With Landlords Still In Lawmakers' Crosshairs, Affordable Developers Warn Of Capital Flight

New York’s uncertain regulatory environment is making a difficult, costly development landscape even harder to navigate, with continued pushes for so-called good cause eviction laws serving to drive badly needed capital away, affordable housing developers say.

“When we don't know what the government's going to do next, what are the rules of the game, it's kind of like playing Monopoly, but every time you roll the dice, the rules change in the game,” Slate Property Group Managing Director John Valladares said at Bisnow's New York Affordable Housing Conference last week. “It's really hard to buy and operate real estate when I don't know what the rules are going to be tomorrow.”

Gov. Kathy Hochul’s Housing Compact failed this legislative session. The governor had set a goal of creating 800,000 new housing units across the state in the next decade, but none of the policies she put up — mandating municipalities to grow their housing stock and lifting the density cap for New York City residential structures among them — were approved.

At the conclusion of the session in early June, New York Senate Majority Leader Andrea Stewart-Cousins and General Assembly Speaker Carl Heastie said the legislature had reached a deal to extend the 421-a tax break and include good cause eviction provisions. Hochul, they said, wouldn’t sign it. But the governor fired back, saying the legislature’s failure to act was the reason all attempts to address the state’s worsening housing crisis had come to nothing.

The upshot is an uncertainty making an unkind development environment even more challenging.

“Lack of clarity, I think, just ultimately just lets people throw their hands up and say, ‘Maybe not yet. Maybe I'm not going to take a risk with all the other things like high interest rates and other stuff that's out there,’” said Aaron Koffman, president at Hudson Cos.

The real estate community had warned for years that without the 421-a tax break, few developers would venture into affordable housing development. Their threats weren't idle: In the first half of 2023, there were just 13 multifamily building permits filed in Manhattan, according to Real Estate Board of New York data, marking the lowest level since 2010. 

Last month, Hochul used an executive order to launch a program to provide some multifamily developments in Gowanus with a tax incentive that would be similar to 421-a — but its reach may be limited, The Real Deal reported.

“Letting the 70/30 program expire [was] criminal — it’s the only way to look at it. It was criminal,” said Christopher Albanese, president of The Albanese Organization, which owns both commercial and residential properties in New York and New Jersey. “You have thousands of units where people put their footings in, waiting to build it or they bought land. Those things aren't coming on the market.”

In Manhattan, the median rent for a one-bedroom apartment was $4,295 in July, a 7% year-over-year jump from last year. In that borough, as well as in Queens and Brooklyn, rents are at all-time highs, according to data from appraisal firm Miller Samuel.

Many housing advocates say laws to prohibit the eviction of tenants without good reason and placing limits on rent increases would serve to stabilize the housing market and curb the city's rising homelessness crisis.

The proposed Prohibition of Eviction Without Good Cause, introduced in 2021, would place a cap on rent increases and limit how landlords may end tenancy. The real estate community says the laws are akin to universal rent control, and while they haven't been enacted in the legislature, they are still the subject of great concern for the industry.

Frank Monterisi, an executive vice president at Related Cos., said good cause would cause major problems in the way investors see deals in New York.

“Investors, when they look at what good cause is … really, it's just rent control,” he said at the event. “Investors are really going to take a step back and say, ‘Is this really a market that we want to invest in?’ I think that it really is a problematic thing for New York.”

Kara Schechter Rakowski, a partner at Belkin, Burden, Goldman, said while no legislation has been signed, it is gaining traction with lawmakers.

“The problem is every time we focus on good cause eviction and trying to defeat it, it's an opportunity for the legislators to pass a damaging piece of legislation that we weren't expecting,” she said. 

This summer, legislators in Albany approved new rules requiring landlords to preserve records going back years, making it easier for tenants to prove whether they are being fraudulently overcharged on rent-stabilized units. Landlords are waiting and anxious to see if Hochul signs the bills, per TRD.

The impact will be instant if that happens, Schechter Rakowski said.

“They are two very damaging pieces of legislation for rent-regulated housing,” she said. "We are already gearing up. There will be almost immediate litigation.”