New York City Policymakers Continue to Get in the Way of Lower Rents

If you think our policymakers care about tenants, the affordability of living in New York City or the quality of our housing stock, think again. All they care about is getting votes and winning elections, and the proof is in the policies they support. New York City’s housing crisis would be easy to fix if our policymakers didn’t just care about getting reelected. 

Every one of our politicians always says that they want New York City to be more affordable for everybody and that costs are far too high. When it comes to housing, which is probably the biggest expense for most New Yorkers, it is clear that our politicians don’t care about high costs for the majority of those living in the city.

It has been proven time and time again that price-fixing leads to shortages and excessive costs for what is available. That is exactly what is happening with our housing stock. There is a housing shortage as rent regulation not only keeps rents in New York City apartments below the fair price, but also creates inertia for tenants who don’t move even if their apartments are too small or too large for them. This leads to a gross misallocation of our housing stock and is also the main reason why we have a 1.4 percent vacancy rate in apartments. This makes rents skyrocket for the few units apartment seekers get to choose from. 

Getting votes from the occupants of New York City’s approximately 1 million regulated housing units has become such an obsession that our policymakers couldn’t care less about the living conditions for the folks in those buildings or the affordability for everyone else in the broader marketplace. Rather than adding to the supply of new housing, which would clearly drive the cost of housing down, our policymakers simply focus on restricting what property owners can do with their properties to get votes from those regulated tenants. 

Now, we have a mayoral candidate in Zohran Mamdani who is pledging to freeze rent-stabilized rents for four years. While the overwhelming majority of what Mamdani pledges rests out of his control with the state legislature, the rent-regulated housing supply in New York City is something that he can profoundly impact. Even Mayor Bill de Blasio only implemented rent freezes three times — and only once back-to-back. Mamdani pledges to freeze these rents for his entire four-year term.

It is clear that expenses are going up at a significant rate and certainly at a greater rate than rent-regulated apartments have been allowed to increase. As time goes on, the difference between free market rents and what  rent-regulated tenants are paying will continue to grow. Mamdani himself lives in a rent-stabilized apartment.

Without the ability to increase rents based on improvements to individual apartments and major capital improvements to entire buildings, the private sector has little incentive to  invest in the housing stock. Therefore, living conditions for folks within those buildings are deteriorating, just as the buildings are. In theory, increases in costs should be met with increases in rents so owners can keep the quality of their buildings in good shape. However, this is not happening.

The rent-regulated housing market in New York City has already been dealt three significant setbacks. The first was state legislation implemented in June 2019, which altered the rent laws significantly and essentially removed the incentive for the private sector to invest in the housing stock. It also ensured that the quality of living conditions for people within these units would deteriorate over time. 

The next setback occurred during the pandemic, when vacancy soared as tenants moved out early or did not renew their leases. We saw rents drop by 30 percent in New York during this time of increased supply. 

The third setback was when interest rates rose and property owners, who had debt at 3 or 3.5 percent, needed to refinance at double those rates. These conditions have essentially wiped out not only all of the owner’s equity in these buildings, but also impaired the lender’s debt position as well. A four-year rent freeze, in the face of these conditions, could be the final nail in the coffin for buildings with high percentages of rent-regulated units.  

At the same time, now that the city has been rebounding, and people have been coming back to the office and wanting to live in Gotham again, the rents on free market units are at an all-time high and continuing to skyrocket. The solution would simply be to add more supply to the housing stock.

So why not just create more supply? The answer is very simple: Our policymakers don’t want new supply because it brings new people into their districts who may not know them and therefore may not vote for them. 

That is a simple fact and the plain truth. Each district should be required to approve new units each year that equal a certain percentage of their existing stock. Many cities around the country replace about 7.5 percent of their housing units every year by approving new building permits. In New York, that replacement share has historically been less than 1 percent. Is it any wonder that rents in many Manhattan apartment buildings today are in the $120 to $150 per square foot range? Should a two-bedroom apartment cost $12,500 per month? You would have to earn $500,000 per year to afford that unit. 

If only our policymakers would do what’s right for their constituents and the city, and bring back the 421a tax abatement program that worked so well for so long. The Affordable New York program was a watered-down version, and 485x is a further diluted program that is having minimal impact on the market, given the wage requirements attached to most 485x buildings. Almost every building permit that has been issued since 485x came into being has been for a building with fewer than 100 units, where the excessive minimum wages of $40 or $72.45 an hour, depending on location, do not apply. 

So, if you think your rent is too damn high, thank your elected officials. It is completely their fault!

Robert Knakal is founder, chairman and CEO of BK Real Estate Advisors.