Regulatory roulette rocks real estate

New laws could across the country pose problems for landlords and builders

Real Estate Week in Review for Aug. 26, 2023
New York State Governor Kathy Hochul, Chicago Mayor Brandon Johnson (Getty)

The intersection of real estate and public policy was in clear focus this week.

In New York, building owners are awaiting on whether Gov. Kathy Hochul will sign two bills that could expose them to large rent-overcharge judgments.

One bill expands the definition of fraud in rent overcharge cases, while the other allows tenants to consult rent histories beyond the four-year lookback when seeking to calculate their legal rent after June 14, 2019.  

Landlord groups argue the changes will open the floodgates for litigation because tenants can consult rental history beyond the usual four years if they can prove fraud. Landlords, meanwhile, are trying to find old records they may no longer possess.

“Who has records, bills, for work they did in 2001?” landlord Leon Goldenberg, whose company manages more than 2,500 units, asked. 

Also in New York, many Airbnb rentals may go the way of the dodo (and wearing white) after Labor Day, when the city begins enforcing a law that requires short-term rental hosts to register their properties. 

Airbnb sued to have the law gutted, claiming it was a ban on short-term rentals, but a judge dismissed the suit. The low number of units registered suggests many units will soon become illegal.

In Texas, a new law that goes into effect next week essentially bans mandatory water breaks for construction workers amid the hottest summer on record.

The law — which bans local governments from passing laws that are stricter than state regulations in finance, insurance, labor, natural resources or occupations codes — was intended to prevent regulations from cropping up across the state.

The regulation will nullify local laws, like ones In the Austin and Dallas construction arenas, requiring periodic water breaks for construction workers throughout the day.

State Sen. Brandon Creighton, who sponsored the bill in the Senate, called it the “the most pro-business, pro-growth bill” of the session. 

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But some construction workers disagreed. 

“Having my rest breaks protected through the rest break ordinance we won back in 2010 in Austin has been life-saving,” Eva Marroquin, who worked in construction in Austin for over 20 years, and is a member of the Workers Defense Project, said. “When Governor Abbott signed HB 2127 into law back in June, he effectively signed a death warrant for working-class Texans like myself.”

Beware of unintended consequences. That’s what some landlords are saying In Chicago, as they balk at Mayor Brandon Johnson’s newly proposed transfer tax tiers, with some saying tenants could pay the extra cost.

“It’s not like these big, rich boogeyman landlords are taking the brunt of all of this,” Peter Billmeyer, president of the Chicago chapter of the Society of Industrial and Office Realtors, said. “I don’t have any faith that those landlords are going to say, ‘Oh, we’re going to absorb this cost and it’s not going to be distributed anywhere else.’”

The proposal calls for a graduated tax increase that would change the city’s current transfer tax rate of 0.75 percent of a property’s sale price applied to all deals regardless of price.

It would drop to 0.6 percent of the sale price for deals under $1 million, and rise to 2 percent for deals between $1 million and $1.5 million and 3 percent — four times the current rate — for sales of more than $1.5 million. The uppermost rate is more expensive for big building owners than a previously considered plan that would have taken the tax rate to 2.65 percent of the sale price for all deals of $1 million or more.

The law is called a “mansion tax,” but many people are concerned with its impact on commercial properties at a time when the office market is cratering.

In Los Angeles, it’s not a new law that’s causing a stir, but one that’s been on the books for a while that isn’t coming off fast enough for some.

The city is the only one with a rent freeze on rent-controlled housing, which went into effect during the early days of the pandemic and ends Feb. 1.

While many renters view the freeze as essential to making ends meet, landlords and real estate experts are looking to have the law removed from the books faster.

“In a city like L.A. that needs investment in housing, the last thing you want to do is drive away the people who are going to do the investment in housing,” Jim Lapides, vice president of advocacy and strategic communications for the National Multifamily Housing Council, told the Times. “And that’s what’s taking place right now.”