With a deal in a state budget expected to be announced as early as Monday, legislative leaders and Gov. Kathy Hochul have struck a compromise on housing legislation that will allow the governor and Mayor Eric Adams to claim they have engineered a package that will jumpstart badly needed construction to solve the city’s housing crisis.
But whether the changes are enough to achieve Hochul’s and Adams’ aims will depend on details that have not yet been made public, say experts on housing, especially about a new tax break for rental housing.
One provision that is well known, so-called “good cause” legislation to protect tenants in market rate housing, is likely to be subject to continued lobbying in future years as tenant advocates try to strengthen legislation they are denouncing as hopelessly inadequate.
When the details of the deal became public Friday evening, nobody was happy. Real estate groups like the Rent Stabilization Association and the Community Housing Improvement Program, tenant activists like Housing Justice for All, and progressive Democrats like city Comptroller Brad Lander all denounced the package.
But given the way Albany works, where controversial legislation is bundled within in a massive budget that can only be voted up or down, Assembly members and state Senators will find it very difficult to derail the plan agreed to by Hochul, Assembly Speaker Carl Heastie (D-The Bronx) and Senate Majority Leader Andrea Stewart-Cousins (D-Westchester), with the support of Mayor Adams.
“That’s why they do it in the budget,” said one person close to the negotiations who asked not to be identified given the uproar about the deal.
Reforms to Rent Reform
Hochul made her position clear more than a week ago. Asked at a press conference what she had been doing when the April 8 earthquake struck, she responded: “Working on the budget in the room next door and on a once-in-a-lifetime housing deal.”
In early 2023, Hochul proposed sweeping legislation designed to spur the construction of 800,000 units statewide in a decade. But the legislature didn’t enact a single one of the measures, inaction that also derailed provisions backed by Adams as part of his “moonshot” goal of adding 500,000 new housing units in the city in the next decade.”
The key provisions in the new budget deal, some of which were previously reported by THE CITY and were revealed by people close to the talks, include changes to the 2019 rent reforms that have so far limited the amount a property owner could recoup for repairs to vacated apartments to $15,000. Those reforms also limited rent increases for the next tenant to $89 per month for buildings with 35 or fewer units and $83 for larger ones.
According to City & State, the individual apartment improvement changes will come in three tiers.
The lowest tier, which would apply to any apartment, would allow landlords to recoup up to $30,000 by raising the monthly rent by up to $167. Tiers 2 and 3 – which would include units vacated by tenants who had lived there for at least 25 years – would allow landlords to recoup up to $50,000 of the cost of improvements.
Buildings with fewer than 35 units would qualify for Tier 2, allowing them to raise monthly rents by up to $347. Buildings with 35 or more units would qualify for Tier 3, allowing them to raise monthly rents by up to $320.
Even when the landlord has recouped the investment, the higher rents remain in effect.
The plan was denounced by progressive Democrats who sent a letter to the governor and legislative leaders telling them not to touch the 2019 law.
“We are writing to firmly oppose any measures to weaken New York’s rent stabilization system, an important source of affordable housing for working families across New York City,” said the letter from the comptroller, public advocate and 20 legislators.
The Rent Stabilization Association and CHIP said the amounts were insufficient to bring back on the market apartments that landlords have left vacant because they can’t be economically rehabbed. If they are right, the impact of the increases will be minor, despite the complaints from progressives.
New Tax Break But Limited ‘Good Cause’
The deal includes a new tax break for new apartment construction to replace the controversial 421-a tax break that expired in June 2022. Few details are available except that it will include requirements that more of the “affordable” apartments set aside go to people with very low incomes, while requiring higher wages for construction workers. Whether that will spur construction, which has plunged since the tax break expired, is likely to be a matter of debate.
The most immediate impact will be agreement to extend the 2026 completion deadline for projects that qualified for 421-a by laying their foundations before the law expired. Some projects that have been on hold because of an inability to meet the deadline could get restarted.
Also in the package and not reported previously are changes that will ease the conversion of office buildings to residential use. The package will offer a tax break for buildings that set aside an unknown percentage of the new apartments as affordable, which had been a key sticking point between legislators on the one side and the Adams administration and real estate groups on the other.
It will allow New York City to increase the density of residential projects to 15 times the land area from 12. While that will be helpful for office conversions, its immediate impact is limited since it will take time as it works its way through the city’s complicated land use process.
The new tenant “good cause” protections are radically different from an original tenant-inspired proposal from State Sen. Julia Salazar (D-Brooklyn) and offer even more exemptions than a model law in effect in California.
Tenant advocate Cea Weaver of Housing Justice for All labeled the compromise the weakest good cause law in the country and called it, “a total disaster for New York state, and an embarrassment.”
For example, instead of setting a standard rent increase at 1.5 times the increase in the consumer price index as initially proposed (which would be about 5.5% this year), the deal allows rent increases of CPI plus 5 percentage points or 10%, whichever is less.
Local governments would have to opt in to the law. It also exempts new construction for 30 years, small landlords who own 10 units or fewer and apartments with high rents.
While the use of how many units a landlord owns as a threshold is a new concept that makes it difficult to assess the impact, research by the New York Housing Conference has found half of unregulated renters live in one-to-three-unit buildings and 66% live in buildings with fewer than 10 units, suggesting it will have limited impact.
Still real estate groups denounced the plan as an unwarranted extension of rent regulation, and they see this as a victory for tenant groups.
“This good cause is better than what Salazar proposed in 2019, but it’s still imposing rent control on free market units which is a dangerous concept, particularly with a legislature that seems likely to increase restrictions once good cause eviction is in place,” said Sherwin Belkin, an attorney for landlords specializing in rent regulation.