Striking a fair balance for New York landlords and tenants
By Michael A. Ferruggia
Over the past several years, New York landlords, developers, investors and lenders have been realizing the impact and market disruptions affected by the Housing Stability and Tenant Protection Act of 2019 (HSTPA). This sweeping legislative initiative is an historic expansion of tenant privileges across the state. Critics claim that the added cost of compliance with the HSTPA and its reformation of the eviction process has driven many investors out of New York in search of more secure, passive income, real estate opportunities.
Ann Korchak, board president of Small Property Owners of New York (SPONY), a coalition of New York property owners which, in close concert with other industry organizations, lobbies New York lawmakers for sound housing policy that “won’t… put us out of business,” she says. She stresses that many SPONY members are small, “legacy owners with multi-generational family businesses” that simply cannot withstand “the regulatory and compliance obligations (which are) just getting more and more complex.” She admits that, because of the HSTPA, many property owners have simply waved a white flag, decrying, “That’s it! I’m done (with New York).”
But not all agree. Pilar Moya-Mancera, the executive director of Housing Help, Inc., a “tiny but mighty counseling agency” that works both with tenants and with “the small… ‘mom and pop’ landlords of Long Island,” says the HSTPA “is not unreasonable.” Nor does she correlate the enactment of the HSTPA with the exodus of housing investors from New York. Rather, she claims that the period following the HTSPA “was the perfect time to (sell).”
According to the New York State Association of REALTORS®, the median sales price of homes throughout the state was $299,000 in June of 2019, when the HSTPA was enacted. In June of 2021, however, this figure did increase to $385,000 — almost 30% in just two years.
Regardless of causality, many investors did, in fact, exit New York. Others, those that possessed the business sophistication and financial stability to do so, instead pivoted. Adjustments to both short- and long-term investment strategies and, in some instances, overall business models, were employed to compensate for the added cost of compliance with the HSTPA.
Unfortunately, not all these pivots are necessarily desirable or, for that matter, in keeping with the legislative intent of the HSTPA. Korchak claims that such legislation “definitely (serves as) a disincentive” for landlords to invest in maintenance, improvement, or renovation of rental properties.
The pivots do not stop there. Landlords have since come under much fire from tenant activists for intentionally withholding vacant units from being placed back on the rental market. This practice, commonly known as “warehousing,” is relatively easy to quantify within the rent stabilized sector. In 2019, there were 927,753 rent-stabilized apartments registered with the New York State Division of Homes and Community Renewal. In 2021, however, this number decreased to 857,791, a difference of 69,962 fewer apartments in just two years.
So, as landlords began to appreciate the full scope and reach of the HSTPA, they could attempt to make moves to compensate… or one would think. What no one, not even the most seasoned, well-positioned investor, could anticipate however was that, within six months of the HSTPA being signed into law, a global pandemic would wreak havoc upon the entire fabric of society as we know it. So much for sophisticated investment strategies and positioning.
Within the landlord microcosm, the “mom and pop” investors of whom Korchak spoke were undoubtedly hit hardest. Ill-positioned to withstand both new and unforeseen challenges, many found themselves defaulting on mortgage obligations and frenziedly trying to navigate a whirlwind of COVID relief and forbearance programs. When the last eviction moratorium was finally lifted well over a year later, still more were faced with unmanageable court dockets and seemingly limitless “COVID defenses” asserted by tenants.
The percolating tensions inherent in landlord-tenant relations are neither new nor subtle in New York. On the one hand, landlords are incentivized to raise rents in an effort to mitigate both the seen and unforeseen costs of doing business. On the other hand, tenants and tenant advocacy organizations clamor for lower or, at least, stabilized rents. Can an equitable balance in the “push-pull” relationship between landlords and tenants ever be achieved? Or is it simply a zero-sum game?
To answer that question, the rules of the game first need to be clearly defined. Yet, the massive volume of proposed bills directly relating to the landlord-tenant relationship and introduced in Albany this past legislative session alone is quite telling. They clearly illustrate the direction in which the landlord-tenant pendulum is swinging. The rules may be changing even still, or so our legislators intend.
To some like Moya-Mancera, these “regulations don’t matter (much) because… being a landlord is more profitable now than it has ever been before.” Conversely, Korchak cautions that if some of these bills were passed, they “definitely” would result in still more landlords divesting or repositioning their New York holdings because “income will not keep up with expenses.” Note that, according to rentdata.org, median rental prices throughout the state increased only 10-11.5% for the same period of 2019 through 2021.
So where is that “sweet spot” where landlord and tenant interests are equitably balanced? Is it that governmental overreach is simply a systemic and unavoidable reality in coastal environs? Or is it that the “public interest” (however that may be defined) overrides private property rights and profit motives thereby justifying such a level of legislative oversight?
Even Korchak concedes that “no regulation is not the answer … There are health and safety concerns (to consider). So, there is room for regulation.” But she does contest the “idea that ‘you shouldn’t be making money off providing housing (because) it’s a human right.’” Instead, she contends that “it’s a right to enter into a contract for housing.”
To Moya-Mancera however, housing is “both” a human right and a right to contract. She admits that “Albany can do a better job… in making legislation suitable for the multifamily landlords and the small (‘mom and pop’) landlords.” She stresses that, when “a tenant doesn’t pay the rent … two households are at risk of losing their home: the tenant as well as the homeowner. We need to implement appropriately measured policies “to protect them both… It is everyone’s problem,” she says.
It is doubtful that our legislature is sincerely listening. NYS Senator Jabari Brisport, a member of the Democratic Socialists of America, for example, is of the opinion that there should be no private ownership of rental housing whatsoever. Across the rental board, housing should be state-owned, operated, and administered since, for him, “it’s clear that the market cannot make affordable housing.” What Brisport fails to consider, however, is that it may not be the “market” that creates barriers to affordable housing, but rather overreaching government interference with it.
That equitable “sweet spot” for which Moya-Mancera and Korchak advocate is simply unattainable without earnest dialogue, debate, and compromise. Only New York voters have the power to demand that that takes place. Until a philosophical renaissance is embraced in the halls of our capital, the tensions between tenants and landlords (at least for as long as they exist in the state) will sadly continue to percolate.
Michael Ferruggia is a partner of the law firm of Bruno, Gerbino, Soriano & Aitken, LLP. His practice concentration is in commercial real estate and corporate transactions. He also currently serves as an adjunct professor of real estate law at Villanova University. In 2013, he founded the New York Center of Real Estate (NYCORE), a fully accredited real estate school offering relevant and contemporary continuing education programs to New York real estate professionals. Since 2014, Mr. Ferruggia also serves as Counsel to the Board of the Hamptons North Fork REALTORS® Association (HANFRA). As such, he serves as the legal liaison and voice of Long Island REALTORS® in both state and national matters.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of their employer(s), clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.