NYC City Council

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.

SROs: The Wave of the Past

Hotel Chelsea, a classic SRO (vanityfair)

Hotel Chelsea, a classic SRO (vanityfair)

I wanted to continue the conversation on micro-living and shared-living and include an old idea that city officials should consider: the reintroduction of single room occupancy (SROs).  SRO buildings came in many shapes and forms, but generally consisted of small rooms with a single bed and a shared bathroom and kitchen for each floor (there is no single definition of SROs in New York housing law.)  Though Mayor de Blasio's housing plan, now backed by the City Council, does not contain any proposals about SROs, the successful if limited introduction of micro-units does open a door to discuss this type of affordable housing option.  

We forget, but for much of the late 19th and early-to-mid 20th century SROs, "rooming houses" and "lodging houses" provided a large portion of housing for workers flooding American cities from New York to San Francisco during the transition from an agricultural economy to an industrial one.  The diversity of housing allowed for single men and single women to find short term or long term housing that met their financial needs. I highly recommend reading this SRO report from CUNY Law Review by two lawyers from MFY Legal Services about the history of SROs in NYC and their current legal gray zone. 

The same factors that created the demand for SROs historically still exist with today's working population, perhaps more so given demographic changes. Just for some perspective, there were 185,000 single-person households in NYC in 1960; today, there are 1.8 million.

This blog has previously discussed some of these dramatic demographic changes. For younger workers, it speaks to lower marriage rates, higher debt levels, and social preferences; the numbers also speak to immigrants (many of them illegal) who live alone and send remittances home to support their families; it also accounts for the high level of seniors living on their own in the city.    (We will devote future blog posts to immigrant housing issues and senior housing issues.) Whatever the cause, NYC and other cities have been slow to recognize the dramatically shifting profile of renters and have not created more housing diversity to accommodate them. SROs would be an impactful and easy policy pool to include.

Why aren't they? Because most cities made SROs illegal (NYC banned new SRO construction in 1955) and severely cracked down on them in the following decades. This happened slowly over time as suburbanization and deindustrialization made SROs a highly-stigmatized form of living in the American consciousness - they became the last resort for the poor, the addicted, the disabled, or the marginalized.

By 1987, the city went further and made it illegal for an apartment to be smaller than 400 sq feet and not contain a bathroom or kitchen (Mayor Bloomberg created a waver for Carmel Place, the first micro-unit building in NYC, to have smaller units).  Though only about 30,000 SRO units are still registered in the city, according to multiple sources, potentially 100,000 exist illegally, which means many people live in substandard and dangerous conditions.  The fact that so many people would still take that chance shows the depths of the housing crisis and the need for more housing diversity.

It would be simple to reintroduce SROs legally, as far as it goes, by removing the law from 1987 that requires all units to be 400ft and contain a bathroom and kitchen.  But we should go further.  First, the city should offer amnesty for registering (and inspecting) the thousands of illegal SROs already in existence, many in private homes. Second, the city should offer incentives for developers to remodel existing buildings - whether tapping into the idle or underused warehouse stock in some of the boroughs or older Class B or C office buildings, particularly around transit. Finally, with new developments, allow developers to include SROs set to targeted AMI levels as an additional option for set-aside affordable units.  This would be a much lower cost option for developers and a higher output of affordable units.

The sum of banning SROs and other policy changes (such as height restrictions, historical districts, density limits, parking requirements) that have had local support and reasonable-enough intentions going back to the Bad Old Days, has stripped NYC of the housing diversity that it so desperately needs and used to have in abundance. It has warped the market to such an extent that developers are only building luxury high rises while 60,000 people are applying for a handful of units in a single micro-building.  Even Mayor de Blasio's compromised micro-housing plan reflects a disappointing resistance to a potentially transformative idea.

I am encouraged to see micro-apartments in NYC, even if the current models are on the top end of the market.  If they can create a framework to consider more housing diversity (and encourage a growing call for housing resiliency) that goes beyond even micro-apartments and SROs, then we should all welcome them.  Rather than trying to force a percentage of affordable units into every project, if we expand the types of projects at a developer's disposal, and expand the housing options for tenants across age and income groups, we can finally start adding a truly impactful amount of units to the market that will lower the costs for everyone.  We've seen this before in NYC and we can see it again.  Sometimes the most radical ideas are the old tried and true ones.

One Big Problem with Mayor De Blasio's Housing Plan Isn't Even His Fault

Deputy Mayor Alicia Glen (center) City Planning Director Carl Weisbrod (far left) and Housing Preservation and Development Commissioner Vicki Been (near right) testify before City Council (newyorknimby)

Deputy Mayor Alicia Glen (center) City Planning Director Carl Weisbrod (far left) and Housing Preservation and Development Commissioner Vicki Been (near right) testify before City Council (newyorknimby)

Over the last two days, top officials in the De Blasio administration have been testifying before the NYC City Council about the mayor's proposals to increase affordable housing in the city through changes in zoning laws.  The Mayor has promised to construct or protect 200,000 affordable housing units over the next ten years but has faced some political opposition from tenants groups, unions, and elected officials who argue that the proposals will only encourage more gentrification and high-end development while failing to meet the mayor's goals or the city's needs.

The two programs under review by the City Council, which were approved by the City Planning Commission last week, include the Mandatory Inclusionary Housing (MIH) and Zoning for Quality and Affordability (ZQA) programs.

There are two big policy proposals in MIH that would break with the current orthodoxy - setting aside affordable housing units in new developments would be mandatory and those units would be permanently affordable. As it is now, setting aside affordable units is voluntary (part of a FAR bonus program for 20% affordable units) and those units have a defined 'sunset' where they return to market rate (35 years has been the standard).  These developers would be eligible for subsidies from the city and state.

The ZQA begins to touch on some points that I made in an earlier blog about zoning with proposals to encourage affordable housing by relaxing some zoning requirements for specific types of housing (including elderly housing) and incorporating the MIH proposals into the zoning code.  There are also proposals to encourage better street-level design and pedestrian experience (even bankers hate all the bank branches in Manhattan). 

At least it's not a bank. (NYC DCP)

At least it's not a bank. (NYC DCP)

What defines 'affordable' is usually where programs like these run into controversy, which presumably explains a lot of the protests occurring during and around the hearing. Inclusionary housing policies in the city base their definition of affordable on two factors - the income threshold to be eligible and a cap of rent-to-income percentage. Generally, as is the case with the highly controversial 421a tax exemption state law, the income level is set at 60% of the Average Median Income of the NYC region according to the US Census.  The cap on rent has generally been 30% of monthly income. 

The key point about AMI here is that it is based on the NYC region (which includes Westchester and Long Island) and not just the city's five boroughs. So for the purpose of policy creation, the AMI is $86,300.  However, the AMI of just the city is actually $50,700.  The AMI calculations are set by the US Department of Housing and Urban Development (HUD) and are obviously grossly unreflective of the nature of income in the city.

There are many people who have beef with this calculation, including Congressman Jose Serrano from the Bronx 15th District.  This number egregiously distorts policy decisions and their impact on New Yorkers who are rent burdened across the entire city, but it particularly impacts low-income families concentrated in poorer parts of the city.

Mayor De Blasio is obviously aware of this (probably has beef with it too) and has outlined for developers to set aside 25% of units for residents with 60% of AMI or 30% of units for 80% of AMI among other options. However, this can't change the fact that the baseline numbers increase the cost of subsidies to the city while limiting the scope of units available to the New Yorkers most in need of assistance.

That's a point that bears repeating.  The distorted AMI number masks the true needs of New Yorkers but it also totally ignores where those New Yorkers live - and where they need assistance.  The AMI in Manhattan is a lot different than the Bronx, for example, but that won't mean development is going to the Bronx because it's needed there.  According to an awesome report from the Furman Center,  the city's current inclusionary housing program and all of its associated subsidizes only work in developments that are located in higher-rent neighborhoods to begin with.  You might have heard of the "Poor Door" controversy where residents of high-end luxury buildings don't want to share entrances with the "20%" low-income residents.  

The policy of removing a small fraction of poor residents from a neighborhood to live in subsidized housing in a wealthy neighborhood has long been a divisive political issue in urban politics. (Here's an interesting study from Johns Hopkins on it).  I think the premise is flawed to begin with, since it relies on private developers to create new housing in areas that are economically viable and can guarantee an acceptable return. By this definition the only way new, subsidized affordable development will reach poor residents where they live is when their neighborhood becomes attractive enough to developers to build.

Trying to squeeze developers for a small fraction of affordable units in a select amount of hot neighborhoods based on faulty calculations doesn't solve the housing problem and costs the city a lot in subsidies. Though Mayor De Blasio's plan has a number of good ideas and a lot of buy-in from various stakeholders, it still relies on a premise that hasn't proven to work.

There are alternatives that could be explored.   Reintroduce SROS.  Explore Community Land Trusts.  Or encourage local neighborhood groups that provide economic justice in underserved areas.  Some of these, and many others, can surely work in NYC.  It won't be one mayor or one plan or one idea that changes the game for affordable housing, but we need to encourage policy makers to consider every option.  It would also help if policy makers use the most accurate data for us to work with.