New York property barons lose grip on state politics

New rent-control rules signal an end to a quarter century of domination by big landlords

Joshua Chaffin in New York

The progressive tide in New York thwarted Amazon's plans to build a new headquarters in the Long Island City section of Queens

Beneath the thrum of traffic, the bleat of car horns and the bashing of worksite hammers there was an audible groan in New York City this week. It was the collective wail of the city’s landlords, stung by new rent-control legislation that signals the end of their 25-year grip on state politics.

“I feel like someone just dropped a nuclear bomb on my business and my family,” said Chris Anitheos, who owns nine buildings containing 150 apartments in various Brooklyn neighbourhoods. “It’s just horrific.”

For its success, Mr Anitheos and others blame the same progressive tide that has energised leftwing politics across the state. It has pushed gentrification up the political agenda and unexpectedly thwarted Amazon’s plans this year to build a new headquarters in Queens.

The extreme unpopularity in New York of the country’s developer-in-chief, Donald Trump, also did not help landlords — never the most sympathetic bunch — in their attempt to sway public opinion.

“The culture of New York has moved to the left,” said Mitchell Moss, a professor of urban planning at New York University. The real estate industry, Mr Moss argued, had come to be seen in New York the same way that the tech industry is in some other US cities: as “an opponent of equity”.

The new rules were agreed by Democratic leaders in the state legislature on Tuesday night. In a painful rebuke to New York’s property barons, Andrew Cuomo, the Democratic governor who has readily accepted their campaign donations over the years, turned down a last-minute appeal for help and said he would sign the legislation.

“It’s shocking,” one real estate executive said, remarking on the sudden loss of clout of such leading local real estate families as the Rudins, Dursts and LeFraks.

Broadly speaking, the legislation will make it harder for landlords to remove 1m or so apartments from New York’s various forms of rent control and instead charge market rates. Under the current system, that has been allowed when, for example, an occupant earned $200,000 or more for two consecutive years, or when they vacated a protected unit whose monthly rent exceeded $2,774. No more.

The new legislation will also cap the value of capital spending improvements that landlords can pass on to renters. It will also make permanent rent control laws that, until now, have been subject to periodic renewal.

“The story for the last 20 or 30 years has been the gaming of the market by landlords to get people out of their homes because they had a financial incentive to do so,” said Michael Gianaris, the Democratic state senator from Queens who was pivotal in resisting Amazon. He was motivated, in part, by concerns its arrival would push working-class families out of the neighbourhood.

The new state regulations will hit landlords — particularly those with older rental properties in New York’s outer-boroughs. Yet many observers predicted the ripples would be felt more widely.

“The rules are bad policy, and the signal politicians are sending may ultimately lead to less new construction down the line as capital providers price in greater regulatory risk to any given project,” said John Pawlowski, an analyst at Green Street Advisors, a real estate research consultancy.

A new crop of progressives was elected to the New York state legislature in the same election that vaulted Alexandria Ocasio-Cortez to Congress © AP

EJ McMahon, research director at New York’s Empire Center for Public Policy, agreed. “This puts a chill in the climate for everyone,” he said. “It’s going to be very difficult to walk any of this back in the future.”

New York’s developers have generally held the upper-hand for decades. They played on the widespread fear in the 1970s and 1980s that businesses might flee a bankrupt and crime-ridden city for the suburbs. They cemented their advantage with generous campaign contributions to Republican politicians, who long controlled the state senate until this year.

Rent controls have been a particular obsession. They were instituted during the second world war to prevent profiteering and later to help returning soldiers facing a housing shortage. Developers argue that they worsen the problem by effectively keeping apartments out of the market.

Their arguments fell on deaf ears after Democrats — including a new crop of progressives — took control of the state legislature last year in the same election that vaulted Alexandria Ocasio-Cortez, a young New York socialist, into Congress. As with the Amazon episode, many of those Democrats are inclined to equate development with gentrification, and are sympathetic to growing complaints about the city’s affordability.

“For a long time they thought they could just donate and keep the Republicans in power,” said one lobbyist aligned with the developers. They did not seem to appreciate, this person observed, that their warnings about people fleeing the city no longer resonated after decades of growth that have been accompanied by soaring rents and property prices.

“It’s hard to cry poverty,” the lobbyist said. “The people who are in power [now] weren’t around in the ‘70s or ‘80s. They haven’t lived that experience.”

Today’s New Yorkers are more likely to be rising up against high rents. Last year, the Kushner Companies, the real estate group run until recently by Mr Trump’s son-in-law, Jared Kushner, was sued by tenants in Brooklyn. They accused the company of harassing them into leaving their rent-regulated apartments so it could convert them to unregulated — and more lucrative — condominiums.

The Kushners have denied wrongdoing. “Kushner Companies operates quality properties with the highest level of professionalism. Any accusations involving tenant harassment are false,” a spokesperson said.

Meanwhile, an extensive New York Times investigation found that the Trump Organization used inflated invoices for capital improvements at its properties as a justification to raise regulated rents.

“Things like that happen every day,” Mr Gianaris said, acknowledging that the prominence of Mr Trump and Mr Kushner had served to elevate the issue.

But developers such as Mr Anitheos are convinced that the new rules are a misguided attempt to solve a longstanding problem — and will eventually spawn new problems.

His father, a carpenter, started the family business 50 years ago in the Bay Ridge section of Brooklyn. About half of their 150 apartments are governed by rent restrictions. Each year, Mr Anitheos estimated, two or three would become vacant — typically after 20 or 25 years of occupancy.

Because the buildings are so old, rehabilitations can run to $70,000 or more for each apartment. Yet under the new rules Mr Anitheos could only recoup $15,000 of capital improvements for a single apartment over 15 years. As a result, he argued, he was unlikely to do much more than apply paint in the future.

“It’s mind-boggling that they’re actually capping how much you can invest to improve your buildings,” Mr Anitheos despaired. “Who’s going to suffer? The tenants.”

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