The Most Impactful Changes for Rent-Controlled and Rent-Stabilized Units
In June 2019, New York state passed the Housing Stability And Tenant Protection Act of 2019, changing the residential real estate landscape by approving a rent law package in the hopes of keeping rent affordable for tenants. While the regulations changed many aspects of managing residential real estate, the most impactful changes relate to rent-controlled and rent-stabilized units.
On the affordable housing side, the new law eliminates the provision that would revert rent-stabilized apartments to market rate once rent was set above $2,774 and the tenant’s income exceeds $200,000 for two consecutive years. In addition, preferential rents no longer expire at a lease renewal and now require the tenant to move out to reset. Also, landlords can now only increase rent by 2% by making improvements to the building and they are limited to an $89 fee for improvements to individual units.
While these regulations may not be around forever, as there are many groups fighting the legality of the new law, these changes drastically impact future cash flow and building valuations for buildings that include rent-stabilized units. Building valuations are directly tied to potential rental income, changing the economics of deals and ability for owners to secure and maintain financing. With year-end right around the corner, now is the time to revisit future cash flow projections and proformas to ensure that not only will financial goals be met but also that financing covenants will be maintained. While the overall impact of the Housing Stability and Tenant Protection Act of 2019 on housing affordability and the real estate market is still unknown, the changes are already being felt throughout the industry.