New York’s Rent Control Law a Windfall for Rich Homeowners

State legislatures and city councils are starting off 2024 by proposing lots of housing policy reforms, many good, many not so good. This week’s Rent Free covers a lot of them, including:

• Fort Collins, Colorado, taking up a YIMBY-infused update to its zoning code for the third time, after having passed and repealed said update twice in the past two years.
• Marin County, California, pushing tight new limits on short-term rentals, which it blames for the county’s housing affordability problems.
• State lawmakers in Wisconsin and Georgia are trying to unban rent control.

But first, our lead story about the rich and well-to-do beneficiaries of rent control in New York City.

Hamptons Home Owners with Rent Controlled Apartments

New York’s rent stabilization law—which sets limits on maximum rents and rent increases on roughly 1 million apartments in New York City and beyond—is intended to provide stable, affordable housing to the state’s renters. It’s also providing a windfall for wealthy homeowners.

Documents shared with Reason show the rents paid by several New York City tenants at their rent-stabilized apartments. Other documents shared with Reason, as well as public property information, show the same tenants own additional property worth north of $1 million. Some of these rent-stabilized tenants are themselves landlords who rent out their properties for more than what their rent-stabilized apartments cost.

That includes a married couple with a four-bedroom home in the tony community of East Hampton, New York. The husband is a wine broker. The wife is a real estate associate with Sotheby’s International Realty. A county document show their East Hampton property has an appraised value of $2 million.

The couple’s address on that same document is a rent-stabilized apartment in Lower Manhattan where the legal rent as of September 2023 is $931 a month. Online rental listings show market-rate one-bedroom apartments in the same neighborhood renting for anywhere from $3,000 to $7,000.

Another woman, an anthropologist with her own consultancy firm, is listed as the lessee of a Brooklyn Heights apartment with a legal monthly rent of $2,436. Market-rate one-bedroom apartments in the same neighborhood go from $4,000 to $5,000 a month.

County property records show that the same woman owns a home in the Long Island community of Greenport, New York. She advertises it as a vacation home for rent on her personal website, and it’s listed on several rental websites with a quoted monthly rental price of $12,000.

No Means Testing 

This is all perfectly legal. New York’s rent stabilization law has no means-testing requirements. That means people of any income can benefit from its suppressed rents.

Wealthy tenants are getting some of the best deals out of the state’s rent stabilization law. An in-depth Wall Street Journal analysis from 2019 found that regulated rents in richer Manhattan are around half that of market-rate rents. Regulated rents in working-class areas of Queens and the Bronx are at most few hundred dollars less than market rents.

Higher-income rent-stabilized tenants were paying 39 percent less rent on average than their peers in market-rate apartments. Lower-income rent-stabilized tenants were paying only 15 percent less than their peers in market-rate apartments.

“The biggest beneficiaries of rent regulation in New York aren’t low-income tenants across New York City, but more affluent, white residents of Manhattan,” concluded the Journal.

The owners of rent-stabilized buildings are chaffing at requirements that they provide housing at below-market rates to people who are themselves high-income property owners.

“Rent regulation without means testing has become a scheme that rewards affluent New Yorkers whose sense of entitlement has wrecked affordable housing options for those who truly need help,” said Joseph Strasburg, president of the Rent Stabilization Association, in a statement to Reason.

Little Change of Reform

New York’s progressive and socialist legislators typically oppose any efforts to weaken rent stabilization or exclude the wealthy from its benefits.

In fact, progressive-backed changes to New York’s rent stabilization law in 2019 made the program more favorable to high-income tenants. Under the old rules, building owners could start charging market rents on their apartments if legal rents exceeded a certain threshold and their tenant earned above $200,000 a year for two years in a row. The 2019 amendments to rent stabilization closed that “loophole.”

More recently, New York state Sen. Julia Salazar (D, WF–Brooklyn) and other progressive legislators have been pushing “good cause” eviction legislation that would generally cap rent increases for all tenants (regardless of income) at 3 percent and allow renters to challenge literally any rent increase in housing court.

Real estate advocates tell Reason that adding a means-testing requirement to the rent stabilization program is a political non-starter. The wealthy beneficiaries of rent stabilization are obviously in no hurry to change the system.

Some legislators are themselves beneficiaries of rent stabilization. That includes Assemblywoman Linda Rosenthal (D, WF–Manhattan), chair of the Assembly’s housing committee. The New York Post recently reported that Rosenthal, who earns $174,000 as a legislator, inherited a rent-stabilized Upper West Side apartment.

Rosenthal has also criticized New York City Mayor Eric Adams’ administration’s efforts to make market-rate housing construction easier. “I’m not that worried about non-affordable housing, actually,” said Rosenthal. “People who have means can buy, rent anything they need in this city.”

Fort Collins’ Zoning Seesaw

Is the third time the charm? That’s certainly the hope of “yes in my backyard” (YIMBY) activists in Fort Collins, Colorado. They are pushing the city council—which has passed and then repealed a handful of liberalizing changes to the zoning code twice in less than two years—to approve the reforms for a third time.

In November 2022, Fort Collins passed a long list of updates to their land use code that included legalizing duplexes, triplexes (provided one unit was below market rate), and accessory dwelling units (ADUs) in single-family-only zoned neighborhoods across the city and upzoning transit-serviced corridors.

That sparked fierce resistance from neighborhood activists, who formed the group Preserve Fort Collins to oppose the reforms. Preserve Fort Collins describes the city council’s reforms as a “free-for-all for housing developers and investors” on their website.

Within a month, the group collected enough signatures for a petition requiring the city council to either repeal their zoning changes or place the full near-500-page code update on the ballot.

The council opted to repeal and replace the code changes in 2023 with a more modest set of zoning updates that still allowed some increased densities and ADUs in residential areas. Candidates who supported the zoning changes also managed to sweep city council elections in November 2023.

But the moderating changes did little to propitiate Preserve Fort Collins, who described the new, watered-down code as an “ill-conceived march toward density and overpopulation.” They once again launched a successful petition requiring the city council to repeal the code changes or place them on the ballot. In December 2023, the council once again opted for repeal.

Nevertheless, the Coloradoan reports that city council members say they will take a third crack at zoning updates come January and will work with Preserve Fort Collins to see what changes they could live with.

Chris Conway, a local teacher and activist with the group YIMBY Fort Collins, argues that the results of the November election give the council a mandate to press forward with zoning reforms that allow more housing in more areas.

“The problem in Fort Collins is blindly obvious,” Conway tells Reason. “The code is a response to the concerns of regular people in Fort Collins that their friends and families and themselves are being priced out of the city.”

Coastal California’s War on Short-Term Rentals

It can take up to half a century to get a new subdivision approved in Marin County, California. To make housing more affordable, the county is now mulling a crackdown on Airbnb.

On Thursday, the Marin County Board of Supervisors will consider an ordinance drafted by county staff that would place strict new limits on short-term rentals in the western, oceanside parts of the county.

Since 2022, Marin County has had a moratorium on issuing new short-term rental licenses there.

The new county’s draft ordinance, unveiled late last year, would go further by banning short-term rentals in multifamily buildings within two years and imposing new caps on short-term rental licenses below the number of rentals currently in operation. The caps are distributed by community, with some community caps being roughly 70 percent below the current number of licensees.

Existing license-holders would be able to keep renting out their properties (provided they’re not in multifamily buildings). But new licenses above the cap can’t be issued. Current licensees will also have to meet new review requirements and pay additional fees.

The county describes its new limits on short-term rentals as a means of “[improving] the availability of middle- and lower-income housing.”

Sean Callagy, a Marin homeowner, Airbnb host, and member of the West Marin Access Coalition, which advocates for lighter regulation of short-term rentals, argues it’s a misconception that short-term rentals remove long-term rental housing from the market.

He says most of the country’s short-term rental operators are like him; homeowners who rent out their vacation homes for some of the year to help pay the mortgage. If putting their home on Airbnb weren’t an option, few would rent it to a long-term tenant. Many would have to sell to an owner-occupier.

“It’s ban first and ask questions later, but they didn’t really ask the questions. They’re proceeding under the assumption that if we drive away [short-term rentals] life gets better for everyone and it just doesn’t make sense,” says Callagy.

State Lawmakers Push Repeal of Rent Control Bans

Back when rent control’s reputation was at rock bottom, state Legislatures across the country passed laws preventing local governments from regulating the prices landlords charged their tenants. With the policy undergoing a very unjustified rehabilitation, some lawmakers are trying to undo their state’s preemptions.

In Wisconsin, a group of Democratic lawmakers have introduced a bill that would repeal a law barring localities from adopting rent control and inclusionary zoning (a policy that requires developers to include below-market-rate, often money-losing units in their projects). Eleven assembly members and three senators have signed onto the legislation thus far.

Likewise, in Georgia, Rep. Eric Bell (D–Jonesboro) has introduced a bill that would repeal the Peach State’s preemption on rent control.

“[Local governments] know what’s best for their communities. So I feel like we should empower them to take control and have a stronger local control,” Bell told local news channel 11 Alive.

Both states have majority-Republican legislatures, meaning these bills likely won’t pass. Efforts to undo state rent control preemptions are nevertheless worrisome.

Rent control has a bad track record everywhere it’s been implemented. The research is pretty clear that to the degree rent control policies suppress rent increases, they also suppress housing supply. It’s a good thing that state laws prevent local governments from trying to use rent control to fix a housing supply shortage caused largely by their own locally set zoning laws.

QUICK LINKS

• Washington state passed some impressive zoning reform bills last year. The Urbanist reports lawmakers are currently considering reviving a few bills that didn’t make it over the finish line in 2023, including one that would legalize apartments near high-frequency transit stops (good), repeal bans on single-room occupancy buildings (also good), and end the state’s ban on rent control (very bad).
• Florida’s Live Local Act—which allows developers to build housing in commercial and industrial zones—would get a few updates under a proposed bill from Sen. Alexis Calatayud (R–Miami Dade). Her bill would give localities more flexibility to control the heights of Live Local projects in low-density areas, but less flexibility to regulate their massing or floor-area ratio. On balance, the bill appears to make the law more favorable to development.
• Residents of Brazoria County, Texas, could well be accused of NMIMBYism (No Monkeys in My Backyard). Locals are objecting to plans to locate a biomedical research facility in the rural county that would house 43,000 monkeys, reports the Wall Street Journal.
• Localities can place pretty much whatever kind of zoning restrictions they want on housing. Does the same apply to carbon capture pipelines? Pipeline company Summit Carbon Solutions says no. It’s suing several Iowa counties over zoning laws they’ve passed that restrict pipeline projects, arguing state and federal regulations preempt local rules.
• Government transportation spending fell in nominal and real terms, except for rail projects in 2021. This doesn’t account for all the new transportation spending in the $1.2 trillion Infrastructure Investment and Jobs Act, which was signed into law in November 2021.
• Minneapolis’ zoning reforms that eliminated parking minimums and upzoned commercial corridors saw more apartments get built and rents stay flat, finds a new Pew study. Read Reason‘s coverage of the city’s YIMBY successes here.
• Portland, Oregon, is reworking its inclusionary zoning ordinance—which requires developers of projects with 20 or more units to make some of those units below-market rate—to make the law less of a housing killer. The proposed changes would give developers additional property tax exemptions to offset the costs of the law’s affordability mandates. Local YIMBYs say the changes are a big deal.
• A local council in London is pioneering new restrictions on development by landmarking a supermarket.

Regulation of the Week

Palm Beach, Florida, sets minimum lot sizes for dogs and cats. One can keep a maximum of ten dogs and/or cats on properties that are 1.5 acres or smaller. Keeping a pack of 11 to 20 dogs and/or cats requires a property of at least 2.5 acres. Properties that are 2.5 acres or more can host up to 30 cats and/or dogs.