Rent regulation threat sparks red scare among real estate

As real estate pleads for a rent law rollback, lawmakers appear hell-bent on upping the ante, introducing two bills this month to stop background checks of prospective tenants.

From the response of some on the landlord side, you’d think the apocalypse were at hand.

Sherwin Belkin, partner at Belkin Burden Goldman, laid out the proposals in a weekend post that sparked a mini mob on LinkedIn.

“Here’s my prediction as to the rental application form of the future: Do you have a pulse?’ If you answered ‘yes’ — congratulations! You’ve been approved for your new home,” Belkin wrote.

“I wish that I was joking,” he added.

Belkin’s post resonated with brokers and investors, who foretold that the policies would bring consequences ranging from higher insurance and mortgage rates all the way to socialized housing.

WE Capital principal Steven Weinstock hypothesized that lawmakers’ intent was to create “government-approved landlords.”

And Eric Anton of Marcus & Millichap capped the thread with, “Fight the communists.”

In truth, the bills would probably have less impact than commenters think. Even in a worst-case scenario, greater regulation would likely shift buildings to institutional owners, not the government.

But the reaction on LinkedIn shows that the 2019 rent stabilization law, Covid-era tenant protections, new rent control laws and the threat of good cause eviction, the industry remains on high alert for any sign of free-market meddling.

A 2019 rent law provision barred owners from denying a lease based on a tenant’s eviction history. Within that vein, Belkin writes that a City Council bill resurrected this month would strip landlords of their right to perform criminal background checks, and a state measure introduced the following day would ban leasing decisions based on credit history.

If the measures become law, owners would effectively be renting blindfolded, Belkin surmised.

His post sparked a doom spiral from industry bigwigs prophesying the end of privatized housing.

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Patrick Freydberg, Director of Northeast investments at Pacific Urban Investors floated that the policy trifecta amounted to “a stealth taking,” a reference to the Fifth Amendment’s takings clause, which holds that the government cannot seize private property for public use without compensating its owner.

Several lawsuits seeking to dismantle the 2019 rent law argue that rent regulation, which taps landlords to provide a benefit for tenants, does just that.

But checks of criminal and credit histories have already waned since the rent law prevented owners from charging more than $20 for them.

In calling around to organizations that run a tenant’s criminal history, Jay Martin, executive director of the city-based landlord group Community Housing Improvement Program, found “virtually no one’s doing background checks.”

Owners beat back a background-check ban last year, helped by tenants who testified that they don’t want ex-cons renting in their buildings. But landlords remained concerned about liability from renting to an unvetted tenant.

Ann Korchak, of the landlord group Small Property Owners of New York, was the sole commenter on Belkin’s post to speak to those fears.

“Which insurance carrier is going to insure my building? Which bank will loan me money?” she wrote. “Each of these bills further destabilize owners, especially smaller owners.”

The bills, Korchak claimed, would result in fewer small owners as institutional investors sweep in to pick up properties. Not a governmental takeover, but a corporate one.

Martin said he is willing to negotiate with the City Council to ensure liability protections are baked in. The bill’s primary sponsor, Council member Keith Powers, said he expected to discuss the legislation with stakeholders, but wouldn’t speculate on possible amendments yet.

The state’s attempt to curtail credit checks isn’t its first. A February 2021 bill sought to stop landlords from refusing to rent to tenants on the basis of credit history.

That legislation is still sitting in committee, a sign this attempt could also stall out.