On Halloween, elected officials held a performative press conference to talk about “Zombie Apartments”. They claim landlords are engaged in a mass conspiracy to keep rent-stabilized apartments vacant in an effort to manipulate the housing market. The accusation is completely absurd. Let’s talk about what’s really going on.
For more than 50 years, the rent stabilization law has been in place, in various forms. The purpose of the law, when it was originally passed, was to protect against price gouging, while ensuring owners get a reasonable return on their investment. In 2019, the state legislature and Governor Andrew Cuomo changed the intent of the law. They no longer cared about making sure landlords got a reasonable return to keep their businesses running and their homes well maintained. The new law was designed to protect tenants who are currently occupied at all costs.
The Community Service Society released a report this week explicitly stating its purpose. They specifically say, in their 4th Pathway to Social Housing, that the government passed HSTPA in an effort to reduce property values so that non-profit operators could purchase the buildings. They see the massive devaluation and deterioration of rent-stabilized buildings as an opportunity for the government to confiscate properties.
The reason why buildings have seen their value drop is directly related to why there are so many vacant apartments. The law put in place a de facto vacancy check on these units, a regulation that exists nowhere else in the country but in New York. When a tenant vacates an apartment, the rent cannot change in that apartment.
By the time the law was passed, there were around 400,000 apartments that had been occupied for over 20 years, meaning they likely needed significant financial investment to ensure they complied with the dozens of laws. adopted in recent years, including energy. efficiency standards and lead reduction.
Using simple math, we can calculate that at least 500 rent-stabilized apartments with long-term rentals become vacant each month. The 2021 Housing and Vacancy Survey suggests that this number likely accelerated during the COVID-19 emergency, leading to a number of 42,860 rent-stabilized apartments being listed as vacant and unavailable for rental.
These apartments need massive renovations when the current tenant moves out. They must comply with lead paint laws passed in 2004 and 2019, which means replacing all doors and windows, or even completely removing the walls and possibly the ceiling. The electrical wiring needs to be completely redone, which the state’s Housing and Community Renewal (HCR) Division says will cost more than $15,000, before inflation takes off this year. The plumbing in buildings that are on average 80 years old also needs to be replaced. Quickly, renovation costs for vacant apartments can approach $100,000.
The apartments that need the most renovation work have the lowest rents. These ultra-low rents typically don’t cover the apartment’s operating costs, which, according to the New York City Rent Guidelines Board, amount to $997 per month. Landlords have no way to increase these rents. Most rational New Yorkers wouldn’t spend six figures renovating an apartment knowing they would never get that money back. Most of the small homeowners we represent wouldn’t even have the money on hand to do the renovations without taking out a loan. Banks will not lend to do the work on the apartment if the current rent does not repay the loan. The result? The much-needed housing unit is vacant.
The consequence of this policy change did not help one tenant. When housing supply decreases, tenants are forced to live in overcrowded apartments or pay too much for apartments with unregulated rents. Rent stabilization is affordability without subsidy. There is no tax credit or financial compensation for an owner who operates a property at stabilized rent. The affordability of rent stabilization comes from having another tenant pay more to cover the below-market rents. That’s why our organization is asking the state legislature for a vacancy reset for apartments that require legally required renovations.
What is a Vacancy Reset? This would allow the landlord to fix the vacant unit up to code and then rent it out at an affordable rent comparable to nearby apartments. There is already a process for this to happen for the small number of apartments that are still under rent control. When these units become vacant, the landlord can repair them and fix a new first rent. This new first rent is subject to a Fair Market Appeal by the first tenant to move into the apartment.
What’s great about a vacancy reset is that it doesn’t raise the rent one penny for existing tenants. It doesn’t cost the government a penny either. In fact, CHIP estimates it would create about $100 million in additional tax revenue for New York City next year. This money would help the city build a better social safety net to protect the city’s most vulnerable. Moreover, the new apartments would contribute to the housing crisis and reduce homelessness.