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The housing session that wasn’t
End of NY legislative session becomes nightmare for real estate
After a promising start for the real estate industry, the final hours of the state legislative session proved harrowing.
A series of housing bills championed by the industry and the governor failed to move forward, but lawmakers advanced other measures that landlords say will throw New York City’s rent-stabilization system into disarray.
The Senate and Assembly passed two bills that limit initial rents when stabilized units are combined and give tenants more opportunities to challenge their rent. Landlord groups have called the measures unconstitutional and warned that they will lead to a flood of rent-overcharge cases.
“The state legislature continues to show they are more interested in being retroactively punitive than proactively advancing pro-housing solutions,” said Jay Martin, executive director of the landlord group Community Housing Improvement Program, in a statement.
These policies quietly progressed while other housing initiatives failed with considerable fanfare. Gov. Kathy Hochul’s New York Housing Compact, a proposal to build 800,000 new homes over the next 10 years by setting housing mandates throughout the state, stalled during budget talks. A potential deal to both extend a deadline for the 421a tax break and pass a version of good cause eviction also fell apart, with the governor and legislative leaders exchanging blame for its death.
Barring a special session or executive-level stopgap measures, addressing these and other policies will have to wait until next year. In the meantime, housing groups are trying to figure out who will carry them forward.
“The governor was not someone who was able to pass one of her main pieces of policy this year,” said Annemarie Gray, executive director of the pro-housing group Open New York. “We clearly need to build a more distributed set of political champions.”
Blame game
Even some recent real estate victories were dampened by this year’s legislative session. Consider the Howard Hughes Corporation’s 250 Water Street: A state appellate court ruled in favor of the project, paving the way for a 399-apartment building after lower courts had nullified its approval.
Yet the project may not move forward anyway without an extension to the 421a construction deadline. The developer had foundation footings in place by June 15, 2022, meaning it could still qualify for the now-expired tax break. But in order to receive the crucial benefit, the project must be completed by June 15, 2026. State officials are considering a way to allow those projects to secure tax breaks through a separate model, potentially using payments in lieu of taxes, but no such stopgap was formalized.
The Real Estate Board of New York estimates that 32,000 housing units may not get built without the extension, as developers scramble to secure construction financing. Massive projects, including Halletts North in Astoria, where 1,340 apartments are planned, are among the developments in jeopardy. At least eight projects totaling 3,500-plus apartments in Gowanus, made possible by the neighborhood’s rezoning, may not move forward, according to a list provided to TRD.
“We clearly need to build a more distributed set of political champions.”
Some projects may be able to wait out the uncertainty. Two Trees’ David Lombino said River Ring, a 1,000-unit project in Williamsburg, and site B at the company’s Domino Sugar development both rely on 421a, but construction is not expected to begin for another year or two. Not every developer has that kind of buffer.
“There are some projects that are dead in the water, and the banks are going to come calling,” Lombino said.
Lawmakers came tantalizingly close to extending the 421a deadline. Assembly Speaker Carl Heastie and Senate Majority Leader Andrea Stewart-Cousins said on June 8 that they were working toward an agreement to push back the deadline, approve a version of good cause eviction, create a state-based housing voucher program and allow more office-to-residential conversions. But they said the governor would not sign off.
Gov. Kathy Hochul countered that the lawmakers were simply trying to shift the blame for “their own failure to act.”
It is unclear whether lawmakers ever had enough votes to approve the agreement and dare Hochul to veto it.
“I think Albany has a tremendous culture of finger-pointing,” said Cea Weaver, coordinator of the Housing Justice for All coalition. “It is easier to do nothing than to do something. They wanted to be able to say they tried.”
“REBNY was up there with one goal: to block good cause,” she added. “They were not up there for anything else.”
REBNY President James Whelan said his organization relies on facts and data, while Housing Justice for All relies on “intimidation and bullying.”
It is difficult to gauge the strength of the potential deal, given that no bill language was ever released.
Lawmakers acknowledged that they were contemplating a version of good cause akin to rent control in California, where annual increases are capped at 10 percent or 5 percent plus inflation, whichever is lower. While tenant advocates appeared amenable to adjusting the rent increase thresholds, they pushed back against another proposal that would have exempted buildings of a certain size. Sen. Julia Salazar, a prime sponsor of the original good cause legislation, called the potential exemption “absurd” in a June 12 tweet.
Other policies discussed as part of that deal — including lifting the city’s restriction on residential density and changes that would make it easier to convert commercial space into housing — came with a catch. Whelan said they mirrored the state’s Housing Our Neighbors With Dignity Act, which created a commercial conversion program that has seen very few participants. The program requires at least half of all converted units to be set aside for homeless residents. For many developers, that is a nonstarter.
“It sounds really nice, but it does nothing,” Whelan said.
Retooling the rent law
Republican lawmakers tried to use fear of a statewide housing crisis — the existence of which they dismissed — against the two rent-stabilization bills.
One exchange between lawmakers at a June 20 hearing reflected a perennial refrain from owners of rent-stabilized apartments: Elected officials lament the lack of affordable housing while hurting the operators of existing and deteriorating affordable housing stock.
Assembly member Andy Goodell, a Republican who represents Chautauqua County in Western New York, asked if giving a tenant more opportunities to challenge their rent after they’ve signed a lease would “somehow encourage more housing, or is that completely irrelevant?”
Democratic Assembly member Jeffrey Dinowitz of the Bronx agreed it was irrelevant because his bill — to allow tenants to consult rental histories to calculate rent post-2019 — had a narrow application.
One of the measures that was passed establishes rules for setting the initial rent for apartments created by combining vacant stabilized units, a practice referred to as “Frankensteining.” The new rent must equal the sum of the units’ most recent rents, and the combined unit must then abide by rent increases permitted by the city’s Rent Guidelines Board.
The rules closely followed those proposed, but not implemented, by the state’s housing regulator last year. The Legal Aid Society praised the bill, saying it “closes a dangerous loophole” that encourages landlords to warehouse vacant apartments in hopes of jacking up rent.
But it was another aspect of the bill that drew even more ire from the industry. The measure departs from recent Appeals court decisions, which have generally found that fraud is the result of intentional schemes to overcharge rent-stabilized tenants — and not simply a failure to register a regulated apartment. But the bill defines “fraud” as “a material breach of any duty … to disclose truthfully … the rent, regulatory status, or lease information.”
The presence of fraud in rent-overcharge cases allows tenants to consult earlier rent histories and creates a larger payout — the overcharge is calculated using a “default formula,” which relies on the lowest stabilized rent recorded for comparable apartments, rather than determining the base rent on a four-year lookback.
The other measure allows tenants to consult rent histories beyond the four-year lookback when seeking to calculate their legal rent after June 14, 2019. The Housing Stability and Tenant Protection Act of 2019 expanded the lookback window to six years when determining rent overcharges, while allowing courts to use any evidence found to be “reasonably necessary” to determine the legal rent.
The bills’ sponsors argue that the measures simply codify the state’s understanding of fraud and the intent of the 2019 rent law, given recent court decisions.
But real estate attorneys counter that the 2020 decision in Regina Metro v. DHCR — which found that the 2019 rent law could not be applied retroactively to overcharge cases — and subsequent decisions were already clear about fraud. Landlord attorney Nativ Winiarsky, a partner at Kucker Marino Winiarsky & Bittens, pointed to the court’s reliance on “common law fraud,” which requires intent on the part of the landlord to misrepresent the legal rent.
“Regina has not needed clarification,” he said.
CHIP warns that if the measure becomes law, building owners who purchased their property five years ago could be on the hook for incorrect registration information filed decades earlier. The group argues that the bills will have a “chilling effect on investment in rent-stabilized buildings in New York City and drive away future investment in affordable housing.”
Looking ahead
While many have lamented the lack of action on major housing legislation this session, some are encouraged that the last-minute housing deal would have included a 421a extension.
“The good news is, there is some acknowledgment on the part of the legislature that they have to do something,” Lombino said.
Some lawmakers believe the path forward for 421a and good cause likely lies in a broader housing package, given how contentious these policies are on their own.
“REBNY was up there with one goal: to block good cause.”
“The bad joke is, if there is something for everyone to love and everyone to hate, you’ve probably got a good deal going there,” said Manhattan Sen. Liz Krueger. “There is a deal to be made with a number of these different issues tied together, but only if the governor is willing to come to the table.”
Lawmakers managed to pass a few other housing-related measures, including a replacement to the tax break for multifamily renovations formerly known as J-51, along with a bill that expands the city housing agency’s loan authority and another aimed at ramping up protections against deed theft.
Suburban lawmakers had pushed back against Hochul’s housing targets, decrying the mandates as a seizure of local control over land-use decisions. But Open New York’s Gray said there were other lines of opposition that will need to be breached if these policies are to move forward. She said some real estate groups did not come out in force to support the Housing Compact, and some even actively opposed it.
“I think it’s easy to forget that there are a lot of people who benefit from a housing shortage,” she said.
Howard Slatkin, executive director at Citizens Housing and Planning Council, said that while housing enjoyed an unprecedented amount of attention this year at the state level, he is not sure lawmakers are committed to building the amount of housing needed throughout New York.
“One of things that remains unclear to me is the extent to which legislators agree that we have a housing supply problem,” he said. “In the end, the list of housing proposals that the majority leader and speaker put in their statement didn’t have anything in it that was oriented toward building new buildings.”