Industry Leaders: New York State’s rent regulation: A new system is needed by Engel

For decades New York State’s rent regulation system has yielded an imbalance in the supply and demand for rental housing. In an attempt to protect housing affordability and to pander to the voting masses, the legislators perpetuate a system that is broken. At times, on occasion, an intelligent state legislator, in an effort to try to better the system, has created subsidies or benefits to benefit building owners to try to balance the income restrictions. The introduction in 1997 of vacancy decontrol was one such program.  The program realized that by creating an opportunity for owners to raise rents after a vacancy and to possibly remove the unit from regulation, no existing tenant who received protections would be harmed.  This, coupled with the major capital improvement program would allow an owner to invest capital in one’s property and as a result receive a higher income from a new tenant who would enter into a lease agreement voluntarily.  Without such a program, the owner would have no incentive to spend any money on the property if the rent was restricted below market. In addition to the MCI program, the state created a tax incentive J-51 program in which the building owner would receive a reduced tax bill in exchange for investing capital into the property. The tax incentive would be provided by government, a fair way for the state to subsidize its goal of housing affordability. These programs for the last two decades have incentivized owners to better New York’s housing stock despite an unfair restricted rental system. They worked quite nicely for some time. Unfortunately, due to an activist judiciary and a progressive legislature and governor, at every turn in the last few years, incentives and benefits are being stripped away. The courts held that if an owner accepted the tax incentive, an owner would forfeit his rights to deregulate an apartment. All of this despite the fact that the DHCR, New York’s housing overseers clearly directed owners that the practice was acceptable. Extremely wealthy tenants who voluntarily entered into lease agreements at market rates were rewarded with overcharge bonanzas and permanent below market apartment rents.  These units will remain in the hands of tenants who do not need assistance with rental affordability. Just this past week, governor Cuomo announced his Tenant Protection Unit was sending out letters to 50,000 apartments regarding units not being registered in buildings which received J51 tax incentives. The governor continues to miss the boat. In order to increase housing affordability, the public sector needs to incentivize private industry to develop and rehabilitate and to rent units below market through continued incentives. Or to rent them at market prices to tenants who receive voucher assistance so that the tenant need not pay over a pre-set threshold. To rely on private industry to continue to subsidize a broken system is not only unfair, but will not protect the tenants who most need protection. A new system is needed. One which involves the means testing of tenants to determine if protections are even warranted. One which results in government subsidizing the restrictions instead of private industry. If private industry is forced to continually subsidize, and incentives are stripped away, building conditions will continually deteriorate. The governor and the mayor need to focus on programs that are not only just, but follow sound economic policy if they wish to protect housing affordability in the long term. Until now they have simply followed policies that sound nice in the press. “50,000 units to be re-regulated” has a nice ring to it, unless you understand that in most cases the units were rented at market pricing anyway. Matthew Engel, CPM, is president of Langsam Property Services Corp., New York, N.Y.