INTERVIEW: Wrecking-Ball Regulation

By Reuvain Borchardt

Michael Tobman, Membership & Communications Director at the Rent Stabilization Association, discusses the latest push by Democrats in the New York Legislature to pass a “Good Cause Eviction” law. 

Good Cause Eviction would mean stiff new regulations on apartments in multi-unit houses not currently covered by rent-stabilization laws, including limiting rent hikes and a prohibition on evicting a tenant except for “good cause” such as failure to pay rent.

The Rent Stabilization Association is a trade group for New York City apartment-building owners — both regulated and non-regulated — which opposes the proposed bill.

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Tell us what this Good Cause Eviction bill would do. 

Good Cause Eviction is a cookie-cutter, one-size-fits-all reckless attempt to regulate every multi-family building that is not owner-occupied in the entirety of New York State. 

The residential real-estate community opposes it because Good Cause Eviction would radically diminish the value of every apartment building and every multi-family building in every part of New York. And it’s not just the real-estate industry saying this. 

Signature Bank failed. New York Community Bank nearly failed, and needed a billion-dollar bailout and is still very wobbly. That is because those banks lent heavily to apartment buildings in New York as a lot of community and regional banks do. The 2019 laws overregulated apartment buildings and made them a devalued asset. 

It is not an exaggeration to say Good Cause Eviction would wreck the finances and wreck the budgets of every locality in the entirety of New York. It’s already happening, and Good Cause Eviction would make it much worse.

What exactly is in this bill that you’re so opposed to?

The most destructive aspect of Good Cause Eviction is permanent lease renewals. It mandates that for buildings not under rent control, leases be renewed for tenants in multi-family buildings that are not owner-occupied. This means that control of the buildings would in effect be transferred from property owners to the tenants. And it really would devalue buildings because building owners would not be able to make decisions about the economic life of the property that they own. 

In your view, this is basically turning the non-rent-controlled buildings into rent-controlled buildings.

Absolutely. Good Cause Eviction would make non-regulated units regulated. 

But the Good Cause Eviction law wouldn’t set exact rents like the Rent Guidelines Board does for rent-controlled apartments. The Good Cause Eviction Law says any rent increase above 3%, or one-and-a-half times the annual percentage change in the Consumer Price Index in the region, would have to be approved in Housing Court.

Right, it’s not the exact same thing as the Rent Guidelines Board, which sets rent increases for one- and two-year stabilized leases, for units that are already under rent stabilization — those that are six or more units and built before 1974. 

But what Good Cause Eviction would do is sort of side-door that by mandating permanent lease renewals, and a rent cap to not exceed a certain percent unless the landlord goes to court to demonstrate why he needs it. For all intents and purposes, it’s just another version of what the Rent Guidelines Board currently does for rent stabilized units; it just does it a different way.

Now, despite what the supporters of Good Cause Eviction say, Good Cause Eviction is not a tenant-friendly bill. Its goal is to wreck the affordable housing market and punish building owners. It is a political effort, not a policy effort. 

I say that Good Cause Eviction is not tenant-friendly because it would freeze the rental market even further. Nobody would leave apartments; there would be no turnover. Empty-nesters would stay in three-bedroom apartments, while families of four or five would be stuck in a one-bedroom apartment, hoping to trade up to a bigger apartment one day.

It would disincentivize development, because why would anyone build a residential apartment building just to have all those units regulated in a way that doesn’t make economic sense? 

Tenant advocates are talking about giving tax incentives to build, but then they’re also talking about regulations that would disincentivize building no matter what tax benefits are given. 

Also, Good Cause Eviction would devalue the assessed value of buildings and lower their net operating income. And since net operating income is the measure upon which taxes are levied, this bill would shrink the budget of New York City. It would shrink the budget of Long Beach. It would shrink the budget of Glen Cove. It would shrink the budget of any tax system that depends on apartment buildings or multi-family residential buildings.

And it’s not like government will all of a sudden start spending less. To make up the budget shortfall, who will then get property-tax increases? Single-family homes, and commercial buildings which are already struggling with sky-high vacancy rates.

Do you think it would devalue some buildings to the point that they might be worth less than their mortgage is?

Yes, some buildings would be worth less than their outstanding notes. 

And I was actually about to mention mortgages: The mortgages on these multi-family buildings are not the 30-year fixed traditional mortgages that individuals typically get for their homes. They’re usually three-, five- or seven-year notes. Well, three, five and seven years ago, people borrowed and refinanced at 3% or 3.5% interest rates. Right now, you’re lucky if you get even a 7% interest rate. 

So these buildings that are dealing with the over-regulation from the 2019 tenant law are now facing the prospect of further regulation, and a doubling of their interest rate when they have to refinance. So yes, this bill would be economically ruinous and wreck the financing of affordable housing, and that in turns ruins the finances of the locality, whether it’s New York City, or anywhere else.

And who would then be able to afford to buy these buildings and run them at a loss? Corporate owners, many from out of town. It would be a very different city when they own the majority of buildings, as opposed to local owners. That’s why I say it is not tenant-friendly, despite what the tenant activists are saying.

Also, the 2019 laws have made it impossible to maintain these buildings in an economically feasible way. They have made it impossible to rehabilitate apartments that have come back after 30- or 40-year tenancies and need $100,000 worth of work. The 2019 law says you can only recoup $15,000 of improvements in increased rent. Well, $15,000 would barely put a new tub in. 

We’re dealing with the effects of the 2019 overregulation, and now they want to do more? Like I said, it’s politics, not policy.

A Good Cause Eviction bill in New York has been considered and rejected for five years. And we are hoping that continues. We are working hard. We have a large coalition. Building owners are as diverse as the state. “We House New York” is not just our tagline. We are the private providers of affordable housing that the city and state depend on. 

We have owners everywhere in New York City. We have some owners who have 20-unit buildings in Bay Ridge. We have six-unit buildings in Crown Heights. We have large developments in Queens. And we have 10-unit buildings in northern Manhattan. We have large owners all the way down to owners of one six-unit building in Ocean Hill or Brownsville.

Our members are Orthodox and Hasidic, West Indian, Russian, South-Asian, Albanian, Chinese, Hispanic, Irish, Italian, and Greek. Our owners look like the city. 

Despite Republicans flipping a few seats in recent years, the Legislature still has a supermajority of Democrats, and there is a Democratic governor. The dynamic of state government is more or less as it was when the 2019 law passed, over the objections of the real-estate industry. What makes you think Democrats won’t pass it now?

You raise a really excellent question. But it oversimplifies the situation. 

There’s a diversity of opinion within each house of the legislature, within the Senate and Assembly, then disagreements on the issue between the Senate and Assembly. And then there are negotiations and disagreements with the governor.

The governor seems to understand that New York is a vast state of diverse regions, and Good Cause Eviction would negatively impact all of those neighborhoods and all of those communities. So, we’ll see.

And what happened in 2019 was a very different dynamic.

In 2019 there was a toxic dynamic between Governor Andrew Cuomo and the legislature. It is a very different relationship now between Governor Kathy Hochul and the legislature. And there is a very different understanding of how these policies have harmed owners throughout New York. We are now able to see the impacts of the 2019 laws, and that is helping to make the rational argument that over-regulation of buildings is bad for the city and bad for the state. So, no, I don’t agree that it’s the same dynamic. It’s a very, very changed situation.

Tenant advocates who support these bills say they are necessary because there’s a housing crisis, people can’t afford to live in New York, and we just need to help out the poor renters, and the landlords who are generally wealthier than tenants just have to kick in a little more, in the form of lower rents, to help less well-off people stay in New York. 

There are solutions that the real-estate industry supports that are not as destructive as Good Cause Eviction — such as statewide right to counsel in Housing Court; and housing vouchers aggressively funded by the state to the tune of hundreds of millions of dollars, which the governor and the legislature seem to already agree with. The real-estate industry supports in certain circumstances caps on the rents of market-rate apartments — that in certain circumstances rent increases can’t be higher than a certain percentage over the CPI Consumer Price Index — and diversion programs in Housing Court to address the backlog and to assist tenants in economic distress. The real-estate industry supports solutions, but not the permanent lease renewals you see in Good Cause Eviction. The economic destruction caused by Good Cause Eviction would cascade through the entire economy, which is why we oppose them. 

Those who are supporting Good Cause Eviction need to find a place to agree with the industry and say, yes, these four or five things we agree on, so let’s come together in the middle to craft solutions to help New Yorkers, and everybody benefits. But so long as they keep being negative, and so long as they keep pushing permanent lease renewals, that’s not constructive. And the real-estate industry is saying to public officials and our opposition: We’re here to come up with constructive solutions that work for New York.

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rborchardt@hamodia.com

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This interview first appeared in Hamodia Prime magazine.