Affordable Housing Is an Oxymoron


Ginna Currie, Senior Consultant

212.847.0127 | ginna.currie@ryan.com

June 14, 2019 was the date the rental landscape forever changed in New York State with the passing of The Housing Stability and Tenant Protection Act of 2019. This landmark bill was a fight for “universal rent control” to protect renters, but simultaneously, the bill negatively impacted the value of regulated buildings, and ultimately it may weaken New York City’s tax base. The City of New York has the largest concentration in the United States, with more than 1.2 million rent-stabilized units.


Previously, investors purchased multifamily buildings with rent-stabilized units by relying on the upside potential of gradually converting all units to free market, via major capital improvements, vacancies, and buying out tenants. Developers of newly constructed buildings also placed units under rent stabilization because the tax benefit is more profitable than free market rents without the tax benefits. The sweeping regulations have greatly diminished the incentive to develop or purchase regulated buildings because of the following:

  • Rent increases based on major capital improvements (MCIs) are capped at 2%, down from 6%.
  • Individual apartment improvements (IAIs) are capped at $15,000 over 15 years with a maximum pass-through to tenants of $89.28 per month.
  • Apartments can no longer be removed from rent stabilization because their rents exceed a certain amount.

New York City landlords believe they are now subjected to running their buildings at a loss and will no longer be able to recoup the true costs of repairs and renovations. Some building owners have voiced only making minimum repairs and leaving units vacant to meet the threshold for Substantial Rehabilitation with 80% vacancy and later return with all market rent units. It was published by Responsible Rent Reform in April 2019 that for every 1% drop in net operating income (NOI), rent-regulated buildings will generate $67.3 million less in property taxes. As a result, the property tax revenue generated by New York City’s rent-regulated stock could fall $1.3–$2 billion on an annual basis.

Negotiations and sale prices were affected immediately by the new law. An example is the 54-unit rent-stabilized, multifamily building located at 312 East 21st Street, Brooklyn, New York. The reported potential gross income (PGI) was $753,289, and NOI was $361,113. The contract price before the law went into effect was $10.2 million, and the property finally closed at $8 million on July 19, 2019. The difference from contract price to sales price is -21.57%.


The Blackstone Group has reported the new laws are keeping them from making a profit at the Stuyvesant Town - Peter Cooper Village it purchased for $5.3 billion in 2015. Will Blackstone be able to sustain its level of debt while values decline across the city?


Real estate advocacy groups are challenging the Tenants Protection Act, and some banks are no longer lending on regulated buildings in New York City. The fiscal impact to property taxes in New York City is unknown, and the new law does not increase affordability or supply. In a couple of years, the New York City Rent Guidelines Board may have to hit the “reset” button, again.