Crumbling Walls From East Germany to New York City

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On June 15, New York’s Senate introduced the “Housing Stability and Tenant Protection Act of 2019” — essentially removing all incentives for repairing and maintaining buildings with rent-regulated apartments.

It dented the market principles of our real estate economy so significantly that it resembles the Berlin Wall after the first attack by the famous Mauerspechte (wall woodpeckers in German).

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To clarify the economic impact: The new law materially reduces a landlord’s ability to raise rents in privately owned buildings. Prior to June 15, a landlord was permitted to increase the monthly rent of regulated apartments by 1.7 to 2.5 percent of the total renovation cost invested in the unit, that amount is now reduced to roughly $90 in a 15-year time frame. The tax increases a landlord will need to accept within the same timeframe will outweigh the additional income by over 500 percent.

I was born in West Germany and when the Berlin Wall fell in 1989, my parents took me to visit relatives they hadn’t seen in over 35 years. We drove from Cologne to Leipzig, through the former “death strip” along the border and past already deteriorating checkpoint booths. With my eyes closed in the back of our Ford Capri, I felt when we hit the East German Autobahn pavement: The roads were in such bad shape that we had to be towed for the last 100 kilometers to Leipzig. When we entered the city that same day, the setting felt like a museum of 19th century European architecture. Entering Leipzig, we saw destruction not caused by bombs or grenades but by the hammer of carelessness and abandonment. Nothing had been maintained or upgraded in decades. One of our relatives had a hole in her bathroom floor for many years, big enough to swallow her up in a moment of distraction or faulty lighting. When my dad asked her why she didn’t care to fix it, her emotionless answer was, “Doesn’t belong to me, why would I fix it?”

Can we blame her? And honestly, can we blame New York City landlords going forward if they let their property slip into disrepair?

The private sector of any economy is not in charge of supplying affordable living space — the public sector is. Private companies are designed to make a profit and to pay their employees, who will support their families and, in turn, fuel the money back into the economy.

In truth, the impact of this new law will be most devastating to the working class it was aiming to protect. Additionally, while the number of rent-regulated apartments will remain fixed, “fair market” apartments will become scarcer. Ironically, a bill that was meant to protect low-income tenants will now push fair market rents even higher.

Let us step away from the picture of a slumlord trying to squeeze the last dollar from a tenant who lives in inhumane conditions. Most landlords only want to maintain good relationships with their residents. Yet recently, city authorities and courts have ruled increasingly — and unfairly — in favor of the tenant. Tenants with large arrears after failing to pay rent are given favor, which has increased expenses for landlords significantly. Additionally, the City’s battle against Airbnb is unfairly fought on the backs of landlords. While tenants are running lucrative businesses out of their apartments (illegal in the city), fines are issued to landlords who do not benefit from these ventures at all.

Overall, the Senate has taken a one-sided approach with this change, more focused on manicuring the political landscape than improving the current housing situation. Landlords, along with city and state officials alike, need a reasonable solution that will consider the interest of both sides.

This great city was built on the principles of a market economy. So was this great country. If we fail to correct this course, this once great city will be mired by crumbling walls.

Dr. René Zemp has a master’s degree in business administration and a Ph.D. in real estate management from the University of Liepzig and oversees as regional manager all New York and Jersey City residential properties for Kushner Companies.

Disclosure: Commercial Observer’s publisher, Joseph Meyer, is married to one of Kushner Companies’ principals, Nicole Kushner Meyer.