New Report Highlights Detrimental Impact of 2019 Rent Law on Rent-Stabilized Buildings

A recently released report commissioned by the real estate industry sheds light on the severe consequences of the 2019 rent law on rent-stabilized buildings in New York City. The legislation, which effectively caps revenues in rent-regulated buildings, has faced criticism from property owners who claim it has hindered their ability to maintain their properties.

The report, conducted by HR&A Advisors for the Real Estate Board of New York (REBNY) and the Rent Stabilization Association (RSA), reveals alarming trends in long-term vacancies since 2018. Three-year vacancies have surged by 125 percent, four-year vacancies by 97 percent, and two-year vacancies by 65 percent. These findings are based on annual rent registrations filed with the state housing agency, representing around 10% of the city's approximately 1 million rent-stabilised units.

According to a 2023 survey of city landlords included in the report, over a quarter of respondents cited the "economic infeasibility of unit improvements" as a significant cause of lasting vacancies after long-term tenants leave. The issue is more pronounced in buildings where more than 75 percent of units are rent-stabilised, as owners have fewer market-rate units to offset lower revenues from regulated units.

The liquidity challenge is exacerbated for landlords with smaller portfolios. The survey indicates that 99 percent of units in primarily rent-stabilised portfolios with no more than ten units require major capital improvements. However, the 2019 rent law has limited the ability of property owners to raise rents permanently to offset the costs of repairs, leading to a 37 percent drop in major capital improvements filings since 2019.

Additionally, once an avenue for owners to recoup costs, individual apartment improvements have seen a staggering 77 percent decline since 2019. Net operating income has fallen due to reduced rent increases for improvements, while expenses, including property taxes, energy costs, and insurance, have continued to rise.
The report estimates that if the current trend persists, net operating income could decline by 40 percent to 60 percent by the early 2030s. This decline could result in an annual reduction of $1.3 billion to $2 billion in property taxes generated by the city's rent-stabilised housing stock.

Leaders of real estate organisations, including REBNY President Jim Whelan and RSA head Joseph Strasburg, argue that the study underscores the urgent need for amendments to the 2019 rent law. They contend that the legislation has created a situation where property owners need help to invest adequately in the maintenance and improvement of rent-stabilised apartments.

While some legislative efforts have been proposed to address these concerns, opposition from tenant advocates and lawmakers sceptical of potential benefits for property owners has hindered progress. The debate over the 2019 rent law and its impact on the housing market in New York City continues, with stakeholders advocating for a balanced approach that considers the needs of tenants and property owners.