Rent Control of MARKET RENT MULTIFAMILY is (Only Temporarily) Off the Table in AlbanyApr 28, 2022
Shame on me. I wasn’t paying attention to the words:
Good Cause Eviction
I wrongly assumed it was something to do with rent-stabilized properties, which Albany already decimated a couple of years ago. My bad.
However, I just learned – to my incredible surprise – that Good Cause Eviction, if enacted, will mean that a form of rent control will apply to market rent housing in New York State.
Repeat…Good Cause Eviction, if enacted, will mean that a form of rent control will apply to market rent housing in New York State!!!!
They say you shouldn’t use exclamation points in good writing, but I am making an exception here.
I didn’t figure this out because I never thought our political leaders would promulgate such an……idea….if that is what it is. My bad for sure.
If anyone says Good Cause Eviction is not really rent control, you can laugh in their face. The rent increases would be regulated by law, which sounds like rent control to me.
I will not mince words here: this is just nuts.
Of course, I understand the gut appeal of rent stabilization as the theory is it protects lower-income people from forced eviction and having to pay more rent than they can afford. I have written on this before and won’t launch my usual views about how it scares away capital, so the housing situation gets worse and worse for the renters while the politicians that endorse it just blame everyone but themselves for the results.
But applying this kind of thinking to market-rate housing is just ludicrous. These are people who can afford to pay the rent, for heaven’s sake. Some are plain old rich or even super-rich. So who is this law protecting? Whose cause is being helped here?
And who would be foolish enough to buy, build, repair, construct or have anything to do with multifamily in New York State if this gets enacted?
Even if progressives just hate property owners, the concomitant destruction of value does a lot more damage to everyone else. When values fall, so does tax revenue – by a lot. When no one builds, there are fewer jobs. Unions, among others, should hate this!
And there are other unintended sufferers as well. Indeed, when the rent-stabilized laws wiped out the upside of owning such property in New York City, some of the biggest sufferers (on a personal level) were the tenants who, in some cases, used to have the ability to negotiate a buyout of their location to the owner for big dollars, but that disappeared in a flash of the legislative pen.
Progressive politics can definitely strip away the upside of investments that have been made – no two ways about that. However, the one thing progressive politics cannot do is tell capital where to go. And capital will flee this state faster than an egg timer.
And I do know what I am talking about. I am on the front-firing line of capital allocations and spend my days – every day -- speaking to the parties with capital. And the flavor of the month for the past two years is Sunbelt Multifamily.
Few will say it out loud, but what this really means is their goal is to invest in states without politicians that enact laws that deprive the economic upside of the investment.
Some are – privately – much more vocal and say things like: I would be nuts to invest in New York multifamily due to the politics.
You don’t have to be Einstein to foresee that states that woo capital will continue to dramatically outperform those that treat capital like a rabid dog and that brand the American dream of making a profit on investments as greedy or worse. I just took a cross-country trip and hung out with some friends in other states by happenstance. They fell over themselves, telling me how business-friendly their markets are.
This is not someone else’s problem – if you are in NYC real estate, I am sorry to say that it is your problem.
Here is a summary of the proposed statute by my partner and chair of our New York City Tax and Incentives Practice, YuhTyng Patka:
Under the law, if passed, landlords would be prohibited from removing a tenant except for “good cause,” whether by action to evict, exclusion from possession, failure to renew a lease, or otherwise. The fact that there is no written lease between the landlord and tenant or that the lease is expired or terminated are inconsequential and are not mitigating factors. There are eight scenarios covered under the bill that would constitute “good cause”: (1) failure to pay rent; (2) violating a substantial obligation of the tenant; (3) committing a nuisance or damaging the property; (4) violating an order to vacate; (5) using the property for illegal activities; (6) unreasonably refusing access for repairs and maintenance; or (7) and (8) if the landlord is seeking in good faith to recover a unit or the entire building for personal use as a primary residence for themselves or a family member.
The spotlight is on the first definition of “good cause” that permits a landlord to remove a tenant for failure to pay rent. The provision prohibits an “unreasonable” rent increase by the landlord imposed for purposes of avoiding the intent of good cause eviction. The provision presents a rebuttable presumption that a rent increase is unreasonable if it is increased in any calendar year by the greater of 3% or 1.5 times the annual percentage change in the Consumer Price Index for the region as established in the preceding August. Any written agreement by the tenant waiving their right to good cause eviction would be voided as contrary to public policy. The definition of what is considered an unreasonable rent increase effectively imposes rent control on every single market-rate rental in the state of New York as it removes the right for a landlord to evict a tenant for nonpayment if the rent increase exceeds 3% or 1.5x the CPI percentage change.
- This is not a Good Cause – it is a Bad Cause
- This is a gross Dereliction of duty by the people New Yorkers have elected
- Hence my nickname: Bad Causeless Dereliction
It didn’t pass in the budget this year, but before you say phew, those pushing it, I am sure, are still pushing it – and I bet it will come up next year and thereafter.
Real estate people hear me loud and clear – you need to have voices and tell people in Albany to stop this kind of thing from happening, or you will reap the whirlwind. I am not a lobbyist and don’t know the first thing about it. But I do know my industry and I do know what will happen if Bad Causeless Dereliction ever gets passed as the law of New York State.
Bruce Stachenfeld, aka The Real Estate Philosopher™