"Good Cause Eviction" NYC

While this is not an NYC centric issue, the title of a Bill sponsored by Julia Salazar (D), is "Good Cause Eviction".  The summary is that WHEN, and not if, it is passed the Bill will impose maximum caps on the amount you can raise a rent while a tenant is currently under a lease.  It requires landlords to extend a lease automatically, and the increase capped at 3% or CPI(greater of).

Besides this being a terrible and myopic "solution" to affordability in NYC, what are some thoughts on the matter.  It is my determination that this will cause even more unaffordability, take units off the market just as rent stabilization does, and hurt tax revenues.  It is being labeled as a change to real property law...one that doesn't make any sense. Clearly another government taking.

But what are some ideas or strategies to make sure values don't decrease substantially?  I think anyone acquiring Class A MF buildings will be in a good place as turnover is fairly high and vacancy is low.

Comments (37)

Dec 1, 2021 - 12:29pm

Happened a few years back in my home country and as a result they have seen smaller private landlords (1-2 units) leave the market in troves. The good guy LL who hadn't done a rent review in a few years got seriously dicked as it was brought in essentially overnight. What has initially ended up happening is that the rent is now the capped rent but a tenant might be charged out through the nose for a car parking spot or additional services on their lease, but these loopholes are being closed as we go along!

Intuitional capital in their MF blocks now will offer all sorts of incentives (Rent Free/Less deposit etc.) to residential tenants just so they sign on the dotted line at the higher base rate.

I don't know anything about the NYC market or what the ins and outs of the legislation proposed, but it sounds like from what you are saying, it only applies to existing lease reviews? Whereas what we were stuck with was a rental cap on the actual property itself so it might not be as bad in NYCs case.

Dec 1, 2021 - 1:42pm

Huge issue and majorly shortsighted.  Or rather, as with a lot of housing policy in NY State (and I guess everywhere in a general sense), it's being crafted as a policy that sounds good on paper without any real understanding of how it will play out in the long term.  I guess that's politicians for you - short term benefit outweighs long term costs.

Skipping over a lot of the shit that will happen in the interim, what it means is that housing stock in NYC especially is going to deteriorate to slum conditions over the long term.  We're already seeing a bit of this with the Rent Stabilization bill from 2019 - smaller landlords can't afford to maintain buildings without the ability to raise rents, so they sell to huge companies and go retire.  So in one sense, you're destroying the fabric of communities and one of the major roads to building wealth that has traditionally existed in NYC.  But beyond that, five, ten years down the road you're going to see that no one is doing anything more than the bare minimum to repair assets.  No reason to replace appliances or fixtures, to repaint, to do anything, really.  So, a slow and steady deterioration of housing stock.  The only way to combat that is by having the public subsidize repairs, which will be harder and harder with declining tax revenues from property that is losing value.

Put simply, the far left in New York, and really the public as a whole, has a very legitimate bone to pick with the way housing stock has been treated for the last 10-15 years.  A lot of unscrupulous landlords and slumlords abused the hell out of the system, broke laws, harassed tenants, and generally acted exactly as alleged by people like Assemblymember Salazar.  The problem is that in their haste to pass "transformative" legislation and take credit for it, tenant advocates have thrown the baby out with the bathwater.  All of those bad actors won't be hurt in the slightest by this legislation; they'll go on running their buildings into the ground and making their tenants live in hovels and squeezing every last nickel out of their building.  But the good landlords who actually keep up their buildings won't be able to any longer, and the public will pay for the inevitable need for repairs.

A much smarter solution would have been to appropriate a few million dollars a year to set up an enforcement unit, which made sure that people in rent stabilized housing actually needed the housing and were income qualified (instead of many wealthy people who luck into these units and never leave), and also to exert more stringent control and auditing over bad actors abusing the system.  But that isn't sexy and that doesn't win votes, especially not from the people losing their lottery ticket, so.... no dice.

Dec 1, 2021 - 2:28pm

Agree, for the most part.  I'm not so sure there are as many "bad actors" as you say, but breaking the law is the problem.  I'm not so sure "the public as a whole" has a bone to pick other than the existence of rent regulation reducing free market supply.

It seems you are in the space a lot, so what are some ways you think one would be able to get around it?  Like current RS owners using vacancies in adjoining apartments to substantially alter, and create a first rent.  I'm not so sure how the landlords can survive when expenses inflation rises above ability to increase rent.

Dec 1, 2021 - 2:45pm

C.R.E. Shervin

Agree, for the most part.  I'm not so sure there are as many "bad actors" as you say, but breaking the law is the problem.  I'm not so sure "the public as a whole" has a bone to pick other than the existence of rent regulation reducing free market supply.

It's not a huge number, but they do exist, and as with anything, they get more press than the vast majority of landlords operating their buildings more or less responsibly.  Also easy to forget now, a decade or so on, some of the horror stories from the early 2010s when Brooklyn rents were blowing up at like 5% a year and taking a unit out of stabilization was worth hundreds of thousands of dollars.

And the public as a whole did have a bone to pick, because when you hear stories about landlords shutting off the heat, or putting holes in the floor, in order to force tenants out... I mean, I guess that's not a direct adverse impact, but it certainly is a cause for public concern.  All that shit happened.

It seems you are in the space a lot, so what are some ways you think one would be able to get around it?  Like current RS owners using vacancies in adjoining apartments to substantially alter, and create a first rent.  I'm not so sure how the landlords can survive when expenses inflation rises above ability to increase rent.

Even without (bad) inflation, expense growth has been outpacing rent growth for years.  And there aren't a ton of ways to get around this.  Honestly, my advice would be to not transact on a rent stabilized building in NYC unless you can do so at an attractive basis, or if you have enough operational capacity to spread costs and reduce per unit expenses.  Especially older housing stock which will need continual repairs.  The flip side to all this is that tenants are highly motivated to stay in their apartments, so if you can buy at a decent cap rate, you can treat some of this like a fixed income security, and hope for legislative changes down the road which will unlock a lot of terminal value.

Honestly, between the rent law in 2019 and the onset of COVID, I'm not sure that the market or the public agencies have adapted to the new normal.  Might be a while before some of the public subsidy and abatement programs come back into play enough to make a difference (e.g. the J51 renewal currently being contemplated)

Dec 3, 2021 - 10:56am

Ozymandia

Huge issue and majorly shortsighted.  Or rather, as with a lot of housing policy in NY State (and I guess everywhere in a general sense), it's being crafted as a policy that sounds good on paper without any real understanding of how it will play out in the long term.  I guess that's politicians for you - short term benefit outweighs long term costs.

+1 SB. Slow building clap for Oz.....what I find amazing man is that you get the problems of well-intentioned left-leaning policies in an area where you have expertise. What I don't think you get is the same story is true for almost every other issue that you've argued on WSO, " policy that sounds good on paper without any real understanding of how it will play out in the long term".

Dec 3, 2021 - 11:42am

NoEquityResearch

+1 SB. Slow building clap for Oz.....what I find amazing man is that you get the problems of well-intentioned left-leaning policies in an area where you have expertise. What I don't think you get is the same story is true for almost every other issue that you've argued on WSO, " policy that sounds good on paper without any real understanding of how it will play out in the long term".

Because not every issue is the same?  And we do not have experience with every issue in the way we do with housing?  Just like with this guy I'm arguing with on this thread who claims that government regulation is the problem - well, deregulating the housing market is a right wing solution that sounds benign, but that ends up with sickness and death because some people will always value a dollar over a life.  We had that, back at the turn of the previous century, and it didn't work out well.  It worked so poorly, in fact, that we invented zoning.

I don't see how further regulation of guns, for example, will have the same negative consequence.  We can absolutely point to examples where that has been successful.  Or healthcare.  In all of these areas, we can see in the world around us that more government intervention and oversight is a net positive for society, though maybe not for an individual taxpayer.  

Neither right nor left have a monopoly on stupidity or bad ideas.  And you or I would have to be an absolute fucking idiot to believe that just because a more conservative or more liberal approach is correct in one instance, means it will be correct in all.  New York housing policy is already extremely liberal, so to oppose a further shift to the left isn't a reflection of liberal economic policy in general, but merely an opposition in this instance.  I'd make a very different argument in, say, Houston, or in Florida.  In fact, that's a great example, since lax oversight and unscrupulous private actors led to the deaths of a bunch of people just this year in Florida.  In that case, I'd argue a little more government oversight is called for.

It's all relative and each case should be taken on it's merits.

  • Associate 2 in RE - Res
Dec 24, 2021 - 2:39pm

what I find amazing man is that you get the problems of well-intentioned left-leaning policies in an area where you have expertise. What I don't think you get is the same story is true for almost every other issue that you've argued on WSO, " policy that sounds good on paper without any real understanding of how it will play out in the long term".

Conquest's First Law of Politics: Everyone is conservative about what he knows best. 

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  • Associate Consultant in Consulting
Dec 2, 2021 - 8:40am

The answer is affordable housing is stunningly clear, but for some reason, no one wants to do it. Increase the damn supply of buildings. Remove restrictive zoning regulations, allow developers to build more and more new buildings across neighborhoods. If someone wants to build a 70 story skyscraper, luxury apartment in chelsea then we should let them. This will soak up the demand of the upper class, thus dropping prices for everyone else across the board. 

If you're screaming noooo, the character of the neighborhood will change - then you're part of the problem

Dec 2, 2021 - 10:26am

This comment needs to be at the top of the pile. 

Rent control addresses the symptom, not the cause. I recognize MH is different than MF, however look to California as an example of this. You have people living in a 800 SF mobile home from the 1970s  that is worth over $300k, all because of rent control. Did that address affordability, no, it just moved the cost up front. 

Dec 2, 2021 - 5:25pm

The answer is affordable housing is stunningly clear, but for some reason, no one wants to do it. Increase the damn supply of buildings. Remove restrictive zoning regulations, allow developers to build more and more new buildings across neighborhoods. If someone wants to build a 70 story skyscraper, luxury apartment in chelsea then we should let them. This will soak up the demand of the upper class, thus dropping prices for everyone else across the board. 

If you're screaming noooo, the character of the neighborhood will change - then you're part of the problem

We do let this happen.  Plenty of large scale new development happens in NYC.  The problem is that there is a major need for affordable housing and there is only a trickle of new units coming online, relatively speaking.  Some of this is a function of the city's tax regime (MF rental buildings get screwed over).

In short, your solution is just as shortsighted and ignorant as rent control.  The market doesn't solve everything.  We've had 12 years of massive development in NYC and it's done nothing to alleviate the housing crisis.  Unfortunately for all of us, simple solutions, whether a laissex-faire right wing approach or a socialist model advocated by DSA assemblymembers, rarely work.

  • Associate Consultant in Consulting
Dec 3, 2021 - 12:10am

Nope - your take is plainly wrong. Regulatory burdens and restrictions make building new housing needlessly expensive and limited. To build a new skyscraper/building, you literally have to purchase the "air space" of all buildings around you, complete excruciatingly long and detailed environmental review, and deal with layers and layers of governmental oversight. On top of that you can't even build in/around many parts of the city due to "historical preservation" (also corresponds to the most expensive places in the city). Is it any wonder that with all of these restrictions and construction expenses that the only things that get built are "billionaire condos" where a 1 bed goes for $5M? Of course, I'd rather have them pay $5M for that rather than further driving up prices of walk ups in Chelsea. 

In the past 10 years, NYC has added 500,000 new residents (most of which are not part of families) but built only 100k new housing units. Until NYC radically increases the supply of housing (which they haven't truly tried to do tbh), any regulation is just playing musical chairs with a dwindling number of apartments / capita. 

Dec 3, 2021 - 5:54pm

The market doesn't solve everything.  We've had 12 years of massive development in NYC and it's done nothing to alleviate the housing crisis.  

Yeah, MASSIVE development, completely kept pace with population and employment...

2019 Data on New York City's Housing Stock – NYU Furman Center

New York City Records Another Year of Jobs-Housing Mismatch | Economics21

  • 1
Dec 24, 2021 - 11:51am

Not super versed in affordable housing but isn't the issue that developers / investors would never even build new affordable units without public funds, credits etc (the deals simply do not pencil). You can build as much market units as you want, but no one wants to own a building clipping rents that are 1/10th of the adjacent FM units (without corresponding assistance to make it work).

  • Associate 2 in RE - Res
Dec 24, 2021 - 2:35pm

If you're screaming noooo, the character of the neighborhood will change - then you're part of the problem

Contrarian take: it's totally legitimate to care about the character of the neighborhood. Contemporary developers deserve some of the blame for NIMBYism because the aesthetic character of what they build is such crap. This RE cycle has produced an incredible amount of bland midrise podium buildings that look like they rolled off of the construction equivalent of a cheap assembly line.

Neighbors who say that a development will degrade the character of their neighborhood are generally correct on an aesthetic level. The development and architectural professions need to take a look in the mirror once in a while instead of just blaming NIMBYs. The general public prefers 1920 buildings over equal-size 2020 buildings by a wide margin.

Yes, I know there's more to it than that, but it's an underrated part of the problem.

Dec 3, 2021 - 9:27am

C.R.E. Shervin

Yes, just not state senators or councilmen.

Yes, well, since when are politicians as a group known for integrity or long term thinking?

John Oliver has a segment on infrastructure repair once, where he made the argument that politicians love to do something new because it's good PR and a ribbon cutting opportunity and proof of what they're doing for their constituents, but hate maintaining existing structures because it's boring and complicated and not sexy and they won't get re-elected for maintaining what is.  I think that insight applies to all things politicians do.

Reforming existing laws surrounding development, affordable housing, rent stabilization, and all that... that's difficult and thorny and sure to piss someone off.  It's not sexy.  It might solve a problem in the most efficient manner, it might makes people's lives better, but it won't help Julia Salazar or anyone else get re-elected.  Championing a new bill that makes for a great headline/sound byte, on the other hand.... that's the stuff national campaigns are built on. 

Dec 3, 2021 - 9:29am

bigbob123

Seems like the law is giving landlords an incentive to turn over units as rent grows?  If market rent is 15-20% over what you are charging a tenant you're going to want to make them unhappy enough to move.

Under the old law that was the case.  NYC rent laws are complicated, so we can have that discussion if you wish, but essentially rents are decoupled from the market and tied to what NYC approves as annual increases.  Which over the last 8 years were between 0-1.5% a year.  Under Bloomberg it was more generous (usually 3-4%) and my guess is Adams will fall somewhere in the middle.

  • Associate 2 in PE - Other
Dec 30, 2021 - 11:39am

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