Where Are We In the Rent Stabilization cycle?

In February of this year, I published a piece on Crain's New York Business where I considered if Good Cause Eviction's enactment would mollify and slow the burgeoning Emergency Tenant Protection Act (ETPA) and Rent Stabilization movement. Good Cause Eviction came to pass in April's State Budget negotiation, allowing us to consider this question and react to it. In many ways, the answer is no; Good Cause has not softened Rent Stabilization regimes across the states. But in other ways, Good Cause has reduced the demands for rent stabilization regimes. Where did that softening happen, and what might it allow for?

Over a year ago, the Good Cause movement washed over New York State and gained a strong following in the name of protecting renters from being evicted and facing unmanageable rent growth. That led many cities and even some towns to pass Good Cause Eviction as a means of bracing their renting population. The movement was widespread and came to include many cities.

Landlord groups responded swiftly with legal challenges to the wave of local Good Cause laws. After some rounds of adjudication, these laws were all struck down on the basis that only the state can govern rent control, not individual cities. Galvanized by tenant movements, emboldened municipalities refused to take these losses sitting down, and they went down a different path. The towns of Kingston and Newburgh declared housing emergencies in 2023 and passed rent stabilization measures. Kingston even decided that rents ought to be rolled back to rent levels from a few years back – in some cases signifying up to a 15% rent reduction for apartments.¹ But that's the result of Good Cause failing to pass, and then a substitute policy entering into effect to solve the same issue. What happens if Good Cause is activated? Does it encourage further protections or curb them?

When Good Cause passed in April 2024, it encouraged cities and towns outside of NYC to enact rent stabilization protections, effectively treating Good Cause and Rent Stabilization as complementary measures. Below is a table that highlights the current rent regulation map in New York. A few things stand out here:

• In addition to NYC, five other cities have opted into Good Cause Eviction, representing an additional ~100,000 apartments under rent controls in NYS.

• Nine municipalities tried to pass rent stabilization.

• Most cities that tried to get rent stabilization through the legislative chamber have been challenged in court.

Put differently, out of every jurisdiction in New York State that opted into Good Cause Eviction (NYC doesn't count because it's automatically enrolled in the program), 100% of them decided to also try for rent stabilization. That speaks to the view that rent stabilization and Good Cause are complements and not substitutes for one another. Galvanized tenant activists secured one win and then sought to double down on It with another.

The response to Good Cause Eviction passing in NYC was different, and, in some ways, it had to be because the rent stabilization regime had existed here for so long. When the Good Cause bill was authorized and approved in April, it came in exchange for a slight loosening of the Rent Stabilization Law (RSL). Most owners scoffed at how insignificant the change was and how little it would impact the tide of NYC's rent control stabilization regime.

And yet, a slight loosening is the only way a change in the RSL would ever succeed in NYC. With the affordability crisis raging in the foreground, it would be astonishing to see officials suddenly agree with landlords and allow for the de-control of units again. A swift change in regulations would play poorly to the bulk of the electorate. The rent stabilization IAI increase in exchange for Good Cause is one of the most significant trades of the year for investors because it supports the notion that rent stabilization and Good Cause can be substitutes.

The significance of this cannot be overstated.

The rent stabilization regime covers about 900,000-1,000,000 apartments in New York, or ~45% of the housing stock. That means most rental apartments in New York were previously free of restrictions on rent growth. Now, for the first time ever, renters who rely on rent stabilization will represent a minority of New York renters. Put differently, more residents in NYC will look to Good Cause Eviction for their tenant protections than those that will do so with rent stabilization. That eases some pressures of the rent stabilization program and creates room for further, incremental loosening of the rent control laws. That is good for investors.

In summary, though rent stabilization and Good Cause look like complementary regulations in smaller cities and regions where rent controls are novel, they may look more like substitutes in mature markets like NYC. The tighter rent controls since the passage of 2019's Housing Stability and Protection Act have contributed to reduced property investment in NYC- at a time when expenses and cost of debt have increased as well. Sustained disinvestment in properties will worsen tenant experiences and exacerbate the housing crisis to a level that even elected officials must take notice of. Since nearly all tenants in NYC now have protective housing legislation (a legislatively impressive feat), the pressure to keep rent stabilized rents completely static might wane. Further, Mayor Adams has a stated goal of producing 500,000 new apartments by 2032, and that 'moonshot' ambition could add further incentive to soften the rent controls to unlock warehoused units, should Adams get re-elected.

We are here – on the precipice of a slow and steady loosening of rent stabilization, partially thanks to Good Cause Eviction.

Everyone watches the Fed’s moves. What about watching the DCHR’s moves? Hundreds of billions of dollars are at stake.

I am bullish on NYC multifamily.

Call me to discuss at 212 658 1471.

Link to my original article here.

Sources: Crain’s New York Business - Op-ed: Local rent-control initiatives may soften the push for ‘good cause’ bill

1. Fast forward the story to today – the landlords who challenged this rent rollback lost, and Kingston reasserted this rent rollback.