Rent regulations on Trial

whynot_31

Can the state implement an emergency protection for tenants that lasts 90 years?

What’s the difference between price controls on milk and price controls on rent? Do landlords in Manhattan and trailer-park owners near San Diego have the same rights? Is rent stabilization in New York City a foolish racket or a rational policy to help tenants?

The fate of New York City’s rent laws could hinge on answers to these questions. As the Journal reported Monday, the U.S. Supreme Court is taking a surprisingly serious look at a federal lawsuit in which a Manhattan couple is trying to overturn the regulations shielding their tenants.

James and Jeanne Harmon, the owners of an Upper West Side brownstone, are waging an underdog constitutional battle against rent rules forcing them to subsidize their tenants — including Nancy Wing Lombardi, an executive who pays about $1,000 a month for a one-bedroom unit and also owns a house in the Hamptons.

Few expected the case — swatted down by lower courts — would get to this point. In a twist that startled both critics and champions of rent controls, the Supreme Court this winter asked the city and the state to explain why the court shouldn’t hear the couple’s case.

On Monday, the Bloomberg administration and New York Attorney General Eric Schneiderman submitted to the high court their opposition briefs defending the merits of the state-enforced and locally adopted Rent Stabilization Law, the blanket of rent regulations covering about two million renters in the city. In separate briefs, Schneiderman and the city’s corporation counsel, Michael Cardozo, laid out similar arguments, but the attorney general’s brief also presented a more spirited defense of rent controls as a matter of policy. (See the city’s brief here.)

Here’s a primer on the key points from the legal arguments:

FIFTH AMENDMENT: The Harmons, in their petition, say the city’s rent laws — which force them to charge below-market rates to a trio of longtime tenants and perpetually renew their leases — violate the U.S. Constitution’s Fifth Amendment, which says the government can’t take private property for public use without just compensation. The city and state, however, argue that the courts have already decided rent regulation isn’t a “physical taking,” citing a 20-year-old ruling against the owners of two mobile-home parks in San Diego County.

In that case, Yee v. City of Escondido, the court agreed that a residency law shielding mobile home owners from evictions passed constitutional muster. As Schneiderman wrote in his brief:

In Yee, this Court recognized a simple proposition that forecloses petitioners’ claim: owners who make their property available for rental cannot then claim that the presence of tenants constitutes an uninvited permanent physical invasion.

The Harmons, on the other hand, view regulated city renters and mobile-home owners as apples and oranges. The former, they argue, has far more leverage over landlords:

The decision in Yee was explicitly limited to the ‘unusual economic relationship between [mobile home] park owners and mobile home owners’ and the ‘unique protection from…eviction’ provided to mobile home owners.

DUE PROCESS: The Harmons also make a due-process claim, arguing that the high court established 90 years ago that rent controls can’t be permanent but only a temporary response to a “catastrophic” emergency. That, they say, was the upshot of a 1922 ruling, the last time the high court looked at the constitutionality of New York City’s rent controls.

The city and state counter that the precedent was tossed in the dustbin a dozen years later in Nebbia v. New York, when the court said government could regulate the price of milk if it could reasonably demonstrate a public benefit. As Schneiderman wrote:

But rent control is simply one form of price control, and this Court’s 1934 decision in Nebbia v. New York put to rest any notion that price control is subject to special scrutiny requiring proof of exigent circumstances.

The Harmons, however, don’t think the court should rely on Nebbia, a case that they say excluded rent control from its conclusions. The milk case

did not consider rent regulation requiring tenant possession beyond lease terms or, as here, perpetual succession rights, nor did it overrule the “emergency” precedent.

Moreover, the Harmons argue that there is no public good in rent control:

Can anyone explain how perpetually forcing the Harmons to give lucky tenants a 59% rent discount and lifetime tenure with succession rights bene?ts the public good?

ECONOMICS: The Harmons say the city’s rent regulations are a “racket in which property owners and market rate tenants always lose.” They cite critiques of the law from a range of scholars including libertarian law professor Richard Epstein and liberal economist and columnist Paul Krugman, both of whom have written that rent regulations worsen housing shortages by distorting supply and demand.

Cardozo, the city’s top lawyer, acknowledges the polarizing debate around the issue but writes that the policy clashes are beside the point:

Simply put, rent regulation raises difficult and important questions of public policy, but its constitutionality has been settled.

Epstein, the libertarian critic of rent regulations, was unimpressed by what he read in the city’s brief. The document “restates the traditional defenses of rent control but does not deal explicitly with the arguments on the other side,” he said. “To the extent that precedent yields to reasoned argument, the brief gives the Court no reason to want to keep with the current rules.”

Schneiderman‘s defense of the city’s Rent Stabilization Law is even more forthright:

New York City faces a notorious shortage of affordable rental housing and a volatile housing market for many reasons — including a highly desirable location, exceptional population density, high construction costs, and limited space due to natural geographic boundaries By regulating evictions and the pace of rent increases, the RSL protects tenants, particularly the elderly and disabled, from dislocation, and limits the disruption to neighborhoods and communities that would result from dramatic changes in rental rates and rapid turnover of tenants year to year.

RIPENESS DOCTRINE: The attorney general also echoes a conclusion drawn by the district court ruling, which found that the Harmon case was “not ripe for judicial review.” Schneiderman writes:

Petitioners did not seek compensation in the New York courts before bringing their taking claim in federal court. Their failure to ripen their claim would preclude this Court from reaching any cert-worthy question on the claim’s merits, even if one were present.

The Harmon petition notes that the ripeness argument was ignored by the Second Circuit. And the couple argues that had they sought “compensation via a hardship rent adjustment through State administrative and court proceedings,” it would “not have provided just compensation in any event.”

* * *

The Harmons are expected to reply to the opposition briefs later this month. After that, the fate of their case — and perhaps the entire legal edifice of rent regulation in the five boroughs — is up to the justices of the Supreme Court.

source: http://blogs.wsj.com/metropolis/2012/03/06/the-legal-war-over-new-yorks-rent-regulations/?mod=WSJBlog

idlewild

With a 5 to 4 makeup of the court in favor of Republicans, the rent stabilization law/s just may get struck down. Playing armchair lawyer for a moment; I'm surprised the Harmons haven't argued that since NYS & NYC is in need of revenue, and enforced Eminent Domain in the case of Atlantic Yards to acquire it, that the stabilization law preventing them from charging market rent defeats the purpose of much need revenue for both parties involved. Or, something like that.

whynot_31

duplicate

whynot_31

Idlewild,

The idea of higher taxes is so toxic right now that even the NYS Department of Taxation and Finance is bragging about how low tax rates are.

The winning speech may be "get government off our back", not "this will raise money".

Imagine all of the NYC HPD and NYS HCR employees the state could let go if the Harmon's win....

pragmaticguy

Rent stabilization as well as rent control is something that might be better well decided on a neighborhood by neighborhood basis much like enterprise zones are used in the business arena. I know quite a few people who had to literally walk away from their buildings because the rents were too low to keep providing services. And in certain areas it's just plain foolish. When Koch was mayor for 12 years he kept his rent controlled apartment while he lived in Gracie Mansion. The landlord tried to evict but was unable to. Koch certainly had the money to pay fair market rent. The people who are controlled or stabilized now should be grandfathered in but there should be no application of this for new tenants. The city wants to be "the place" to live and work but by keeping this law on the books they're saying, "come here to live and work even though you may not find a job where you are able to pay your rent." Sorry, you can't have it both ways.

whynot_31

Even if the court finds in favor of the Harmons, I can't imagine that rent regulations will be actually repealed.

As a result of such a decision, I suspect the state would have to put forward a plan that eliminates (or substantially weakens) the regulations over the next -say- 10 years.

Lots of apartments are already being de-regulated as a result of the rent exceeding $2000, so this court decision would merely accelerate an already accelerating trend.

REBNY is a very effective organization.

pragmaticguy

Yes it is, but I have quite a few landlord clients of mine who have no choice but to rent three bedroom apartments on Bergen near Flatbush for $800 a month when a non-controlled apartment would go for triple that. Look at the apartments on here that are being advertised. The rents are quite high but yet they all go pretty fast. So, they must be affordable to someone. But the question is...what's affordable? Where does the line get drawn. You can't say all one bedroom apartments should be $900 and two bedroom $1200 and so on. Market conditions and location determine what the price will be. And the landlords are being usurped by these laws.

whynot_31

Yes, I suspect the Harmon's are going to court (in large part) because they are tired of waiting for their units to become free market via the existing processes.

The dinky little increases that are being approved by the Rent Guidelines board aren't satisfying them, and they have figured out it is time to try another venue.

armchair_warrior

simple solution is should only apply to current tenants, once current tenants moved or die, shouldn't be pass on to anyone. that should be fair to current poor. and landlords who brought at discounts.

lets be honest those units are selling at higher discounts. I pass up on tons of rent regulated buildings they were much cheaper to buy, but always had one unit that was rent regulated. and i don't want to deal with other peoples tenants.

pragmaticguy

And, what's even worse with these laws is that if the person who signed the lease dies anyone else living in the apartment at the time can legally take it over for the same rent. So, this could literally go on for generations. And, they can't be forced to move or pay a higher rent.

whynot_31

The NYT wrote a pretty balanced piece on the lawsuit:

http://www.nytimes.com/2012/03/11/nyregion/rent-regulation-wars-are-only-a-sideshow-to-housing-problems.html?_r=1

whynot_31

...today, the court decided not to hear the case.

http://www.ny1.com/content/top_stories/159880/supreme-court-to-not-hear-nyc-rent-laws-appeal

So, I guess this means that the protections (price controls) will either slowly erode, or be slowly strengthened as time goes on. Very minor, incremental changes.

Nothing seems to change radically in either direction these days; it seems both sides will have a yearly battle in the front of the Rent Board, where the debate is between whether to raise rates 3% or 5%.

...lifetime employment for those at HCR.

whynot_31

Meanwhile, the various sides continue to debate and tweak every detail of the existing law. As the author alludes, it is tough to see whether those opposed to regent regulations are winning or losing: It seems to be a game of "tit for tat".

http://www.gothamgazette.com/index.php/component/content/article/54-housing/1376-tenants-another-round