Is NYC Rent Regulation Unconstitutional? Supreme Court May Soon Rule

By
Real Estate Agent with The Corcoran Group

32 West 76th Street - Upper Wet Side Townhouse, photo Mitchell Hall

The Supreme court may soon decide if New York state and city rent regulation laws (rent control/ rent stabilization) are constitutional.

An Upper West Side couple who own a Beaux-Arts brownstone at 32 West 76th Street between Central Park West and Columbus Avenue have been in federal court during the past few years attempting to overturn the rent regulations protecting their tenants. One of those tenants pays about $1,000 a month and has lived in the one-bedroom unit since 1976.

While I support affordable housing for poor and middle class families there are many affordable housing programs in NYC besides rent regulation such as HDFC coops, Mitchell Lama, 80/20, section 8. 

Perhaps in the outer boroughs middle and lower income families actually live in rent regulated apartments, but the coveted Manhattan rent stabilized apartments are in some of Manhattan's most sought-after buildings.

Many buildings that converted to coops or condos 25 years ago under non-evict plans sill have regulated tenants today that didn't buy as well as recent conversions such as the Apthorp. Many of the tenants occupying these apartments are upper middle class or wealthy, connected Manhattanites that were fortunate enough to get the apartments 25-30 years ago or inherited them or " have connections" including former mayors, congressman, celebrities, real estate brokers and friends of landlords.

Mayor Bloomberg does not live in Gracie Mansion, he's a billionaire and his own $48 million dollar townhouse is a nicer mansion than Gracie Mansion but when Ed Koch was Mayor he preferred his $300 rent stabilized Greenwich Village apartment over Gracie Mansion. It must be a nice apartment.

My first NY apartment was stabilized it was also in an upper west side townhouse owned by a couple but I gave it up when I bought a coop more than 20 years ago. I became a home owner while my income was less than half the income threshold for rent stabilized apartments.

Many of these tenants are holding out for huge payments from a developer or coop/condo board to vacate. Many rent regulated tenants have been offered $Millions for their apartments that they don't even own. Many own in The Hamptons and Florida defeating the purpose of affordable housing.

When I started in real estate and took floor duty, locals would come in the office and say "they were considering buying in the neighborhood but they're currently in a rent stabilized apartment so it would have to be "a really fabulous apartment and a really great deal".  After showing apartments all over the Upper West side to these fortunate and privileged legal tenants, I learned the hard way they will never find a better deal than their rent regulated apartments.

Many of them never bought their own apartments when their buildings converted to coops and condos even though they were offered insider prices. To many regulated tenants their 50-60% below market rent was better than buying. Even though many of these apartments today are worth 3-5 times what they could have bought them for - why pay a mortgage and maintenance when your rent is lower than just the maintenance you would have to pay as an owner. As a rent regulated tenant the law provides you with more rights and priveledges than owners and shareholders that purchased in the same building.

According to the Wall Street Journal the Second Circuit Court of Appeals tossed out the couple's suit last March, but they filed petition for certiorari in the Supreme Court, and, the high court has asked New York City and the tenants to respond. Attorney's for New York City and the NY state Attorney General are preparing their arguments to fight the suit.

The Fifth Amendment to the Constitution provides that "no person shall be . . . depriv but they receive no sued of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation." Rent control is subsidized housing but not by the city state or federal government. It is subsidy mandated by the government that requires property owners to subsidize legally privledged tenant leases in their buildings. The property owner/landlord receives no subsidy or tax credit from the government.

Maybe the United States Supreme Court will end regulation or force the city and state to subsidize the owner/landlords.

 

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Comments 19 New Comment

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Rainmaker
1,307,728
Ron & Alexandra Seigel
Luxury Real Estate Marketing
ra@napaconsultants.com

Mitchell,

This is indeed a conundrum.  The same thing was happening in Santa Monica, with people making out on beautiful apartments for $300 a month rents, that is why for the longest time it had the moniker of Soviet Monica...I would hate it if it was my building and I could not get market rate for my property thus devaluing my building, as well as my ability to sell it for market rate.  In commercial real estate the same thing was happening on the sandwich lease which many tenants had rented Rodeo and other great streets such as Brighton Way for $1 a foot for 25-40 years.  Then they would get key money and rent it out at market rate...the building was worthless because of the long term lease...A

March 11, 2012 05:51 PM
Rainmaker
1,444,140
Laura Cerrano
Authentic Feng Shui Expert
Feng Shui Manhattan Long Island

I'm really hoping for good things, Michael!! I'm in LI but I work all over the city and I'd like to see people prosper. :)

 Stop by for a spot of blog tea... :)

 

Love and light,

Laura

March 11, 2012 06:19 PM
Rainmaker
508,110
Mitchell J Hall
Lic Associate RE Broker - Manhattan, NYC
The Corcoran Group

Hi Alexandra, It actually is complicated and its intereasting who favors regulation. It not just the regular suspects left and right landlord and tenant. Because of supply and demand market rate apartments are very expensive because approx a million apartments are under rent regulation about 48%. There are landlord of big new non regulated buildings that favor regulation because it keeps the price of their non regulated apartments higher. Investors buy apartments with tenants in place. They take a cash flow loss but buy on upside potential that eventually the tenant will vacate and they can raise the rent. I have a friend that didn't buy her condo went it converted years ago. An investor purchased her apartment. She is never leaving and has actually spent over $100,000 renovating a rental apartment.

March 11, 2012 06:21 PM
Rainmaker
404,880
Ellen Caruso
Daniel Gale Sotheby's International Realty

Mitchell, As a landlord on LI I have to say I don't know how landlords can survive on rent stabilizing. After 3 years we asked for a $25 a month increase and several of our tenants choked. Try paying the taxes, and yearly increases on the house I rent to you, and what about my yearly increase in insurance! I think its crazy...be fair and just to both parties, the tenant and the landlord!

March 11, 2012 06:41 PM
Rainer
96,421
Bart Foster
Boston MA Real Estate
Keller Williams Realty Boston - Metro

It would be interesting to know what the assessed value for this property is.... based on rent controled income or what it could be. Clearly if its being held back, there are many properties that are enjoying very low taxes.

March 11, 2012 06:42 PM
Rainmaker
508,110
Mitchell J Hall
Lic Associate RE Broker - Manhattan, NYC
The Corcoran Group

Hi Laura, Me too, Ok, I love blog tea.

Eillen, Manhattan is one extreme or the other. Rent regulated apts can only raise 3 -4% /year or 7.5-8% 2 year lease but market lanlords can raise rent what ever they want some are getting 30% increases.

Hi Bart, The city assessed value is different than what a buyer would actually pay. It is located on one the prettiest blocks in Manhattan off central park. If it was a single family house it can sell for $10 million or more. The city has it assessed around $2.3M. It was purchased in 2005 for $1.5M.

March 11, 2012 08:00 PM
Rainmaker
294,148
AJ Heidmann
YOUR Alexandria & Arlington, VA Real Estate Expert
McEnearney Associates, Inc.

Mitchell - That will be a big decision, with enormous ramifications.  I agree with you in that provisions have to be made for affordable housing, it shouldn't be at the detriment of the landlord.

March 11, 2012 08:11 PM
Anonymous #8
Anonymous
Ellen

Sorry, but not all rent stabilized tenants are "upper middle class or wealthy, connected Manhattanites". Yes, I am a rent stabilized tenant, in my studio apartment for over 30 years and do not intend to leave. My rent crossed the $1000 threshold and I can barely afford to pay it.  Contrary to popular belief, when my building went co-op in 1985, the renters were not offered insider prices for their apartments, but market value prices. No one bought...the sponsor eventually gained control of the apartments, except for a few who to this day remain. I have no intention of leaving the home I have lived in for so many years. They couldnt possibly pay me enough money to leave. Where would I be able to go in Manhattan? I have just been forced to retire because my company downsized/reorganized and I have no hope of getting another job at my age. I am poor, by any definition of the term and am certainly happy that I remained in my apartment all of these years, because otherwise I could not afford to live in Manhattan. This is a sorry state of affairs, but I see no solution. And by the way, rent control and rent stabilization are two different things, as I hope everyone realizes.

March 11, 2012 08:16 PM
Rainmaker
1,775,119
Gabe Sanders
Stuart Florida Real Estate
the BlueWater Realty team specializing in Martin County Residential Homes, Condos and Land Sales

Mitchell, this will be interesting.  As I feel for the tenants like Ellen above, but I don't for the ones that game the system.

March 12, 2012 04:07 AM
Rainmaker
223,559
Laurie Mindnich

MItchell, I recall a (well off) relative paying a ridiculously low rent on E. 66th st (2 bed) because the large company of his father had some sort of rights to the apt- it was confusing then, as it remains now.  As an outsider, one wonders why such advantages exist at all- seems very, very outdated- market rent for all.  It seems to interfere with the supply and demand theory- if many can't afford it, more vacancies, lower rents overall- or would that simply exacerbate the influx of the wealthy and eliminate what's left of the middle class in NYC?  Confusing, having an antiquated system still in play- and I absolutely hated (and clearly didn't fully grasp) the whole NYC rental venue when it was one of the hours requirements chosen to maintain my r.e. license.  it will be interesting to watch what happens.

My relatives apt was twice the size of my sister's apt across the street, yet they paid much less (while making a whole lot more).  Seemed absurd at the time (early 1990's).

March 12, 2012 06:31 AM
Rainmaker
190,139
Gregory Bain
Mezzina Real Estate & Insurance

While it is my personal opinion that NYC has made a mess out of rent control, public education, public transportation that gives the extreme right some legitimate arguments when they bring up their "fear" of socialization, it would be dangerous to paint the problem using a broad brush. Be careful what you wish for. 

March 12, 2012 06:44 AM
Rainmaker
1,202,592
Richie Alan Naggar Author PEARLS SERIES of books
on LIFE and LOVE plus Real Estate too!
People first then business! Ran Right Realty Riverside, Ca

At the root of it all is money...One side wants more and the other side wants less...If not controlled, one side would swallow up the other and whole neighborhoods would change. For better or for worse remains to be seen...The word fair doesn't compute in the financial world....thus we have to go to court..good post

March 12, 2012 08:30 AM
Ambassador
535,180
JO SOSS
Kitsap County WA Real Estate - HOMEFRONT Realty
HOMEFRONT Realty

NYC is like its own country when it comes to housing.  It is so different than any other area of the country. 

March 12, 2012 10:16 AM
Rainmaker
508,110
Mitchell J Hall
Lic Associate RE Broker - Manhattan, NYC
The Corcoran Group

AJ, Yes it is big decision, with enormous ramifications. I agree that we need afordable housing.

 

Ellen, Thank you for your comment. You are correct not all rent regulated tenants are wealthy and there is a difference between rent control and rent stabilization. There is a need for affordable housing in NYC. I have sold HDFC coops to many middle income families.

I'm sorry the tenants in your building were not offered inside prices. The state Attorney General's office approved all conversions, offering plans and prices. Before the conversion can become effective a certain percentage of tenants have to buy. It is called the buildings "red herring" It's too bad "no one bought" because what ever the price was in 1985 it is worth at least 3 or 4 times that today. As far as  "they couldn't pay you enough to leave". Last year 15 rent stabilized tenants were paid between $1 million and $1.5million each in exchange for giving up their rent stabilized ( 300 square foot) studio apartments.

My aunt who recently passed away at age 90 got $100,000 to leave her rent regulated upper east side 3 bedroom apartment several years ago with my help. Her building went coop in the 80's she didn't buy and was a senior citizen and handicapped. She called me one day when she was in her late 80's and told me her coop board offered her $50,000 to leave. I told her to tell them "I may be old but I'n not stupid" Where would I go"? So they paid her $100,000 and she moved to Queens in her daughter my cousin's apartment. I hope you can remain in your apartment as long as you desire. Best wishes to you.

Gabe, I agree, it was intended for people like Ellen, but an income of $200,000 is accepted and many people with trusts can hide their income.

Laurie, In my opinion many of these apartments need to be de-regulated when they become vacant. Some one like Ellen in comment #8 should never be evicted but she should not be able to leave it to heirs. Many people don't realize that all rents will go down when the regulated aqpartments become inventory that is needed and missing from the open market.

Gregory, How true. You're absolutely right. However the last thing I was ever wishing was that the Supreme court would hear a case about NYC rent regulation.

Richie, Well said. For better or worse. I certainly don't have all these answers.

Joe, NYC, particularly Manhattan was totally a rental city. Other than mansions and townhouses owned by wealthy New Yorkers since the 19th century, for the most part home ownership began here in the late 70's and 80's with new condo construction and conversions of apartment buildings to coops and condos

 

March 12, 2012 03:34 PM
Ambassador
765,937
Hannah Williams
Expertise in NE Philadelphia & Bucks County
Re/Max Eastern inc.

Mitchell   I found this post so interesting . We do not have anything like this in Philly. The only time I have ever heard about rent control was on my favorite show Sex and the City

March 12, 2012 04:22 PM
Rainmaker
508,110
Mitchell J Hall
Lic Associate RE Broker - Manhattan, NYC
The Corcoran Group

Hi Hannah, The show often had very funny episodes invoving Manhattan real estate.

March 13, 2012 11:12 AM
Ambassador
2,365,985
Patricia Kennedy
For Your Home in the Capital
Evers & Company Real Estate, Inc.

Mitch, the hardest thing I've ever done is to move out of my old rent controlled apartment at 46 East 83rd.  My rent got reduced from $154 when I moved in to $126.  Of course if I'd stayed, I wouldn't be able to climb up to the fifth floor (it was a walk-up).  And somehow, I felt sort of sorry for the landlord - there were three young lawyers in the building who made his ife miserable.  I'm sure that he is rooting for the plaintiffs in this case.

March 15, 2012 05:48 PM
Rainmaker
681,251
Ron Marshall
Birdhouse Builder Extraordinaire
Marshall Enterprises

This is fascinating for someone from the Midwest.  We have Section 8 housing here, but that's about it.  And, we certainly don't have the real estate that commands thousands of dollars per month just to rent! 

I will pay attention as this comes up in the papers, and I hope that you will keep us informed, too. (Since I am now a subscriber, I can watch for updates!)

March 23, 2012 11:23 AM
Anonymous #19
Anonymous
Anonymous

On comment #14, two things: "So they paid her $100,000 and she moved to Queens in her daughter my cousin's apartment." Where exactly would one go with $100,000 in Manhattan these days...can't afford to buy anything and if I took the 100,000 and went to another rental my rent would more than double for an apartment not even as nice as mine! The other point is, that as a rent stabilized tenant I dont think your heirs inherit the apartment. As a rent-controlled tenant, yes. At least that's the way it used to be. Even that might have changed.

March 23, 2012 11:56 AM
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Rainmaker
508,110

Mitchell J Hall

Lic Associate RE Broker - Manhattan, NYC
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