(p. A11) New York Gov. Andrew Cuomo signed a law in June expanding the state’s damaging and counterproductive rent regulations.
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In response to the new law, New York property owners immediately began making decisions that, when played out across tens of thousands of apartments, will add up to a disaster for everyone—not only landlords.
I spoke with one of those landlords over breakfast not long ago. He owns a medium-size portfolio of older buildings in middle- and lower-middle-class New York neighborhoods. Among his properties is a large building in northern Manhattan. For more than 40 years, one of the building’s apartments—a two-bedroom—was occupied by a tenant paying about $800 a month.
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The tenant recently died. After four decades of wear and tear, the apartment needs some work.
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A bathroom upgrade costs about $10,000 and a kitchen about $15,000. My friend could have invested another $10,000 or so to repair damage, replace doors and finishes, and upgrade electrical circuits. Those investments could have brought the rent to about $1,700. The apartment’s next tenant could have moved into an improved, not fancy, two-bedroom with a somewhat below-market lease, still protected from increases by rent stabilization.
The new law ensures that won’t happen. It gives property owners no vacancy-bonus increase. For every $15,000 my friend spends on improvements, he can raise the rent by only $83.33 a month. Even that shrunken rent increase will go away after 30 years. If he makes any investment in the apartment exceeding $15,000 in any 15-year period, it will be money he isn’t legally allowed to recoup. He won’t be allowed to raise the rent further. Whoever lucks into that apartment will pay only about $900 a month, half the market rate.
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Here come the unintended consequences: My friend now says he won’t invest a penny in the apartment, because doing so makes no economic sense. Instead, he plans to hold it vacant and wait for better days. Maybe Albany will figure out it made a huge mistake and reverse course. Maybe the courts will recognize that rent regulation represents a taking of private property without compensation and violates the Constitution. Maybe my landlord friend will accumulate adjacent vacant apartments and combine or reconfigure them.
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(Note: the online version of the commentary has the date Sept. 27, 2019, and has the same title as the print version.)