2.4 million people live in New York's rent stabilized housing - more than the population of Houston. And it's in serious trouble. Today's Thesis Driven explores why.
While rent stabilization has existed in New York for more than 100 years, the system was dramatically transformed in 2019 by new laws that limited how much owners could increase rents of units that had been vacated by tenants - a practice known as vacancy control.
But the new laws also put strict limits on how much owners could increase rents to cover apartment renovations, capping renovation spend at $15,000 per unit regardless of the state of the apartment. This has led to a number of owners holding unrenovated apartments vacant, as it doesn't make financial sense to renovate them at current rents. An estimated 200,000 apartments have rents below operating expenses not counting debt service.
Together, these reforms have thrown the rent stabilized housing market into disarray, leading to fire sales, defaults, foreclosures, and a lot of finger pointing. Today, you could buy a fully-tenanted, rent stabilized building in Brooklyn for far less than the value of the land. But you probably shouldn't, as there's no resolution on the horizon.
The full letter dives deep into the current situation, where it might go from here, and lessons for real estate players in other markets.