NYC landlords sue over rent law as vacant units climb

New York City Mayor-elect Zohran Mamdani won after campaigning on expanding rent stabilization to improve housing affordability.

When he becomes mayor in January, Mamdani will face a lawsuit challenging New York’s rent stabilization law. A group of New York City landlords sued, arguing that the law sets rents too low to justify spending thousands of dollars renovating apartments for new tenants.

The nonprofit public interest law firm Institute for Justice, working with the landlords, is not challenging rent stabilization for existing tenants. Instead, it is challenging restrictions on charging market rent when leasing a vacant, renovated apartment to a new tenant.

A favorable ruling could send a message to other large cities with rent stabilization laws to avoid following New York’s model. Los Angeles, San Francisco, and Washington, D.C., are among the largest rent stabilization.

Rent stabilization typically applies to apartments built in the 1970s, but can also apply to new apartments under certain conditions. In L.A., for example, rent stabilization applies to newly built apartments if a developer replaces a rent-stabilized building.

L.A. and other cities with rent stabilization have not seen many landlords “warehousing” empty units. Landlords there can raise rents enough to recover renovation costs.

However, that has drawn criticism in California. Housing advocates have long argued that landlords exploit the “substantial remodel” exemption in the law to sidestep rent stabilization. Their real goal is often to reset rents to market-rate levels on previously stabilized units, critics argue.

In 2019, New York closed similar loopholes to make housing more affordable and available. According to the Wall Street Journal, “Rent increases are limited to between 3% and 4.5% when a tenant renews an existing lease or when the apartment is vacated.” Those changes — fixing the increases — unintentionally created a situation in which many apartments now sit vacant.

“When the government regulates property to the point where it cannot be used, that is an unconstitutional taking,” Suranjan Sen, an attorney at the nonprofit public interest law firm Institute for Justice, said in a statement. “In addition to violating the Constitution, this also aggravates the problem the government is trying to address.”

Thousands of units are sitting empty

In announcing the lawsuit, filed in federal court on November 12, the lawyers cited Census data showing that at least 26,000 rent-stabilized units were vacant and unavailable for renters last year. New construction added 34,000 units in the city over the same period.

Real estate investor Evan Rugen said in social media videos that the true number of vacant stabilized units may be closer to 100,000. If accurate, that would be about 4% of the more than 2.3 million rental units in New York City, the Tenant Protection Cabinet reports. Rent stabilization covers nearly half of those units.

A May study by the city’s Rent Guidelines Board found a vacancy rate of 1.84% for market-rate apartments and about 1% for rent-stabilized units.

2019 rent stabilization law impact

New York adopted the 2019 rent stabilization law to address a housing affordability crisis and protect tenants from sudden rent hikes. Lawmakers responded to years of rising rents, apartment deregulation, and increased displacement of lower-income households across the state, not just in New York City.

The law closed longstanding loopholes that allowed landlords to remove units from stabilization or sharply increase rents through upgrades and preferential rent schemes. Advocates argued these loopholes encouraged fraud and made it harder for tenants to organize or maintain affordable leases.

Lawmakers aimed to prevent mass evictions, curb abusive practices, and maintain stable housing for residents in regulated apartments. The legislation reflected growing pressure from tenant groups and the demand for stronger protections in a tight housing market.

The apartment industry opposed the law, arguing that expanding rent stabilization would ultimately harm affordability more than it would help.

New Yorkers feeling rent stabilization distress

A recent New York Apartment Association podcast highlighted that more New Yorkers are beginning to understand how much rent-stabilized buildings are struggling.

“The distress of rent stabilized buildings is going to be one of the biggest stories for the next 12 to 18 months,” Kenny Burgos, a former New York assemblyman and now CEO of the association, said on the podcast.

Burgos added that affordable housing is in trouble if the situation with rent-stabilized apartments is not fixed.

Mamdani won the mayor’s race a month after the podcast. New York City voters also approved charter amendments to speed up the development of affordable housing.

The 2019 state law would need to be amended to free up those empty apartments. Increasing supply, the apartment industry argues, lowers prices, so a surge of returning units could limit future rent hikes.

Changing the law will require lawmakers to act despite constant calls for more rent stabilization and affordability. Mamdani will have to find a balance between preserving tenant protections and addressing the unintended consequences of the current system.

A court ruling that parts of the 2019 law are unconstitutional may force his hand.

“We want to rent these apartments,” Pashko Lulgjuraj, who owns a building with his brother Tony and is part of the lawsuit, said in a statement. “The law isn’t just hurting us. It’s hurting New Yorkers who we could otherwise provide with housing.”