The outside of an apartment building in New York City

Similarities Between 1969 and 2019 in the New York City Multifamily Market

Feb 04, 2024
Practice Area:  Real Estate  |  Multifamily Properties
Contributor:   Anthony T. Simari

History does not always repeat itself, but, at times, you can actually hear history stutter.

In the 1960s, New York City and New York State policymakers had the best of intentions to make a “Great Society.” One of the byproducts of these efforts was the Rent Stabilization Law of 1969 (RS Law). Similar intentions and policies in the early 2010s led to the Housing Stability and Tenant Protection Act of 2019 (HSTPA). Sadly, the best intentions do not always result in the best outcomes for society. The RS Law had unforeseen negative consequences, by creating a disincentive for property owners to care for their properties which in turn contributed to the rise of slum landlords and urban blight of the 1970s. Unfortunately, the HSTPA is no different in its potential for leading to unintended, and disastrous, consequences.

Mayors like Robert F. Wagner and John V. Lindsay, supported by New York State’s policies, believed that New York’s diverse population needed better benefits and more opportunities. City University did not charge any tuition. The number of hospitals, fire departments, and police departments reached their all-time peak. The preservation of unions was critical to help the working man. Urban renewal programs created public housing. The city added 19 pools to the public housing system during the 1960s and 1970s as well as increases to park areas. The idea was simple: to help residents achieve a better and healthier life, and to address some of the economic stress of living in the City. Rent stabilization was an attainable and noble goal in the 1960s.

The History of NYC’s Rent Stabilization Law of 1969

Rent laws are not new. New York has had some form of rent laws since the 1920s. Back then, courts were the arbiters of “reasonable” rent. In 1943, the Office of Price Administration, under President Franklin D. Roosevelt, froze rents in New York. All buildings built prior to February 1, 1947, were subject to rent control under federal law. Taking the lead set up by the federal government, New York State established the Temporary State Housing Rent Commission in 1950 with the goal of creating a rent control plan for New York. The Commission allowed for deregulation of apartments upon reaching certain benchmarks. Unfortunately, by 1969, inflation was high, new construction was dwindling, and vacant apartments were disappearing. All of these factors resulted in higher rents, prompting New York to pass the RS Law of 1969. It, as modified, established that all buildings, consisting of six or more dwelling units, built after 1947 and prior to January 1, 1974, were subject to rent stabilization. It also created the Rent Guidelines Board (RGB) to determine allowable rent increases. Lastly, it had a mechanism to continually assess the need for rent stabilization laws.

New York landlords were ill-prepared for this rigorous legislation, as was the City at large. By the 1970s, New York City was in a severe recession. The City faced union strikes, massive budget cuts, increasing crime, and near bankruptcy by 1975 under Mayor Abraham Beame. Landlords saw fuel increases of 403 percent. Landlords unable to meet their obligations often resorted to abandoning their properties. Some even committed arson with the intention of recovering insurance proceeds. The Bronx lost more than 97 percent of its buildings to abandonment and fires. New York City quickly became the second largest owner of multifamily housing (the first being the New York City Housing Authority) due to tax foreclosures including over 60,000 vacant buildings and 40,000 partially vacant buildings. The lost tax revenue from these properties would severely cut into the budgets of both New York City and New York State. New York responded by instituting major reforms:

  • Municipal wage freezes were put into effect
  • Municipal workers were laid off, hospitals were shuttered
  • Subway fares were increased
  • The City University of New York ended its free tuition.

The idealism of the 1960s came crashing down. After this fiscal crisis, new leaders regarded themselves more as municipal money managers than leaders of the Great Society.

New York State’s Rent Regulation Reform Act

In 1993, New York State enacted the Rent Regulation Reform Act which allowed for decontrolling rent stabilized units with rents over $2,000 per month. It also allowed for landlords to charge one fortieth of the costs of improvements to an apartment to a tenant’s rent. In 1997, New York State also allowed a vacancy credit of 20 percent when a tenant left an apartment. These policies addressed many of the problems brought about by the RS Law and incentivized landlords to own and improve their properties. The increased revenues sparked both increases in tax bases, and more real estate transfer taxes and mortgage taxes as these properties were traded or refinanced.

Fast forward to the 2010s, and New York City has experienced a huge real estate boom. Crime is at its lowest rate in decades. Times Square, once a den of pornographic shops, is now a family-friendly venue. Retirees are giving up their suburban homes to move back into the City to enjoy the restaurants, the theatre, the opera, and museums. Mayor Bill de Blasio describes a “tale of two cities” in which the rising rents are making affordable housing scarce. He pushes for rent freezes, affordable housing, police accountability, a raise in the minimum wage, universal pre-K education, and limits on fossil fuels in new construction. In 2016, Governor Andrew Cuomo extends the 421-a tax exemption program which encouraged developers to build new residential properties with affordable housing components—but only if union-level wages are paid on such projects. The ideal of helping residents achieve a better life was at the forefront of political discourse. New York City was repeating the goals of the 1960s.

Housing Stability and Tenant Protection Act of 2019

The HSTPA arose against this background. Enacted in 2019, it eliminated the testing of the market to determine the need for rent stabilization. Today, rent stabilization is no longer an emergency measure, but a right given to tenants. HSTPA undid the Rent Regulation Reform Act and its modifications. Decontrolling apartments is no longer allowed due to high rents. The ability to charge one fortieth of the costs of improvements to an apartment to a tenant’s rent is capped to $15,000 over 15 years. The vacancy credit of 20 percent was abolished.

The Pendulum Swings Again: Key Similarities Between 1969 and 2019

Five years into the enactment of the HSPTA, we are seeing numerous negative developments in New York City’s real estate industry and housing landscape:

  • Landlords have once again severely curtailed improvements to vacant apartments and buildings.
  • The cost of renovating an apartment for rental can now outweigh the revenue collected from a new tenant.
  • Landlords have resorted to the warehousing of vacant apartments.
  • Insurance premiums have doubled and even tripled in the Bronx due to the increase of vacant units and the general lack of repairs to buildings.
  • The ability to sell or refinance multifamily buildings has declined.
  • The 421-a program has expired and there is no replacement on the horizon.

Ultimately, all of these changes are already beginning to lower New York City and New York State’s property values. This decrease is in turn resulting in less tax revenue, less real estate transfer taxes, and less mortgage taxes. When New York last felt this pressure, it took 24 years to find a compromise. In the intervening time, New York City suffered through inflation, union strikes, massive layoffs, crime surges, and near bankruptcy.

The HSTPA has removed all incentives for landlords to make improvements to their buildings. Landlords are not able to make upgrades required by law and are forced to pay penalties for these violations. Landlords are increasingly unable to meet their obligations, resulting in more defaulted loans and tax foreclosures. On the tenant side, renters are now living in buildings with fewer services, fewer repairs, and higher increases of rents. Meanwhile, Mayor Eric Adams was facing a $7.1 billion gap in early 2024. New York City has instituted a hiring freeze and cuts to environmental protection programs, public library services, and after school community programs. Without these cuts and more, New York City will not be able to meet its obligations.

Will We Repeat History?

The goal of making New York City livable and affordable for its entire population does not have to be built on an “us versus them” premise. We can learn from the past. We can do better.

Firstly, we must recognize that improving buildings helps landlords, tenants, New York City at large, and its population. To foster these improvements, the state, via federal grants, can offer below-market loans earmarked to improve the environmental condition of these buildings. Removing lead-based paint, converting to green energy, and upgrading to fuel-efficient systems can create jobs, improve buildings, and increase NYC’s tax revenue.

Secondly, rental increases determined by RGB must give heavier weight to the real expenses of a building as compared to the Consumer Price Index (CPI). This will create a more equitable approach to absorbing the expenses of buildings. Too often this process is governed more by the negotiation of politically palatable increases rather than the real costs of managing rent stabilized buildings.

Thirdly, the reinstatement of vacancy increases is essential in promoting the renovation of older apartments. Under HSTPA, they plummeted from 20 to 0 percent. A vacancy increase should be reinstated and likewise tied to the CPI.

Fourthly, a new 421-a exemption is critical to addressing the affordable housing crisis. The loss of this program has greatly reduced the construction of new buildings with affordable units. While Governor Kathy Hochul has continued to offer replacement programs, these have been rejected by construction unions for their failure to meet adequate labor standards. This negotiation must be bridged. Nobody wins by this impasse.

Let us look to the past to see the future. The inability to compromise on issues is not acceptable while almost 20 million New Yorkers (including nearly 8.5 million New York City residents) suffer. The lessons of the failed policies of the 1960s provide a cautionary tale of where New York City could once again be headed. Fortunately, history also provides a blueprint for a way out of it.

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