NYC Passes New Tenant Protections, But Needs More From State

 The city is, but will the state? (urbanjusticeleague)

The city is, but will the state? (urbanjusticeleague)

On Wednesday last week, the New York City Council passed a series of bills aimed at protecting tenants from harassment caused directly or indirectly by landlord’s construction projects.  In all, 18 bills were passed and are expected to be signed by Mayor de Blasio.  The “Stand For Tenant Safety” package comes in light of other recent efforts by the city to help tenants such as right-to-counsel and shows a remarkable shift in housing policy as a response to the ongoing affordable housing crisis.  However, without a larger comprehensive redesign of rent regulation laws, these efforts only raise the potential cost of abuse rather than remove the underlying motivations for landlords and developers. 

When a rent-regulated tenant moves out, the landlord can raise rent a lot more than they can if the tenant stays.  That basic logic creates a perverse incentive for some landlords to try to push the tenant out.  Such tactics have included cutting off power, heat, or gas; not properly protecting tenants from in-building construction work; physically damaging a tenant’s unit during construction, or doing work or inspections at odd hours of the night or early morning.  The intended purpose of these practices is to make life so unbearable for a tenant that they voluntarily move.

In other cases, landlords begin construction projects under the guise of upgrades only to intentionally create damage that forces certain tenants (or potentially every tenant) to move.  There have been several high-profile criminal cases recently involving landlords who have used these tactics and the stories are difficult to comprehend.

It’s safe to say most landlords and developers do not resort to unethical, even criminal, behavior, but it is impossible to know how widespread even milder versions of these practices are across the city. Up until now, the city hasn’t had clear guidelines to identify such practices.

Stand for Tenant Safety is designed to find out just how often they occur and to raise the cost of these behaviors.  The bills have three main focuses: first, one creates an Office of Tenant Advocates within the Department of Buildings to make it easier for tenants to log complaints about construction work. Second, it increases penalties for construction jobs without proper permits and proper tenant messaging to cut down on scopecreep. Third, it classifies visits or calls from landlords at odd hours as harassment.  

The bills will make documenting potential abuses much easier for tenants and city officials and will serve as a bulwark against landlords attempting to harass tenants through sabotaging a building’s quality of life.  These are much needed protections for all tenants, whether they are regulated or market rate.

However, the basic logic that I spoke of earlier remains the core problem in the rental market.  Specifically for rent-regulated units, the lure of vacancy decontrol – the ability for a landlord to significantly raise rent after a tenant moves out or when the rent hits $2500 – remains too tempting a target for landlords.  (It’s easier for landlords to raise rents on market units obviously, but the speed of appreciation in certain fast-growing neighborhoods raises the specter of such tactics even for market-rate tenants.) 

The current mechanics of the market and the regulatory regime within it guarantee that capital will find ways to force out tenants in order to raise rents. And it will continue to attract the speculator landlord/developer over the service provider landlord/developer.

There is an entire cottage industry within the real estate world that specializes in identifying and buying buildings with rent-regulated tenants with the explicit purpose of forcing them out, or to “de-tenant” then flip the building.  The industry of course uses euphemisms like “under-performing assets” or “under-utilized inventory” to describe the buildings and uses others like “revitalize” or “reoptimize” to describe the process of kicking out tenants, but the message to investors is clear and universal: Buy low, sell high.

Without removing the incentive provided by vacancy decontrol (and other loopholes around rent regulations) all the tenant protections in the world won’t prevent certain landlords from looking for ways out.  Only the New York State legislature can change the rent laws to address this fundamental issue. There are many political reasons why that is unlikely to happen anytime soon.

I always think of rent regulation in terms of Abraham Lincoln’s famous “A House Divided” speech on slavery.  NYC can’t function in the long run half regulated, half market.  There is little logic or basic fairness to the system now – for landlords and tenants alike.  It needs to be either one or the other. 

I’ve strongly advocated for universal rent regulation for rental apartments in order to avoid the more fundamental problems that our current mixed market encourages.  Only with an entirely new rent regulatory system, one that doesn’t look like the system we currently have to be clear, can we really avoid the type of speculative displacement that is eroding the long-term health and diversity of the city. It's also the only way to remove the more speculative, short-term actor from entering the landlord business in the first place.

In the basic Econ 101 model, rent regulated units are akin to any distressed asset like a failing business.  If an asset is not performing to its “highest, best use” you change some variables and try to make it more productive.  This type of business will always attract a certain type of speculative buyer.  That’s fine if you’re talking about a restaurant or even a publicly-traded company. It’s not so simple if you’re talking about a home.

A home is more than an asset.  How you measure the utility of living in a home – especially one that the resident rents – is difficult to measure in our classical economic models.  That doesn’t mean it’s impossible to measure, it just means that it involves assigning value to certain activities or behaviors that most economists have shied away from historically.

As a result, we have plenty of economic research about the “costs” and “damage” of rent regulations (although all data collection is subjective to a degree) based on classic models, but don’t have much research that measures the broader “health” of a city with rent regulations.  These models aren’t interested in the empirical state of a city as much as the theoretical state.

The discussion about rent regulations comes down to one of values.  On the one hand, creating more economic activity and growth is a good thing for the city.  On the other, how much activity and where it occurs can be a bad thing for the city if it isn't spread out. 

Mayor Bloomberg famously thought having every billionaire in the world living in NYC would be great for the city.  We currently do have the most amount of billionaires, but it’s hard to argue that the city greatly benefits either through their economic contributions, tax contributions, or social contributions. 

For a democratic society to truly be healthy, you need a variety of incomes (and their resulting economic and social contributions) to be stakeholders at the city and neighborhood level. If housing is treated as a commodity, that system breaks down over time, as it has been in NYC. Our failing rent regulatory regime is just a symptom of this larger illness. Until we address this problem on a larger, fundamental level, we’ll never escape the cycle of landlord’s looking to get around rent regulations. No city-level laws will ever be able to keep up.