History of Rent Regulation

RENT REGULATION AFTER 50 YEARS
An Overview of New York State's Rent Regulated Housing 1993
NEW YORK STATE DIVISION OF HOUSING & COMMUNITY RENEWAL

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HISTORY OF RENT REGULATION
NEW YORK STATE 1943-1993

Nineteen ninety-three marked the fiftieth year in which rent
regulations have been in continuous existence in New York State.
During these fifty years, the laws have been substantially
changed and modified and the location and type of housing subject
to regulation periodically altered. The responsibility for
administering the rent regulatory system has also shifted between
various governmental jurisdictions:

l943 to 1950 - Federal
l950 to 1962 - State
1962 to 1984* - State/City
1984 to Present - State

*    The Federal government briefly imposed wage and price
     controls from August, 1971 through January, 1973.

New York State's half century experience with rent regulation is
the longest in the nation. The continuation of these regulations
has been dictated by the inability of public housing programs or
of the private housing market to produce an adequate supply of
decent, affordable housing in various municipalities in the
State. In these municipalities, government regulations minimize
market distortions created by a housing shortage (the net rental
vacancy rate being less than 5%). As a result, a temporary
emergency measure has been transformed into a stable fixture of
New York's housing market. Today, approximately 1.2 million of
New York State's 3.3 million rental housing accommodations are
subject to rent regulation.

The half century history of rent regulation (in fact most New
York City residents cannot remember when regulations did not
exist) provides a unique perspective in which to view a unique
housing market.


Federal Rent Controls 1943-1950*

*    Much of the information concerning the history of rent
     regulation through 1980 is based upon the "Report of the New
     York State Temporary Commission on Rental Housing", Volume
     1, March, 1980.

In 1942, President Franklin D. Roosevelt signed into law the
Emergency Price Control Act (EPCA) which provided for a
universal, nationwide price regulatory system. Price controls
were the government's response to inflationary pressures
resulting from a fully employed wartime economy that channeled
resources exclusively to the war effort. Price controls for
rental apartments in residential areas were included in the EPCA.
Rents in most counties in the State were placed under Federal
regulation. On November 1,1943 the Federal Office of Price
Administration issued regulations freezing New York City rents at
the March 1, 1943 levels.

With the end of the war and the normalization of the national
economy, the Emergency Price Control Act was allowed to expire on
June 30, 1947. In its place Congress enacted the Federal Housing
and Rent Act of 1947 which became effective on July 1st of that
year. Under this Law, new construction after February 1, 1947 was
totally exempted from controls while pre-1947 buildings remained
subject to continuing regulation. Even today, the February 1,
1947 initial occupancy date remains a key determinant in
establishing the control status of housing accommodations in New
York State and New York City.


State Rent Controls 1950-1962

In anticipation of the withdrawal of Federal controls and because
of the continuing housing shortage, the State adopted its own set
of regulations. Subsequent Federal legislation, the 1949 Federal
Housing and Rent Act, gave the States authority to assume
administrative control of rent regulation and the power to
continue, eliminate or modify the Federal system.

In 1950, the Temporary State Housing Rent Commission was
designated as the agency responsible for administering the
regulation of rental housing by Chapter 250 of the Laws of 1950.
This Act also froze rents at the level in effect on March 1,
1950, in order to give the Commission time to develop a rent
control plan for New York. To ease the transition from Federal
controls, the plan that was adopted by the Legislature in 1951
closely paralleled the Federal regulatory system that was in
effect.

At the time of the initiation of State rent control,
approximately 2,500,000 rental units were under control
statewide. About 85% of these units were in New York City. The
State system regulated all relationships between owners and
tenants pertaining to rents, services and evictions. To
administer the system local rent offices were established
throughout the State.

As the severe housing shortage created by World War II and the
inflationary pressure caused by the Korean War gradually abated,
the State enacted a series of limited decontrol measures.

-    Apartments in one or two-family houses which became vacant
     on or after April 1, 1953 were exempted from controls.

-    Counties, cities and towns outside of New York City were
     given decontrol power.

-    In 1958, the first luxury decontrol order was issued which
     deregulated approximately 600 units in New York City then
     renting for more than $416.66 per month unfurnished and $500
     per month if the apartment was furnished.

By 1961, there were approximately 1,800,000 units subject to rent
control throughout the State. Only New York City and 18 counties
outside of the City contained rent controlled units.


Rent Control and Rent Stabilization 1962-1984

While the gradual decontrol trend continued throughout much of
the 1960's, significant administrative change occurred at the
beginning of the decade. In 1962, the responsibility for
administering rent control within New York City was transferred
to the City under the Local Emergency Rent Control Act. This Law
enabled the City to shape its own rent control program, since the
overwhelming majority of controlled units were located in the
City. The administration of State rent control was transferred
from the Temporary State Housing Commission to the State Division
of Housing and Community Renewal (DHCR) in 1964.

In 1964, approximately 5,000 "high" rent apartments in New York
City were decontrolled (unfurnished units renting for $250 per
month or more and furnished units renting for $300 or more as of
April 1, 1960). Decontrol was staggered. Units were decontrolled
immediately upon vacancy, while occupied units were subject to a
test based on family size and characteristics (such as families
with school age children) and apartment size.

A 1965 housing survey revealed a vacancy rate of 8.8% in
unfurnished and furnished apartments with rents in excess of $250
and $300 respectively. A 1968 order decontrolled units with such
rents as of April 1, 1965. This decontrol measure was also
staggered. Approximately 7,000 units were decontrolled under the
1968 Administrator's order.

By 1969, economic conditions changed as the result of national as
well as local economic factors. Nationally, the Vietnam War
caused a steep rise in the rate of inflation and locally, housing
production slumped. The overall vacancy rate which stood at 3.2%
in 1965 fell drastically to 1.23% in 1968. Rents escalated
rapidly in the non-regulated sector. The tightening of the rental
housing market led the City to enact the Rent Stabilization Law
of 1969.

Approximately 400,000 New York City apartments, in buildings
containing 6 or more units, which were exempt from rent control
became covered by rent stabilization. Of the 400,000 apartments,
325,000 were in buildings constructed after February 1, 1947.
Approximately 75,000 of the 400,000 apartments were former rent
controlled apartments which had been decontrolled.

Rent Stabilization is substantially different from rent control
applicable to pre-1947 buildings. The Rent Stabilization Law,
which contains a built-in rent adjustment mechanism and a
simplified procedural structure, was designed to more readily
adapt to changes in the housing market place. This "second
generation rent regulation law" featuring industry self-
regulation, was conceived as a flexible response to the housing
shortage.

The Rent Stabilization Law provided for the establishment of a
Rent Guidelines Board with the power to establish levels of rent
increases for renewal leases and new tenancies. The Law
authorized the creation of the Conciliation and Appeals Board
(CAB) to receive and act on complaints from tenants and
applications from owners. The Law also provided for the Rent
Stabilization Association (RSA) to develop a code of regulations.
Owners were required to join RSA and comply with the provisions
of the code in order to prevent their apartments from being
placed under rent control.

The newly established, less stringent, rent stabilization system
incorporated an automatic mechanism for periodic rent
adjustments. An adjustment feature was soon added to the rent
control system in order to preserve, maintain and improve this
older housing stock.

This adjustment feature, enacted by Local Law 30 of 1970, is the
Maximum Base Rent (MBR) program, which was the most significant
revision of the City's rent control system. In the MBR program, a
mathematical formula is used to compute the maximum rent levels
for each controlled apartment in the City. This theoretical
maximum base rent represents an approximation of the actual
income required to operate the housing unit under current costs,
including provisions for an 8.5% return on equalized assessed
value. The MBR is adjusted every two years to reflect changes in
economic conditions. Rent increases under the MBR program are
capped at 7.5% a year and are applied until the MBR is reached.
To qualify for a rent increase under the program, the owner must
provide essential services, keep the building free of major code
violations and invest an appropriate amount of rental income for
operation and maintenance.

In 1971, soon after New York City extended rent stabilization to
post-1947 buildings, the State passed several laws designed to
deregulate, over time, the controlled and stabilized housing
stock. Chapter 371 of the Laws of 1971 provided for decontrol of
rent controlled and rent stabilized units which were voluntarily
vacated on or after July 1, 1971. Thus, owners could set market
rents upon vacancy. In addition, the "Urstadt" Law, named after
the then State Housing Commissioner Charles Urstadt, prohibited
any municipality in the State from adopting new regulations that
were more stringent than those that were presently in effect.

From July, 1971 through December, 1973 approximately 300,000 rent
controlled units were decontrolled and approximately 88,000 rent
stabilized apartments were destabilized. Rapid inflation caused
by the continuing Vietnam War was the economic hallmark of this
period. In response, the Federal government imposed a 90-day wage
and price freeze in late 1971. The Federal program was completely
discontinued in January, 1973. However, the general price
inflation during the period, combined with vacancy decontrol,
resulted in very large rent increases for apartments located in
New York City and its surrounding suburbs.

In response to these spiraling rent levels, Governor Nelson
Rockefeller directed the Temporary State Commission on Living
Costs and the Economy of the State of New York to conduct
hearings and make recommendations on vacancy decontrol. The
Commission, under then Chairman Andrew Stein, recommended
abrogation of vacancy decontrol. Its findings indicated that
vacancy decontrol resulted in average rent increases of 52% in
decontrolled apartments and 19% in previously stabilized units in
New York City, while operating costs increased by 7.9%. Vacancy
decontrol resulted in average rent increases of 47% in Nassau
County and 45% in Westchester County. According to the
Commission, in New York City, the excess rent was not reinvested
in capital improvements, but in fact resulted in an actual
decrease of 30% in renovations.

The State Legislature's response to rising public apprehensions
caused by rapid rent increases and an inadequate supply of
affordable housing was the enactment of the Emergency Tenant
Protection Act of 1974 (ETPA). ETPA provided for a stabilization
system in Nassau, Rockland and Westchester counties in
municipalities which chose to adopt such regulations based on a
housing emergency, meaning the vacancy rate was less than 5%. The
Act also substantially amended the New York City Rent
Stabilization Law, and ended the vacancy decontrol provisions of
the 1971 legislation as they applied to rent stabilization.

In New York City, the ETPA placed buildings with six or more
units that were completed between March 11, 1969 and December 31,
1973 under rent stabilization for the first time. In addition,
rent controlled units and rent stabilized units, in buildings
with six or more units and deregulated by vacancy decontrol, were
re-regulated and placed under stabilization. (The vacancy
decontrol provisions for rent controlled apartments remain in
effect and these units either become stabilized or decontrolled
upon vacancy.)

In Nassau, Rockland and Westchester counties, the ETPA allowed
for local determination of its applicability. Buildings with six
or more housing units completed prior to January 1, 1974 could be
placed under regulation. The Act also directed the creation of
county rent guidelines boards to determine annual rent
adjustments for classes of housing within the respective
counties. The New York State Division of Housing and Community
Renewal was directed to implement the ETPA outside of New York
City.


State Regulation 1984 to Present

After this flurry of activity in the early 1970's which reshaped
rent regulation downstate, the next major change in the rent
regulation laws did not occur for almost a decade. On June 30,
1983, the Omnibus Housing Act, Chapter 403 of the Laws of 1983,
was enacted.

The Act transferred the administration of the rent control and
rent stabilization programs in New York City to the State.
Commencing April 1, 1984, the New York State Division of Housing
and Community Renewal administered all four rent regulatory laws,
statewide:

1. The Emergency Housing Rent Control Law of 1950.
2. The Local Emergency Rent Control Act of 1962.
3. The Rent Stabilization Law of 1969.
4. The Emergency Tenant Protection Act of 1974.

The 1983 Omnibus Housing Act abolished the Conciliation and
Appeals Board and the New York City Division of Rent Control. The
Act required owners to register by July 1, 1984 the rents and
services in effect on April 1, 1984 for all stabilized apartments
and to update that registration each year. In addition, the Act
eliminated the availability of three year leases as a lease
renewal option for tenants. The 1983 Act also limited the rent
guidelines boards' power to adopt several adjustments or special
guidelines at different times during a guidelines year. The
boards could now adopt only one guidelines "package" during the
guidelines year. The Act instituted a treble damage penalty for
owners who collected willful overcharges and also placed a four
year statute of limitations on the establishment of overcharges.
Finally the Act provided for an alternative hardship application
procedure for stabilized units.

The last major revision of the rent laws occurred with the
passage of the Rent Regulation Reform Act of 1993. The Act
deregulated vacant apartments and occupied regulated apartments,
which became vacant, that rented for $2,000 or more per month
between July 7 and October 1, 1993. In addition, rent regulated
apartments renting for $2,000 or more per month as of October 1,
1993, which are occupied by tenants with combined household
incomes in excess of $250,000 in each of two immediately
preceding years are deregulated upon application by the owner, at
the expiration of the stabilized lease. For rent controlled
tenants in this category, decontrol will occur on March 1st or
June 1st of the year following the year in which the owner filed
a petition for decontrol depending on the nature of the
proceeding. This income based decontrol process, administered by
DHCR, relies upon data furnished to it by the New York State
Department of Taxation and Finance as part of the income
verification process.

The 1993 Act also exempted vacant rental units in cooperatives
and condominiums in Nassau, Rockland and Westchester counties and
occupied units upon the vacancy of the rent regulated tenant.
Administrative changes, affecting cases filed on or after July 1,
1991, included the elimination of treble damage penalties for
overcharges which occurred solely because of a registration
infraction, and the elimination of rent overcharge penalties for
late registration.

While the luxury decontrol provisions of the 1993 Act affect only
1% of the more than 1 million units under regulation in New York,
they represent a significant departure from previous legislation
because eligibility criteria are now applied to the economic
characteristics of the household. This is the first time in New
York's 50 year history of rent regulation that a "means test" has
been employed to determine the regulatory status of the housing
unit.

The history of rent regulation as described above provides some
insight into the complexity and difficulty of achieving the goal
of establishing fair rents in a market where there is a housing
shortage. The goal is simply to introduce fairness into a failed
market. However, complexities arise from the necessity of
balancing the interest of owners seeking a fair return on
investment and the interest of tenants seeking protection from
excessive rent increases. This balancing of interests
necessitates that rent regulation be more than a mechanism to
restrain rent increases but also be a system to maintain an
adequate supply of affordable housing. Today, with over 2.5
million New Yorkers living in more than one million rent
regulated apartments, the success of the rent regulatory system
in achieving its goals still remains of vital importance.