NYC rent reform is a major step — but in which direction?

With commanding majorities in both houses of the state legislature and control of the governor’s mansion, Democrats in New York passed sweeping reforms to the rent regulation system that shapes the housing market in the nation’s largest city and fourth-most-populous state.

As the dust settles on these major legislative changes, it is worth considering their potential long-term effects and the underlying conditions driving the affordable housing crisis that prompted the legislature to act.

Some brief context: New York City, unlike the nation as a whole, has a majority of renter households. The 3.5 million-unit housing stock can be divided into three roughly equal categories:

• owned residences;
• unregulated market-rate rentals; and
• the rent-regulated stock, which includes most subsidized affordable housing as well as the New York City Housing Authority (NYCHA), with many of its 175,000 units rapidly deteriorating.

Tenant activists pushed for years to win changes to the rent laws, and without question their victory will make housing more stable for many of the roughly 1 million households fortunate enough to occupy a regulated unit.

By eliminating rent increases associated with unit turnover and repealing a provision that allowed for the deregulation of units above a certain rent threshold, the reforms have removed a powerful incentive for landlords to churn through tenants, a setup many felt was driving an epidemic of harassment and abuse toward predominantly lower-income households.

The law also contains a host of tenant protections that apply to all rental units, including limits on security deposits, late fees, credit check charges and “blacklists” used by landlords to screen prospective tenants.

Yet, beyond these important short-term benefits for renters, the picture is far less clear. Stricter rent regulation is expected to have implications for the long-term quality of New York’s rent stabilized housing stock, for property values and city property tax revenues, for the dynamism that welcomes new residents and allows people to move into units that fit their needs and for housing construction and its relationship to supply and prices.

Opponents of stricter rent regulation pointed to the risk of decline in housing quality if rent increases were not high enough to cover the cost of repairs and renovations.

While the cautionary tale of deteriorating public housing in New York City is almost certainly too alarmist, the rent-regulated stock is aging and therefore has significant capital needs.

City and state officials must monitor the possibility that the legislature over-corrected the system to the detriment of housing quality in the regulated stock.

Property values of rent stabilized buildings may fall in response to their lower long-term earning potential. If concerns about capital investment bear out, there is a real risk that reforms could further bifurcate the rental market into a two-tiered system where low-cost regulated housing is of much lower quality and value than high-cost unregulated housing. Surely this was not the intent of progressive legislators concerned with equity and social justice.

If the value of the regulated housing stock does indeed fall, annual property and transfer taxes will follow, leaving other multi-family housing owners and taxpayers to pick up the bill. Transaction taxes may decline as fewer of these properties are sold and at lower prices.

The decline in property values has implications driven by New York’s famously byzantine property tax system, which dictates a certain share of revenue from different classes of buildings. The details about who will ultimately shoulder the shift in the property tax burden may rest on legislative or judicial reform.

The most serious potential negative consequence of reform would be if it discourages the construction of new market-rate and subsidized low-income housing.

Legislators have already passed a technical fix addressing an unintended consequence related to a commonly employed tax-incentive program for the building of mixed-income housing, but developers remain concerned with the long-term economic viability of producing new housing units.

Increases in the cost of housing in the New York Metro Area have been caused in part by the failure of supply to keep pace with demand. After nearly imposing statewide price controls in response, policymakers would be wise to consider approaches that reduce the constraints on housing supply rather than solely adding to them.

Other states and cities are struggling with similar affordable housing shortages and looking to create balanced approaches that go beyond rent control. In California, lawmakers considered a bill that would have lifted the ban on construction of many types of housing in areas zoned exclusively for single-family homes and encouraged higher density in transit-rich areas.

After passing the country’s first statewide anti-rent-gouging bill, the Assembly in Oregon passed a measure limiting exclusionary single-family zoning last week. And Minneapolis became a national leader in the housing world by taking on single-family zoning, with the goal of making themselves inclusive and affordable not just to those who live there now, but for those who may want to in the future.

If rent reform in New York can provide enough housing stability to assuage the widespread fear of growth and development and pave the way for policies that expand the supply of housing at all levels of income, it may yet prove an enduring and universal benefit for affordability. 

Mark Willis is the senior policy fellow at the New York University Furman Center, which advances research on housing, neighborhoods and urban policy.