Luis Ferré-Sadurní

Another real estate agent warned a white homebuyer about gang violence in a mostly minority neighborhood, but she appeared to steer a black buyer with a comparable budget toward homes in that neighborhood.

All told, real estate agents treated people of color unequally 40% of the time compared with white people when they searched for homes on Long Island, one of the most racially segregated suburbs in the United States.

Those were among the findings of a three-year undercover investigation published this past weekend by Newsday, a Long Island newspaper, which exposed widespread evidence that discriminatory, and potentially illegal, home-selling practices are helping to keep the area’s neighborhoods segregated.

Newsday did the sort of undercover testing that government agencies and nonprofit groups are supposed to do to enforce fair-housing regulations meant to prevent disparate treatment based on racial and other factors.

The newspaper recruited a diverse group of people, some of them actors, to pose as first-time homebuyers, outfitting them with hidden cameras to capture their interactions with real estate agents. It is legal in New York to record a conversation or phone call if the person making the recording is a party to the conversation.

Over 16 months, the would-be homebuyers conducted about 100 tests. They got help from housing experts and recorded 240 hours of video that the newspaper turned into a 13-article series and a 40-minute documentary. More than 50 reporters, producers, editors and other Newsday employees worked on the project.

The newspaper contacted 93 real estate agents at some of the area’s biggest firms. Two testers — of different races, but of the same gender and about the same age, with similar income and housing preferences — would independently approach the same agent to test whether they were treated differently based on their race.

The results were startling, even though Long Island is a part of New York where redlining, zoning regulations and other forces have long perpetuated racial divides.

“Black testers experienced disparate treatment 49 percent of the time — compared with 39 percent for Hispanic and 19 percent for Asian testers,” Newsday reported.

In some cases, agents did not show listings to black testers if they had not been preapproved for a mortgage. The same agents would accommodate white testers who did not meet that condition.

The federal fair-housing law, passed in 1968 as part of the Civil Rights Act, prohibits discrimination in housing based on race, religion and other factors.

The Department of Housing and Urban Development is responsible for enforcing the law, mostly through its regional offices and through grants to nonprofits to investigate complaints, conduct tests and educate buyers and renters.

In New York, state agencies also enforce the law, with the state’s 133,000 licensed real estate brokers and agents responsible for abiding by fair-housing standards.

The enforcement process, which can be slow, starts mostly with complaints, but undercover tests are often the most effective way of proving disparate treatment. Newsday found that tests were used only sporadically because they are time-consuming and expensive.

Records show few examples of the state imposing heavy penalties, like fines, on agents found to have discriminated, Newsday found.

Government officials said they were examining what Newsday had uncovered.

“We are reviewing this report, but make no mistake: Every complaint received is thoroughly investigated and we urge any New Yorker who believes they have been the victim of housing discrimination to contact us immediately,” Richard Azzopardi, a spokesman for Gov. Andrew Cuomo, said in a statement.

Olga Alvarez, a spokeswoman for the federal housing department, said that the agency was examining Newsday’s findings.

“Combating housing discrimination is at the forefront of our department’s enforcement priorities,” she said.

Ken Zimmerman, a distinguished fellow and fair housing expert at New York University’s Furman Center, said that Newsday’s findings were a “modern manifestation of what has gotten in the way of the legal mandate and policy aspirations of the Fair Housing Act.”

“There needs to be more investment in uncovering intentional discrimination, as these tests reflect,” he added.

Real estate agents are barred from talking to clients about the backgrounds of people who live in neighborhoods and they are required to provide equal guidance about areas in which they may want to live.

Newsday found that agents ignored those rules repeatedly.

Agents overwhelmingly directed white buyers to Merrick, a hamlet in Nassau County where most of the residents are white. When discussing Brentwood, a predominantly black and Hispanic hamlet where gangs like MS-13 are active, an agent told one black tester that residents there were the “nicest people.”

The same agent emailed a white tester to “please kindly do some research on the gang related events in that area for safety.”

White customers were often given more listings than minority testers, Newsday found. And in a quarter of the cases, agents appeared to unlawfully steer buyers to different communities based on their race or ethnicity.

“This investigation brought to light what too many people of color in our state know already,” Sen. Kirsten Gillibrand, D-N.Y., said in a statement, “that discrimination is real and targeted, and rears its head in every aspect of their lives.”

This article originally appeared in

What Happens When Black People Search for Suburban Homes

One Long Island real estate agent told a black man that houses in a predominantly white neighborhood were too expensive for his budget. But the same agent showed houses in the same neighborhood to a white man with the same amount of money to spend.

In 2016, New York City renters paid more than $500 million in security deposits, money that largely sat untouched in low-interest bank accounts, according to the city comptroller. Security deposits remain a steep financial barrier for low-income tenants and young renters with minimal savings, even though state lawmakers recently limited the deposits to the equivalent of one month’s rent.

Now, a spate of startups is offering cheaper alternatives, envisioning a rental market without security deposits as a way to lower housing costs, curb inequality and put money back in people’s pockets.

Rhino has helped pioneer an insurance option: Tenants pay a nonrefundable monthly fee (about $13 for a $3,000-a-month apartment) instead of a deposit, and Rhino insures the apartment, paying the landlord for any damage.

The model seeks to simultaneously protect landlords and benefit renters by lowering upfront costs and freeing up money renters can save or invest.

“The idea was pretty simple,” said Ankur Jain, 29, the chairman and a co-founder of the company, which is based in Manhattan. “Security deposits have been vastly overlooked for the past few decades, and as rents have gone up, security deposits have become a much bigger barrier than they used to be for renters.”

But the idea has drawn some skeptics who are troubled by the prospects of unleashing a new type of insurance industry within an already ruthless real estate market notorious for unscrupulous landlords who prey on vulnerable tenants.

The startup is now focused on building political support for local policies nationwide that would require landlords to accept alternatives to security deposits and give renters more flexibility. The push comes amid a worsening housing crisis and a surge of tenant-friendly laws from California, which recently enacted statewide rent control, to New York, where lawmakers passed landmark tenant protections last summer.

Rhino was partly funded by Kairos, a venture-capital fund that Jain said he started to address social issues. The company has partnered with some of the city’s major landlords, including L+M Development Partners, Brodsky, Stonehenge and Monihan Realty, to build a portfolio of 110,000 apartments whose tenants have the option of enrolling.

Jain, an entrepreneur who founded a technology company that was acquired by Tinder in 2016, would not say how many renters have signed up. But he said Rhino had saved New York City tenants more than $60 million in security deposits since it started in late 2017 and $60 million nationally in 2019.

“We felt that there wasn’t enough being done in the political or private sector to tackle some of the big financial barriers facing our millennial generation, like student debt, housing and health care,” Jain said.

As rents have climbed, so has the number of companies offering alternatives to security deposits: Jetty, Obligo, SureDeposit and TheGuarantors offer similar services with varying coverage and price plans.

David R. Jones, the president of the Community Service Society, an anti-poverty group, said that security deposits were an extraordinary burden for low-income people, but that he was concerned private companies could exploit susceptible tenants.

“I am pretty wary when private institutions get involved in these types of things,” Jones said. “There has to be a profit motive here. I’m a little concerned that you’re dealing with extraordinarily vulnerable populations who don’t always read the fine print.”

Some elected officials were cautious about fully embracing the approach.

Julien Bonneville said he founded TheGuarantors in 2016 to guarantee leases for low-credit tenants and international students. But last year, the company unveiled a service to replace security deposits whereby tenants pay a fraction of the deposit upfront (from 7-18%) and the company insures damages up to the amount of the deposit.

He said the key to protecting renters was to make sure they know their obligations when using alternative products.

“This is growing fast,” he said. “In the future, hopefully, this will become the new standard, so landlords don’t use outdated ways of collecting security deposits such as cash.”

Jain said the policies his company advocates, including allowing renters to transfer security deposits between landlords when they move, could help free up billions of dollars tied up in security deposit accounts nationwide.

The City Council recently introduced a few bills aimed at lowering upfront costs for renters, including one to cap broker fees at one month’s rent and another that would allow renters to pay security deposits in six monthly installments. In addition, the tenant protections passed in June included a $20 maximum for application fees.

Councilman Keith Powers, a Democrat who represents parts of Manhattan, said an insurance plan like Rhino’s offered renters more options, but “it’s a new idea and I haven’t studied it enough.”

“I think there is a huge opportunity right now, based both on technology and on good policy, to revisit all these upfront costs to offer flexibility and choice,” said Powers, a co-sponsor of the recently introduced bills.

In a statement, Ben Carson, the secretary of the Department of Housing and Urban Development, expressed support for deposit insurance.

Rhino covers damages up to a certain amount and pays landlords for the typical wear-and-tear of a unit. A tenant is still liable for nonpayment of rent and any reckless, negligent or intentional damage to an apartment, Jain said. The monthly premium decreases when a renter renews a lease and proves to be a reliable tenant.

For property owners, offering no security deposits can be an effective marketing tool to attract potential renters.

“It works with no detriment to us and it’s obviously better for the renter,” said Barry Sternlicht, the chief executive of Starwood Capital Group, one of the largest property owners in the country and an early investor in Rhino.

“I remember when I was in that situation, when I was 22 and having to come up with that security deposit. It’s a lot of money,” said Sternlicht, who is rolling out Rhino across his properties. “It’s just a bad thing because the money sits around doing nothing.”

This alternative model could help fix another problem: Tenant lawyers say landlords sometimes do not return security deposits or withhold arbitrarily large amounts of money for minor damages to an apartment, a power dynamic that is skewed against tenants.

To get that money back, tenants can either file a complaint with the New York State attorney general or take their landlord to court, an expensive and time-consuming deterrent.

“Anecdotally, we hear about it all the time,” said Judith Goldiner, head of the Legal Aid Society’s civil law reform unit. “Security deposits are also one of the reasons it’s so hard for low-income people to move.”

A 2018 report from the city comptroller found that the typical family of four would have to pay 6% of its annual income to cover the security deposit of a typical New York City apartment; that number can go up to 25% for residents of the city’s poorest neighborhoods.

Security deposits also disproportionally affect minorities and low-income families, who are less likely to have substantial savings, the report said.

“I’m not endorsing a particular model,” Scott M. Stringer, the comptroller, said. “What I’m saying is that private sector housing has to meet the needs of the middle class, and rent security deposits are another form of gouging working families and basically removing money from middle-class people.”

He added, “We should have this discussion in the private sector and the public sector, and maybe there is a way to meet in the middle.”

What if You Could Rent an Apartment Without a Security Deposit?

Nothing is certain in the grueling hunt for a New York City apartment, except perhaps the inevitability of shelling out thousands of dollars upfront in broker fees, one month’s rent and a security deposit.

But the roommates may get most of their money back, a rare happy outcome in today’s costly real estate market, after state regulators declared last week that real estate brokers must abide by a recently enacted $20-limit on application fees.

“We got $800 back, which is very awesome,” said Pellman, 23, an actor who moved to a two-bedroom apartment in the Williamsburg neighborhood of Brooklyn this month.

Months after New York passed sweeping tenant protections, including the $20 ceiling on application fees, many real estate brokers across New York City continued to charge renters like Pellman hundreds of dollars to apply for an apartment.

The new laws said landlords could not charge more than $20, but it made no mention of brokers, who are often the go-betweens to secure an apartment in the city. The ambiguity led to months of confusion as renters forked over large fees, and lawmakers and real estate professionals blamed each other for the fiasco.

But on Sept. 13, a state agency finally stepped in to provide some clarity: Brokers acting on behalf of landlords cannot charge tenants more than $20 in application fees, which can only be used to cover background or credit checks.

So said a two-page guidance memo from the New York Department of State. It was a source of good news for the countless renters who found an apartment after the new cap passed in mid-June and may have been overcharged.

The memo did not specify whether renters illegally charged were entitled to a refund, but Pellman recently contacted two brokerage firms, Corcoran and Nooklyn, informing them of the new laws — and got a rebate from each.

“I just think it’s ridiculous the way brokers and landlords profit on tenants not knowing their rights,” said Pellman, who shared on Instagram a template of the email she sent. “I don’t like getting scammed and I don’t want anyone else to get scammed.”

She said Rentopia, the firm through which they secured their apartment, had not answered her emails requesting a refund and she’s worried her landlord may penalize her for speaking up. Her broker at Rentopia did not respond to a request for comment.

But Ariel Dagan, a real estate broker for Compass, said that limiting application fees could be detrimental to agencies that relied heavily on them to make a profit.

“These fees are what keeps some brokerage firms in business,” said Dagan, who also runs PreApproved Renter, a software platform that helps landlords process rental applications.

Dagan said there were other unintended consequences that could place brokers in a bind.

Under the new laws, landlords and brokers are required to provide tenants with an invoice and copy of any background or credit checks they conducted. But Dagan said that provision may be at odds with credit-reporting agency rules, which typically bar clients who use their services from sharing credit reports with others.

Representatives for TransUnion and Experian, two of the largest credit-reporting agencies in the country, said their rules do not prohibit landlords from sharing reports with consumers.

A prospective tenant can also waive an application fee if they provide the broker or landlord with a copy of a background or credit check conducted within the last 30 days. That, Dagan said, could lead to the submission of phony documents.

Brokers are facing additional pressure this year from the City Council, which is considering a bill that would limit brokers’ fees to one month’s rent. That would lower housing costs for tenants, while curbing a broker’s earnings.

“I think it’s ridiculous,” Dagan said.

“It’s not a glamorous job. It’s a grind,” he added about real estate agents. “It would cap middle-class workers’ pay, and this is a progressive city.”

The cap on application fees applies statewide, and enforcement issues have reverberated far beyond the five boroughs.

Susan Segal recently helped her son, a student at Syracuse University, apply for an off-campus apartment, for which the management company charged $300 in application fees. She emailed the company to ask for a refund after she learned of the new laws, but has yet to hear back.

“I would be willing to bet that apartment owners in areas with high student populations might be particularly prone to ignoring the law, given that college students may not know or have the wherewithal to protest illegal practices,” Segal said.

The memo from the state included additional guidance: It specified that a real estate agent paid by a renter to find an apartment is allowed to charge more than $20 in application fees and that brokers who violate the law may be disciplined by the Department of State, which regulates and licenses real estate brokers and agents.

But the memo left unanswered many other questions about the impact of the new rent laws, which were propelled by recently elected Democrats in the state Legislature to address skyrocketing housing costs.

It was not clear, for example, whether $20 is the maximum fee per application or per person. In response to questions from The New York Times, Department of State officials clarified Wednesday that brokers were allowed to charge $20 per applicant, not application. For example, three roommates could each be charged $20, or a total of $60, to apply for an apartment.

Also in question is how the new limits on fees and security deposits (now capped at one month’s rent) might inadvertently apply to the rental and sale of co-ops and condominiums, which typically involve hundreds to thousands of dollars in application fees.

In a statement to The Times, the Department of State said it does not regulate or license co-op and condo boards, so it could only dictate rules for brokers and agents.

It said that a broker cannot charge more than $20 on behalf of a co-op or condo board “when the particular apartment is owned by, and being leased by, that particular board.” If the board is not the owner or shareholder of the apartment, then a broker is free to charge more than $20.

It is unclear whether property-management companies, which often handle leases and applications on behalf of condo and co-op boards, are free to charge more than $20 in fees. In interviews, real estate attorneys gave conflicting accounts on their reading of the law.

Carl Hum, the general counsel for the Real Estate Board of New York, an influential trade group, said property managers could continue to charge more than $20 in fees.

But some lawyers, like Jeffrey Schwartz, who advises co-op and condo boards, said he is recommending his clients err on the side of caution and abide by the $20 cap as a result of the ambiguity in the new laws.

“I think the issuance of the guidance is actually creating more confusion than clarifying,” said Schwartz, who hopes the state will pass new legislation to exclude co-ops and condos from many of the new rent laws.

The lack of clarity has left some co-op applicants in limbo.

One co-op board in Manhattan recently charged an applicant an assortment of nonrefundable fees totaling about $1,350. The renter, Jeff, who preferred to use only his first name because he is still going through the co-op’s interview process, said the large fees appeared to be against the law.

“But I don’t want to argue fees with the co-op board because it’s already so competitive to get here in the first place,” he said. “I don’t want to rock the boat.”

Does Your Real Estate Broker Owe You a Refund?

NEW YORK — When Jo Ellen Pellman and her roommate searched for an apartment in New York City this summer, the two women dug deep into their pockets: They paid brokers a total of $1,200 in nonrefundable application fees, or $400 for each apartment they applied for.

That, at least, is according to a 62-page audit released Friday by the city’s comptroller, Scott M. Stringer, whose office found the city has wasted millions on roof repairs that should have been free, and systematically failed to conduct maintenance to prevent leaks, mold and mildew.

“At a time when every penny counts, NYCHA is essentially lighting money on fire by investing millions in roof repairs when it doesn’t have to,” Stringer said during a news conference at the Ingersoll Houses in Brooklyn.

NYCHA, the largest public housing system in the country, is under strict oversight after a federal lawsuit accused the agency of cover-ups, chronic mismanagement and squalid living conditions, including pervasive mold and exposed lead paint.

Earlier this week, Bart M. Schwartz, the independent monitor who oversees the housing authority, also issued a damning report that shed light on the agency’s flawed inner-workings, culture of dysfunction and lack of accountability.

Schwartz, who was appointed in late February, found NYCHA fails to adequately clean up lead paint, uses imprecise internal data and is not adequately staffed to deal with a pest infestation so bad that rats are known to clamber up clogged garbage chutes to 14th-floor apartments.

Taken together, the reports offer a bleak picture of housing conditions for 400,000 low-income residents and the daunting road ahead for the agency’s new chairman, Gregory Russ, who will assume his role in August.

Lack of maintenance and millions wasted on roofs

Leaky roofs are a well-documented and seemingly intractable problem at the housing authority’s 325 developments. Because leaks can lead to mold, a severe health hazard, the city recently allocated more than $1 billion to replace hundreds of roofs.

The housing agency typically hires contractors to install roofs, which generally have a warranty of 20 years, during which time a private vendor can cover most repairs for free.

But the comptroller’s audit found the agency almost never uses its roof warranty coverage to make fixes, instead spending taxpayer money on repairs. The audit examined 700 roof-related work orders over a decade and found NYCHA used its warranty coverage only nine times.

A lack of maintenance can void warranties, burdening NYCHA with the cost of repairs, but the agency has failed to adequately perform such maintenance. The comptroller’s office inspected 35 roofs in 13 developments and found deficiencies — from cracks to pools of water — in 88% of them.

NYCHA has also failed to keep track of basic roof-related records — like copies of warranties and monthly inspection reports — and workers are rarely trained to ensure warranty standards are met.

As a result, the auditors found 19 damaged roofs that could cost $24.6 million in public funds to repair.

Chester Soria, a spokesman for the agency, said in a statement that the comptroller’s audit and recommendations were consistent with what NYCHA “has been aware of and addressing through new systems we are already implementing.”

“In our July 17 response, NYCHA agreed with many of his proposals, such as with our roof inspection and quality assurance process, and our record-keeping enhancements were underway before today’s report,” Soria said.

Rat infestations

In his first quarterly report released Monday, Schwartz, the monitor, found that NYCHA was unlikely to meet deadlines to reduce its rat population and backlog of pest complaints.

NYCHA employs only 108 pest exterminators, which means each exterminator is responsible for about 1,400 apartments.

Twelve more exterminators were expected to be hired, but the report said NYCHA needed almost 1,000 exterminators to meet the Aug. 1 deadline stipulated in the agreement struck by Mayor Bill de Blasio and the federal government to address pest complaints.

Schwartz was particularly struck by the rat epidemic at the Washington Houses in Harlem.

In a letter to NYCHA, the tenant association described residents feeling like “hostages in our own homes at night” because of rats spilling out of elevators and stairways, and workers refusing to enter compactor rooms “for fear of being attacked by rats.” Rats began to climb up the stuffed garbage chutes.

The letter went ignored by NYCHA, the 81-page report said, until the monitor’s team pressured the agency into addressing the problem.

Lead paint

For years, the housing authority lied about its failure to conduct lead paint inspections, which put thousands of young children at risk and led federal prosecutors to investigate the agency.

Those cover-ups forced the city to agree to the appointment of Schwartz to ensure the agency complied with lead regulations. But Schwartz said the city lacked a comprehensive strategy to address lead paint, and NYCHA has conceded it is not in compliance with lead paint rules.

For example, the agency does not have a count of how many children under age 6, the population most vulnerable to lead paint, live or frequently visit NYCHA apartments, the report found. Many lead paint cleanups are being conducted inadequately, the report said, and the agency is waiting on hundreds of laboratory results of lead paint tests.

“These first few months of our work have revealed NYCHA as an organization fraught with serious problems in structure, culture and direction and perhaps even worse,” Schwartz wrote. “No one needs a monitor to be appointed to figure that out.”

This year, 18 cases of young children with elevated levels of lead in their blood have been reported to the federal government by NYCHA.

‘Putrid liquid’ and lack of accountability

On an unannounced visit to the Polo Grounds Towers in Upper Manhattan, the monitor’s team discovered a large pipe “cascading putrid liquid” from the ceiling into a laundry room. A worker, who was trying to stem the flow with a mop, said the problem had persisted for two months.

That was because a superintendent had decided scaffolding was necessary to repair the pipe; workers were waiting for an order of wood, a carpenter and then a plumber to fix the issue. Then a secretary inexplicably closed out the work order for the leak.

After the monitor’s team told the agency about the leak, it was repaired in three hours with only a plumber and a ladder.

That example, Schwartz wrote, was emblematic of an inefficient bureaucracy with little accountability and oversight.

“The main problem here is NYCHA’s failure to take action to solve a problem that needed immediate attention,” he wrote. “NYCHA must learn how to identify and fix these problems expeditiously without getting bogged down in layers of bureaucracy or a ‘check the box’ mentality.”

This article originally appeared in <a href="https://www.nytimes.com/2019/07/26/nyregion/nycha-rats-roof-repairs.html" id="d692723a-93be-3266-aa30-e125516ed39f">The New York Times</a>.

'Lighting Money on Fire' as Mold and Rats Persist in New York Public Housing

NEW YORK — The New York City Housing Authority, known as NYCHA, spent almost $4 million to replace eight roofs at a Staten Island housing project — 10 years before the expiration of their warranty, which would have covered repairs for free.

They are betting that the tighter laws passed in June will bolster their claims that the rent stabilization system — which subjects units to government-mandated caps on rent increases — is unconstitutional and amounts to an unlawful taking of property.

The New York real estate industry, long one of the most dominant in Albany, suffered a crushing defeat last month when newly emboldened Democratic lawmakers passed landmark legislation to strengthen tenant protections.

The sweeping changes to the rent laws — which the industry said would cripple landlords — stunned real estate lobbyists, who had mounted an expensive but unsuccessful campaign to fend off the legislation.

Now landlords are taking to the courts to fight back.

Two trade groups — the Rent Stabilization Association, which represents 25,000 landlords, and the Community Housing Improvement Program, a trade association representing about 4,000 building owners — and seven landlords filed the lawsuit in federal court in Brooklyn.

The new rent laws, signed by Gov. Andrew M. Cuomo, abolished provisions that let building owners deregulate apartments, closed loopholes that permit them to raise rents and allow other localities with housing shortages to fashion their own regulations.

The lawsuit was filed in part against New York City; the Rent Guidelines Board, the nine-member board that decides rent ceilings; and the state agency that administers and oversees rent-regulated apartments.

The lawsuit argues that rent regulations violate the 14th Amendment’s due process clause and the takings clause of the Fifth Amendment, which says private property shall not be taken for public use without just compensation.

As of 2018, only four states — California, Maryland, New Jersey and New York — and Washington, D.C., had localities with some type of rent control. A few months ago, Oregon became the first state to implement statewide rent control.

The first notable constitutional challenge to rent controls came after Washington and New York City adopted them following World War I. Since then, numerous suits have challenged regulations across the country, but the Supreme Court has ultimately upheld rent regulations.

The plaintiffs, however, have their sights on taking the suit to the Supreme Court, where they hope a new conservative majority will rule in their favor and recent rulings will buttress their case.

The suit has also been fast-tracked because of a Supreme Court ruling last month that allows plaintiffs to sue in federal court as soon as state and local governments take property without just compensation. An earlier ruling had required plaintiffs to sue in state court.

Still, reaching the Supreme Court could take years, and chances are slim: The court accepts 100 to 150 of the more than 7,000 cases it is asked to review each year.

“We’re going into the court system clearly with an eye of getting to the Supreme Court,” Joseph Strasburg, the president of the Rent Stabilization Association, said. “And we recognize that this is a long journey.”

The lawsuit drew immediate criticism from tenants’ advocates and progressive politicians who championed the new rent laws and vowed to fight back.

A spokeswoman for Mayor Bill de Blasio said the city would review the lawsuit. Letitia James, the state attorney general, said in a statement she would do everything in her power to defend the law.

Michael McKee, the treasurer of the Tenants PAC, an advocacy group, said that tenant groups could try to intervene by asking the court to add them as a party in the lawsuit and that landlords would have a tough time demonstrating their buildings were not profitable because of regulations.

“Every time the real estate lobby has challenged the constitutionality of New York rent control, they have lost,” McKee said. “They have lost in state courts and lost in federal courts.”

Judith Goldiner, head of the Legal Aid Society’s civil law reform unit, said the lawsuit was “an ironic symbol that underscores the fact that landlords’ profits are exorbitant if they are willing to waste their money on frivolous litigation such as this.”

Rent stabilization has been in effect for more than half a century with the purpose of providing affordable housing and alleviating New York’s housing crisis.

But the suit says the rent-stabilized system was unconstitutional even before the new laws were signed, calling it arbitrary and irrational, and a burden on the rights of property owners.

It says that rent regulations exacerbate the city’s housing shortage and that, because there are no restrictions on the incomes of rent-regulated tenants, the system allows wealthy New Yorkers to benefit unfairly.

“We think it’s time for the law itself to have its day in court,” said Jay Martin, the executive director of the Community Housing Improvement Program. “Let’s have a real discussion about whether or not this is the best system to provide affordable housing in New York.”

The takings clause of the Fifth Amendment has been an age-old source of scholarly debate and contentious dispute.

Most recently, in 2012, the Supreme Court declined to hear a case brought by the owners of a five-story brownstone in the Upper West Side. Some of the apartments were rent stabilized, meaning they were subject to caps on rent increases and usually allowed tenants to renew their leases indefinitely.

The landlords, James D. Harmon Jr. and Jeanne Harmon, argued that tenants paid around $1,000 a month, or about 60% below market rate. They said that regulations forcing them to accept below-market rents represented an unconstitutional taking of their property.

The case attracted widespread attention, particularly from libertarian groups who regarded the regulations as government interference in the marketplace and as not only unconstitutional, but also counterproductive.

“We still believe that the Constitution does not allow the government to force us to take strangers into our home at our expense for life,” Harmon said after the court turned down his case.

The year prior, the 2nd U.S. Circuit Court of Appeals, in New York, had ruled against the Harmons, saying the couple knew what they were getting into when they acquired the building.

A three-judge panel said the couple had important rights under regulations: They could demolish the building as long as they did not replace it with housing; they could in some cases reclaim the apartments for their own use; and they could “evict an unsatisfactory tenant.”

As a result, the panel said, the city’s regulations did not amount to “permanent physical occupation of the Harmons’ property.”

Harmon, 75, said in an interview this week that he has since sold the brownstone. He said he believed his family would have won the case had the Supreme Court taken it up.

“My view was once you get the case into the Supreme Court you win because this law was so obviously a problem,” Harmon, a retired prosecutor, said.

He added, “No matter what is done in the other courts, the game here is the Supreme Court.”

This article originally appeared in <a href="https://www.nytimes.com/2019/07/16/nyregion/ny-rent-regulation-lawsuit.html" id="41b2b4f0-245e-3acc-af13-f8d5ccbe729e">The New York Times</a>.

New York landlords sue to erase rent rules

NEW YORK — Landlords are striking back at new rent laws, filing a lawsuit Monday night intended to dismantle the entire rent-regulation system, which dictates the rents of about 2.4 million tenants who live in nearly 1 million apartments.

<h1>NEW YORK — It is a decades-old tradition: A nine-member city board meets once a year in a packed auditorium in lower Manhattan before a raucous crowd of hundreds of tenants and landlords.</h1>

Tensions flare. Protesters are sometimes arrested. And the board’s final decision never seems to fully satisfy tenants or landlords.

But by the end of the night the board has the final say on the maximum increase in rent that landlords can charge the 2.4 million residents of the city’s nearly 1 million rent-stabilized apartments — almost half the city’s rental stock.

The Rent Guidelines Board voted Tuesday on the first rent ceilings approved since legislators in Albany passed sweeping changes to the state’s rent laws about two weeks ago, strengthening rent regulations and establishing new protections for millions of tenants statewide.

So, how much of a rent increase can I expect?

If you live in a rent-stabilized apartment, your rent may go up by a maximum of 1.5% for one-year leases.

If you have a two-year lease, your landlord can now increase your rent by up to 2.5%.

The median rent of a rent-stabilized apartment in New York City was $1,269 in 2017. So the typical city tenant could pay an extra $19 for a one-year lease or about $31 for a two-year lease.

The increases will be in effect for rent-stabilized tenants who renew leases after Oct. 1.

Are these large increases?

The new increases are modest given the history of the board, which was formed 50 years ago.

The board allowed rent increases of up to 14% for certain two-year leases in 1980. Under the Bloomberg administration, yearly rent increases for one-year leases hovered at about 3.25% on average.

But rent caps have been considerably lower under Mayor Bill de Blasio.

During his first mayoral campaign, he pledged a temporary freeze on regulated rents, in order, he said, to protect low-income tenants from a roaring real estate market. A majority of rent-stabilized tenants pay more than 30% of their income in rent.

In 2015, the board approved a rent freeze on one-year leases for the first time in its history. It did so again in 2016, but the board approved modest increases in 2017. This year’s increases are identical to those approved last year.

This year, the board considered rent increases as high as 6.75%, rent decreases and another rent freeze, which tenant groups supported.

“We need to decide as a city to prioritize people that live here over how much landlords are going to make,” Sheila Garcia, one of the tenant representatives on the board, said before the vote. “Our mandate is not to make sure that profits continue to increase.”

How does the city determine how much rent can increase?

The board is mandated to establish fair rents for property owners and tenants.

The mayor appoints members to the board, which is one of the few tools a mayor has to directly influence the cost of housing in the city. It is made up of two tenant representatives, two landlord representatives and five members of the public with experience in housing or economics.

Board members consider detailed reports that outline the condition of the housing stock, the rent tenants are already paying and landlords’ operating costs.

Board members also hold a series of public meetings. This year they heard from about two dozen landlords and 219 tenants who testified during four hearings.

Then they hold a final vote on the maximum rent increases landlords can charge.

What does this have to do with the new rent laws passed in Albany?

State lawmakers recently passed landmark changes aimed at abolishing a series of provisions that landlords used to raise rents beyond ceilings that are approved by the Rent Guidelines Board.

Luis Ferré-Sadurní

Articles written by the author

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