancy Survey found that 22 percent of rent-stabilized tenants had incomes of $100,000 or more.
The fact that state law excludes key owner expenses and capital investment when determining the “stabilized” rent, also has negative consequences. The Census report found that rent-regulated units have twice as many leaks, three times as many heating breakdowns, and three times as much mold. A third of them have “rodents” (almost twice the rate of unregulated apartments). Some 176,000 regulated units had three or more maintenance issues.
Residents in rent-stabilized apartments stay longer in their units than those in non-regulated units, contributing to a low turnover rate in the housing stock of the city and suppressing the dynamism supplied by ambitious newcomers. In New York, 30 percent of rent-stabilized tenants first occupied their apartments more than 20 years ago. Older tenants age in place on the Upper West Side surrounded by empty bedrooms.
Bad policy alone will not prompt the Court to agree to review a series of lower court decisions which to date have upheld New York’s law. But other problems with the 2019 Housing Vacancy and Tenant Protection Law could. At the heart of the arguments for such a review lies the matter of property rights.
In contrast to private property owners, owners of rent-stabilized properties do not control renter selection — leading to the legal bugaboo known as unwanted physical presence. Current rent-regulated tenants have the right to renew a lease in perpetuity and pass it along to family members who have established residency in the unit. If owners wish to move into a specific unit in a rent-controlled building, they are required to find the current tenants somewhere else to live—comparable in size and price.
Nor can an owner, faced with a deteriorating asset and a money-losing operation, seek a buyer contemplating a new use for the site: owners may not even demolish their buildings without permission.
While there is no legal doubt that regulation of wages and prices is constitutional—even if ill-advised, the New York rent stabilization laws go far beyond simple price regulation. The law requires those setting prices to consider the ability of potential tenants to afford the rent. It’s as if Walmart were required to sell groceries at a price based on customers’ incomes.
These distortions to New York’s housing market may seem outrageous or counterproductive, but they do not mean the state rent-regulation law is unconstitutional. Such a finding may depend on how the Court (should it choose to take up the appeal) interprets a previous decision. In a 2020 decision, Cedar Point vs. Hassid, the Court overturned a California law granting union organizers three hours of daily access to an agricultural business. It’s a long way from New York, but it dealt with a similar matter: the owners’ right to exclude. The Court determined that right is “a fundamental element of property rights.”
Whether the Court decides to take up the property owners’ appeal will signal that New York’s rent laws could be struck down, in full, or in part. Taking no action would let the lower court decisions upholding the law stand. Nor would a ruling in favor of the landlords mean that the entire rent regulation law would be struck down, nor that it would not be replaced with a new constitutional one crafted by legislators.
However, even an abrupt end to New York’s rent regulation law might only cause minimal disruption. Many regulated rents in the so-called outer boroughs (the Bronx especially) differ little from non-regulated ones; markets in lower-income neighborhoods are simply not that strong, and no army of gentrifiers awaits to improve such areas. In addition, post-Covid, New York City’s population has declined by nearly 500,000 people, suggesting that, except in the most fashionable Manhattan and Brooklyn neighborhoods, upward pressure on deregulated rents may not actually develop.
Instead, this might be a propitious time to roll back a legally suspect regulation that risks further fostering the decline of the nation’s greatest city.