Landlords Revolt, Sue NYC After Rent Control Backfires

Rent control has always been a thorny issue in New York City, where legislators have long fought reality and basic macroeconomic principles to try to keep the rent on certain apartments well below market rates.

A group of landlords hope if economic facts won’t convince the city, perhaps the courts will.

According to the Washington Free Beacon, two landlords groups — the Community Housing Improvement Program and the Rent Stabilization Association — filed suit against the city of New York in federal court earlier this week over its rent control program, seeking to overturn the half-century old initiative which places the rent of 1.2 million housing units under the aegis of the Rent Guidelines Board.

The group says that, far from giving low- or middle-income families relief from Gotham’s high apartment costs, what it actually does is make it easier for the wealthy to hoard the rental stock in the city.

“The [Rent Stabilization Law], first enacted in 1969 and revised numerous times — most recently in June 2019 — has, in over 50 years, never achieved the objectives claimed by its proponents, which include providing affordable housing to low income families, reducing the city’s housing crisis and maintaining socio-economic and racial diversity in the city,” a website for the plaintiffs reads.

“The plaintiffs filed suit seeking declaratory and injunctive relief against future enforcement of the rent stabilization scheme, which will not only halt the deprivation of the constitutional rights of property owners, but will result in increased development of rental properties and more affordable units available to rent.

“The suit will also alleviate New York’s constrained housing market, and will force New York City and State governments to adopt fairer and more efficient means of providing housing to those most in need.”

And that’s the major problem. As The Wall Street Journal discovered via a recent investigation, “[t]he biggest beneficiaries of rent regulation in New York aren’t low-income tenants across New York City, but more affluent, white residents of Manhattan.”

The investigation found that rent-controlled apartments in affluent neighborhoods were up to $2,000 cheaper than market rates, while apartments in low-income neighborhoods were essentially the same cost as apartments that weren’t rent controlled.

New rent laws signed last month by New York Gov. Andrew Cuomo have barred landlords from deregulating apartments or using loopholes to raise rent on the apartments.

On top of that, when the Rent Guidelines Board issued its latest decision on rent increases last month, they were “modest given the history of the board,” according to The New York Times — a 1.5 percent raise for a one-year lease and a 2.5 percent raise for a two-year lease.

The Times also noted that “rent caps have been considerably lower under Mayor Bill de Blasio.”

“During his first mayoral campaign, he pledged a temporary freeze on regulated rents, in order, he said, to protect low-income tenants from a roaring real estate market.”

Another thing might have factored into the decision to pursue the lawsuit now, though: A Supreme Court ruling in June that found that property owners could sue in federal courts if their property was taken via eminent domain. A previous 1985 ruling,  Williamson County Regional Planning Comm’n v. Hamilton Bank of Johnson City, stated that lawsuits could only be filed in federal court. 

While eminent domain isn’t involved in rent control, the Fifth Amendment’s takings clause — which states that “private property [shall not] be taken for public use, without just compensation” — is. That, combined with the 14th Amendment’s right to due process, forms the backbone of the plaintiff’s case.

“We’re going into the court system clearly with an eye of getting to the Supreme Court,” Joseph Strasburg, president of the Rent Stabilization Association, said. “And we recognize that this is a long journey.”

The endgame? “Our goal,” Andy Pincus, attorney for the plaintiffs, said, “is to eliminate the current law, which is unconstitutional, and then for New York to adopt constitutional means of accomplishing its goals.”

However, it’s not just that rent control violates the constitutional rights of property owners. It’s also bad economic policy.

Not only does rent control not help those it’s supposed to, it makes the problem worse. It creates a shortage of apartments at the rent-controlled rate, and there certainly isn’t any impetus for landlords to let more units at the price — or to build new rental stock, for that matter, if they’re forced to rent out more apartments at controlled rates.

In New York City, it doesn’t even benefit the target socioeconomic group it’s supposed to empower. And, yet again, it shows the failure of central planners to overcome the basic laws of supply and demand.

Many may love the idea of rent control because “landlord” is a four-letter word to them; they like to say it with a sneer. Those sorts of feelings, however, cannot overcome the realities of the housing market. If the politicians of New York City can’t come to that realization on their own, one hopes the courts can lend a helping hand.