It’s winter for the American renter. A patchwork of tenant protections and government payments connected to the pandemic have disappeared, leaving renters exposed to some of the largest year-to-year rent hikes the country has ever seen.
Zillow clocked America’s annual rent increase at 15.7 percent at the end of 2021. Apartment List says it was 17.8 percent. CoreLogic, which measures rents in single-family homes and smaller buildings, recorded the fastest year-over-year rent hike since it started counting in 2005. Harvard’s Joint Center for Housing Studies reports the vacancy rate has reached a 40-year low. Some share of that reflects a rebound from 2020’s steep declines—but most does not. All measurements agree: The fastest increases have been in cities like Miami, Phoenix, and Las Vegas, where rents did not collapse in 2020 and now have risen between 20 and 35 percent. The fear is that these sudden hikes will force millions of families to search for new homes, after the pandemic saw evictions dry up and renter mobility fall to a record low.
It’s not news that the housing market is bananas right now. But unlike high home prices, spiking rents have historically been met by regulation. The prolonged period of renter stress that began after the Great Recession has already prompted new rent-control laws in states like Oregon and California as well as citywide debates in places like Boston, Minneapolis, and St. Paul. Next up is New York, which might go further than its West Coast peers by guaranteeing tenants’ rights in new buildings as well as old ones.
Sponsored by Assembly Member Pamela Hunter of Syracuse and state Sen. Julia Salazar of Brooklyn, New York’s “good cause” eviction bill limits landlords’ ability to evict tenants, including for unpaid rent in the case of a steep increase. It effectively marks an enormous expansion of the state’s rent stabilization laws, which cover almost half of New York City’s private apartment stock and are among the greatest determinants of the city’s character.
Opponents say the bill would perpetuate the ill effects associated with rent control, which include higher market rents, dilapidated rental housing, and—crucially, given the state’s housing shortage—a damper on new supply. “Good cause and its various components have a deleterious effect on new projects,” says Mitch Pally of the Long Island Builders Institute, a construction trade group. “Private financing entities are going to take their money and go places where this isn’t in effect.”
Supporters argue it will deliver a much-needed sense of stability to the millions of city tenants whose annual renewals leave them at the mercy of their landlords. “Their true motive is they don’t like regulation,” Salazar told me last week. “They don’t like the prospect of tenants having additional rights and more leverage. In jurisdictions where we’ve seen good cause become law, we have seen no negative impact whatsoever on new construction of housing or the competitiveness of the real estate market.”
For proof, Salazar told me to consider a place New Yorkers rarely look for a model unless it’s a new car: New Jersey.
Something in the Garden State is clearly working. According to data from the Eviction Lab, New Jersey cities such as Trenton, Paterson, Jersey City, and West New York have among the lowest eviction rates in the country. Meanwhile, construction is absolutely exploding: Hudson County, the slice of New Jersey directly across from lower Manhattan, permitted more than twice as many housing units per capita than New York City between 2010 and 2018. The median home price in downtown Jersey City fell by more than 10 percent in that time. Its skyline would pass for that of a major American city. The New Jersey suburbs, meanwhile, allow about three times as many homes per capita as their peers in New York. Whether you think the problem with housing is on the supply side or the demand side, Jersey has got you covered.
The history of tenants’ rights in New Jersey is long and complicated. The state’s Mount Laurel doctrine, which compels cities to zone for workforce housing, is often considered a gold standard fair housing policy. It is one of a half-dozen U.S. states that permit rent control, which is active in scores of New Jersey cities. (A 2015 study concluded that there was no significant difference in median rents or new construction between New Jersey cities with and without rent control policies.) New Jersey has also had, since 1974, a “just cause” eviction law that Matt Shapiro, the president of the New Jersey Tenants Organization, has called “the most important tenant law in the country.”
A little background on why New Jersey’s balance between renters and developers matters: For years, the knock against rent regulations has been that they appear to discourage landlords from investing in repairs and developers from building new rental housing, all while driving up costs for new arrivals, whose market rents balance owners’ budgets. Those aren’t small drawbacks. But the consensus is changing as more evidence accumulates and priorities change. Rundown apartments are still a hazard, but displacement has become public enemy No. 1 in housing policy as city neighborhoods gentrify and awareness of the importance of stability grows. What an economist records as “new investment in existing rental housing”—a good thing, on paper—probably corresponds, in reality, to clearing out long-standing tenants to make way for higher-income replacements. One man’s “value-add investor” is another’s “predatory landlord.” It’s in this context that more robust renter protections have been gaining ground.
One big way that rent control still frightens policymakers, however, is as a disincentive to new supply. The crash after the Great Recession has left the country missing 1.8 million homes, mostly in the rental market, a shortfall about equal to the surplus we had in 2009. Regulating rents can help tenants today, but only new homes can restore a functioning and affordable housing market.
There’s a crucial difference between the “good cause” bill gaining traction in Albany and so-called anti-gouging laws that recently established statewide rent control in Oregon and California: New York’s version doesn’t exempt new buildings. Apartments in such buildings tend to rent to higher-income households, and this bill gives them an expectation of stability too.
In California and Oregon, the new rent laws don’t cover buildings that are under 15 years old. It’s a concession to developers, prompted by the fear that regulating rents will suppress new construction. Both California and Oregon are plagued by severe housing shortages. Legislators there have led the nation in state-level supply-side reforms to get builders building again, and they were convinced that comprehensive rent limits would threaten that progress.
“It’s hard to find another state that’s imposed rent regulations and not exempted new construction for some period of time,” said Mark Willis, a researcher at New York University’s Furman Center (which, while named for a real estate developer, does extensive research on housing affordability). “The fact that no one has attempted that tells you something. If rents can’t go up as fast as costs, it’s harder for developers to pencil out the deal.”
It’s not intuitive why limits on raising rents would scuttle a deal to build a new apartment building. Developers can, after all, set the rents in their new buildings as high as they like to start. But, Willis says, builders want flexibility to respond to big swings in the market (like the bust and boom of the pandemic)—and lenders want to know that they’ll have no obstacle to meeting their obligations. Eviction controls may also hurt a building’s resale price. “If the law makes it unattractive to develop rental buildings, then to what extent we get new construction it will be condominiums,” said Willis.
J.W. Mason, an economist at the City University of New York, offered the opposite view: “I don’t think it’s credible or logical,” he said of the building industry’s doomsaying. “To the extent [the good cause eviction law] does reduce expected rental income, that gets capitalized into the land prices.” What developers are really losing, he suggested, is the ability to capitalize on a changing neighborhood down the road.
Would New York’s good cause eviction bill send developers and lenders fleeing to Nashville and Miami, or into the safe harbor of condo construction? The stakes are high: New York City has built less housing per capita over the past decade than almost any peer city, including San Francisco, Boston, and Washington—to say nothing of boomtowns like Charlotte or Houston.
But there is little evidence that the New Jersey ordinance, which gives tenants the right to not pay an “unconscionable” rent increase, stops developers from building rental housing. “You can evict for anything in New Jersey that you need to evict for, other than the rent is too low,” said Marc Gilbert, an investor in both new and renovated multifamily properties in the state. “Generally, if you’re diligent about your rent increases, they should always be at market.”
In other words, Gilbert said, there are few situations in which a savvy developer of new multifamily housing should need (or be able) to raise rents beyond the 8 to 10 percent that courts usually decide is “conscionable.” (New York’s new law would permit double-digit hikes if current inflation numbers persist, though it relies on the CPI measure from the previous August, which would correspond to a more moderate increase of 6 percent in 2022 if the law passed tomorrow.)
Nor has the Garden State abandoned rental construction for condos since the passage of the law in 1974. “It’s the second hottest market in New Jersey behind industrial,” Jon Fisher, an executive at K. Hovnanian Homes, said of multifamily rentals. “You can’t really compete. It’s an unbelievably robust market, and there’s more capital chasing deals than there are deals.” In Jersey City, the share of owner-occupied housing is almost exactly the same now (29 percent) as it was in 1965 (30 percent).
When conflict arises, landlords must do their homework, observed Michael Mirne, a real estate lawyer in Ocean, New Jersey. “I haven’t lost a rent increase case in more than 14 years,” he said, “but I take on cases where I believe the landlord is entitled to more rent and I can prove it. I wouldn’t take a case on pretext. And I prepare these things to death.” It would be hard, he said, to secure evictions against tenants just because you wanted to install granite countertops and double the rent. (Which is kind of the idea.)
In short, most New Jersey developers I spoke to put the “just cause” eviction law low on their list of concerns, if it ranked at all. Evictions in new buildings just aren’t very common.
That should be encouraging news for New York, where the movement to loosen up land use regulations is picking up steam. As Will Thomas, the director of Open New York, a housing-abundance advocacy group, reminded me, New York City’s greatest housing boom took place in the 1920s, against a backdrop of rent controls and fierce tenant activism.
Tenants often oppose the land use reforms that New York needs to make room for more buildings, fearing that they incentivize tear-downs and bring in gentrifiers and amenities that catalyze rent hikes. A good cause eviction bill will not solve New York’s housing crisis. But by giving tenants a sense of security, it could provide politicians with the cover they need to make room for more apartments, period.
*This article has been updated to include the rent increase that New York’s proposed eviction law would permit if it were enacted this year.
