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How to Kill New York’s Rental Housing Market

Why are rents so high in NYC? Rent control certainly helps and it's going to get even better!

How to Kill New York’s Rental Housing Market

Albany’s Good Cause Eviction proposal is universal rent control.

By The Editorial Board, WSJ

April 1, 2024

Residential apartment buildings in New York City. PHOTO: GETTY IMAGES

You have to marvel at the enlightened economic thinking of New York politicians. Gov. Kathy Hochul and her Legislature are hashing out a deal as part of the state budget that would impose universal rent control while creating tax breaks for housing developers. Increase disincentives for investment, and then layer on subsidies. Genius.

Rents in New York City have soared in recent years even more than inflation. The average monthly rent in Manhattan for market-rate apartments last year was roughly $5,300, about 30% higher than in 2021. Progressives accuse landlords of price-gouging, though their 2019 rent-stabilization law is a major culprit.

Democrats are now pushing so-called Good Cause Eviction standards that would establish a de facto cap on rent increases in what are now market-rate apartments. They want to classify rent increases that exceed 3% or 1.5 times the consumer-price index, whichever is higher, as “unreasonable.” Landlords couldn’t evict tenants who refuse to pay more.

If maintenance costs and insurance premiums increase more than the cap—as they have in recent years—landlords would have to spend thousands of dollars in legal costs to justify rent increases to local housing courts, which could take months. Even if they prevail, it could take a year or more to evict a tenant.

Rent increases on nearly half of New York City’s rental housing stock are already capped, which is a disincentive for landlords to invest in maintenance and improvements. Tenants in rent-regulated units are roughly twice as likely to complain about rodents, heating breakdowns, mold and peeling paint as those in market-rate units. Landlords used to be allowed to “de-regulate” units when tenants moved out and the rent exceeded $2,800 a month. The 2019 law bars them from doing so and limits rent increases to pay for renovations.

One predictable result is that multifamily housing values and investment have plunged. The Federal Deposit Insurance Corp. unloaded loans by failed Signature Bank that were backed by New York rent-regulated buildings at a roughly 40% discount. New York Community Bancorp warned this year that 14% of its rent-regulated loan book was at risk of default. Worries about its heavy exposure to the city’s rent-regulated multifamily housing caused its stock to plunge.

Meantime, rents in market-rate apartments have surged in part because building management companies have sought to compensate for losses on rent-regulated units. Landlords have also removed tens of thousands of units from the market because they would lose money renting them out.

Extending rent control to market-rate apartments will compound the 2019 law’s damage and discourage new housing. Are Democrats in Albany trying to precipitate a local banking crisis by spurring massive write-downs on apartment buildings? Their plan could make New York housing uninvestable.

Perhaps this explains why Ms. Hochul wants to pair rent regulation with tax subsidies to boost “affordable” housing construction, which would be conditioned on developers paying union-scale prevailing wages. Even with tax breaks, developers may not be able to turn a profit. Every time you think Albany Democrats can’t do more economic damage, they come up with something worse.

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