THE BRONX IS BURNING - Proposed REST ACT for Housing a Disaster in the Making

Opinion By Rich Lanzerone - Executive Director, Hudson Valley Property Owners Association

“ The Bronx is burning” remarked famed sportscaster Howard Cosell during the 1977 World Series at Yankee Stadium as the camera strayed from the LA Dodger hitter at bat and looked beyond the stadium outfield at the numerous fires raging in the Bronx, NY.

This was the legacy of  ETPA , The Emergency Tenant Protection Act of 1974 , rent control, which caught building owners between a cumulative inflation rate over 4 years of 36.8% and frozen rents. Heating fuel, a major expense for owners, rose 400%. Buildings were abandoned, buildings burned, 250,000 Bronx residents lost their homes and more in Brooklyn, precipitating a homelessness crisis in in NYC.  

In the 90’s, the State Legislature, realizing the carnage and the unintended consequences of rent control i.e., the destruction of what was solid housing, eased up and amended the law  to allow owners to have higher rents on some apartments and created a system where some apartments with higher rents subsidized the low rents and the buildings became able to survive financially.

By 2019, the Legislature in its progressive zeal, lost the institutional knowledge of why rent control was eased up in the 90’s, and passed a series of draconian amendments which returned the situation to the 70’s, one in which rent-controlled buildings are now unsustainable.

 A recent study by the NYU Furman Center, not exactly a conservative think tank, spells out in detail how rent control is destroying housing in the Bronx, housing which surprisingly share their same single most damaging key characteristic with Kingston buildings captured under rent control and which sadly are destined to meet a similar fate.

You often see press and media reports of NYC tenants sitting in front of their buildings holding signs complaining that their roof leaks, heat doesn’t work, no hot water, rats and vermin, collapsing ceilings, leaking pipes and doors that don’t lock. The landlord is always portrayed as the villain, but it’s often actually your State Legislature at fault.  Let’s explain.

Rent control, a state law, ETPA, institutionalizes a program where a politically minded rent board annually sets rent below the actual rate of inflation. The end result is, as these complaining tenants are painfully experiencing, is that their rents are not enough to pay the ever-rising costs to heat, light, pay taxes and maintain their building.

Ironically, contrary to universal belief, it’s this system of State legislature created rent-control laws, coupled with the political rent boards and the tenants gladly paying below-cost rents for years on end are who are starving the buildings to death, not the landlords. In response, the first thing to go is maintenance. We are already experiencing this diminution of maintenance here in Kingston.  A certain slow and painful death of what were once proudly maintained buildings, all of which are old and badly need. Owners are now disincentivized to invest to maintain and improve living conditions.

The situation of deteriorating rent control buildings in NYC, particularly in the Bronx, is so serious that not only are the buildings themselves going bankrupt, but the banks which mortgage large numbers of these building themselves now find themselves in receivership. The Federal Securities & Exchange Commission now requires banks to identify their “toxic loans” i.e., their rent-controlled mortgages, effectively redlining these building from any further financing.

Say you are a housing provider in Kingston and your building needs a new roof and you need to borrow $50,000 to finance it. The bank will ask where is the new money that will allow you to pay us back? Can you raise rents? yes, but under strict rent control laws at small allowable amounts, it won’t even cover the interest on the loan. Loan denied. Roof patched, not replaced. Low rents saved, and building on its way to death.

These same 2019 amendments also allowed rent control, which heretofore had been limited to the highly dense NYC boroughs and immediately adjacent counties, to spread to any community in New York State, with the proviso that they conduct a vacancy study demonstrating that the vacancy rate is 5% or less.

Kingston was the first to opt-in, although the validity of its vacancy study is still being challenged in the Courts ever since. Newburgh and Poughkeepsie soon followed, but the Courts declared that these cities had manipulated the vacancy studies and overturned rent control in those cases. Albany, Nyack, and Village of New Paltz attempted and failed to join rent control as their vacancy rates were above 5%.

Tenant activists and their supportive state legislators have become frustrated at the failures in bringing rent control to more cities and having to respond lawsuits. So they now want to circumvent the objectivity of the vacancy study, and instead permit any municipality to pick any number of subjective measures upon which they can declare an “emergency”, and impose rent control within its municipal borders.

This recently proposed bill S4659/A4877, the REST Act, “Rent Emergency Stabilization for Tenants Act”, proposes to bring a quick and certain end to any hope of solving our housing situation because it will allow the rapid spread of rent control across the entire state. It will ensnare up to 90% or more of the rental housing in the state, and dash anyone’s thought of building new rental housing. New York State will become un-investable by the private sector.

The bill does this in 3 ways:

1.        It eliminates the current requirement that a community conduct an objective vacancy study prior to enacting rent control within its borders. The REST Act seeks to circumvent those inconvenient facts by changing the rules where no vacancy study required, and instead have a public hearing and, presto, rent control.

2.        It allows communities to capture any size rental property, now limited to buildings of six apartments or more, down to even as low as one!

3.        It captures any building built before 2010; the present cutoff date is built before 1974, and introduces a rolling 15-year window, so a new building built today will have a 15 year doomsday clock on it, with declining value each year as it moves toward its 15-year rent control date. Not exactly an environment that will foster new rental housing supply which is the true and only solution to New York State’s housing situation.

As virtually 100% of all recent affordable housing built is now dependent on heavy federal subsidies, subsidies which are quickly disappearing under a new Administration, new badly needed rental housing will depend now almost entirely on private investment, which has choices as to where to build – likely anywhere but New York State if the REST Act becomes law.

If your goal is to induce the proliferation of urban blight and vacant buildings to the entire State of New York, coupled with ever higher housing costs, then the REST Act will accomplish that. This is a disastrous proposed law and one that should be roundly repudiated. 

The opinions expressed in this article are those of the writer; they do not necessarily reflect the opinions of Ulster Strong.