Brokers on rent law proposal: This is going to harm tenants

Limits on security deposits could restrict types of tenants who qualify for apartments, brokers say

Jun.June 13, 2019 06:00 PM
Bond Real Estate's Douglas Wagner, Jordan Sachs of Bold New York, B6 Real Estate Advisors' Paul Massey, and Peter Von Der Ahe of Marcus and Millichap (Credit: Leasing Realty and Facebook)

Bond Real Estate’s Douglas Wagner, Jordan Sachs of Bold New York, B6 Real Estate Advisors’ Paul Massey, and Peter Von Der Ahe of Marcus and Millichap (Credit: Leasing Realty and Facebook)

Commercial and residential brokers alike see big changes in store for New York’s real estate market under the state’s new rent reform proposals. One thing they agree on: those changes won’t be good.

Residential brokers zeroed in on the proposal that would limit security deposits to one month’s rent, saying it could severely restrict the types of tenants who can qualify for apartments.

Bond Real Estate’s Douglas Wagner said foreign clients with no U.S. credit history and recent college graduates could be unintended victims of the new rules. They previously would have had to pay larger security deposits to mitigate risk, but now landlords may steer clear of them altogether, he said.

“If you have consumers who have insufficient income or insufficient credit history or no credit history—especially for people who come from outside the country to start high-income positions but just have no previous financial history in the US—the additional security deposit has been a great solution for landlords to manage their risk,” he said.

Jordan Sachs of Bold New York echoed this point, saying that it would force tenants in this position to rely on guarantors or outside companies to guarantee the lease more often. This shift could ultimately end up costing them more money than a steeper security deposit.

“It’s one thing to give three months security knowing you’re going to get it back,” he said. “It’s another thing having to pay a fee to have someone guarantee the lease.”

Peter Von Der Ahe of Marcus and Millichap said the two best ways to sustainably make rent more affordable in New York are to build more housing and provide more paths to middle-class homeownership. The proposals from the state do neither of these, he said.

He predicted the laws could make landlords less incentivized to renovate their buildings, which could put an end to the longstanding trend of revitalizing neighborhoods in New York.

“There are many things that go into that, but one of the foundational aspects of it is the quality of the housing,” he said. “You can’t have a neighborhood renaissance and have bad housing.”

Former mayoral candidate Paul Massey, who now heads up the firm B6 Real Estate Advisors, similarly predicted that the restrictions on Major Capital Improvements and Individual Apartments Improvements would prevent many of New York’s older buildings from getting the renovations they need. The city could also see its budget shrink, given that much of its revenue comes from real estate taxes, and property assessments could start to decrease under the new proposals.

“You’re really setting us up for an environment where our 80-year-old housing stock is not going to get necessary improvements, which will hurt the tenants,” he said. “And, secondly, the city set itself up for budget reductions.”

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