New York City Rent Limits Left Intact by Supreme Court

April 23 (Bloomberg) -- The U.S. Supreme Court rejected a challenge to New York City’s decades-old rent-stabilization system, leaving intact rules capping prices on almost a million units in one of the country’s most expensive cities. Gigi Stone reports on Bloomberg Television's "Money Moves." (Source: Bloomberg)

The U.S. Supreme Court rejected a challenge to New York City’s decades-old rent-stabilization system, leaving intact rules capping prices on almost a million units in one of the country’s most expensive cities.

The justices today turned away an appeal by James and Jeanne Harmon, who said the city was violating their constitutional rights by limiting rents on three one-bedroom apartments in their Upper West Side brownstone. The units rent for about $1,000 a month, less than half the price of three similar, unregulated units in the building, the Harmons say.

The couple targeted a 43-year-old state statute that has become part of the city’s fabric, shaping its neighborhoods along with the wallets and lifestyles of millions of city residents.

“To the extent that the court is saying rent regulation must stand, I think that’s good news for the state of New York,” Governor Andrew Cuomo, a Democrat, said at a Manhattan news conference today. “Rent regulations are very important to the tenants of New York.”

James Harmon, 68, said in an e-mailed statement after the court action that the U.S. Constitution “does not allow the government to force us to take strangers into our home at our expense for life.”

Photographer: Scott Eells/Bloomberg

Under the law, cities may limit rents if their vacancy rates are less than 5 percent, a test New York easily meets. Close

Under the law, cities may limit rents if their vacancy rates are less than 5 percent, a... Read More

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Photographer: Scott Eells/Bloomberg

Under the law, cities may limit rents if their vacancy rates are less than 5 percent, a test New York easily meets.

‘Dickensian Conditions’

Rent-stabilized apartments have become the stuff of lore and scandal in New York. Former Mayor Ed Koch lived in one for years. So have celebrities including Cyndi Lauper and Carly Simon, according to the New York Times. U.S. Representative Charles Rangel, a Democrat and the former chairman of the tax- writing House Ways and Means Committee, was fined $23,000 last month for using a rent-stabilized apartment in Harlem as a campaign office.

Supporters say the rent-stabilization law protects tenants from prices that otherwise would be out of reach for many New Yorkers.

The median household income for those in the 970,000 rent- stabilized households last year was $37,000, according to the city’s most recent housing and vacancy survey, released in February. Four percent of households in rent-stabilized units had incomes of $150,000 or more in 2010, according to the U.S. Census Bureau.

“We would have Dickensian conditions,” said Allison Tupper, 72, a retired school teacher. She pays $2,233 a month for a four-room, first-floor apartment with access to a small garden on West 46th Street in Manhattan, in the once rough-and- tumble neighborhood known as Hell’s Kitchen that’s now rapidly gentrifying. “People would be living in the streets.”

Median Rent

Tupper takes in a combined $3,700 a month from Social Security and her teacher’s pension. She said one-room studios in her seven-unit building can go for as much as $3,000 a month.

The median monthly rent for unregulated apartments citywide was $1,369 in 2011; for rent-stabilized units it was $1,050, the city survey showed. Yet in Manhattan, average rents hit a record $3,418 in March, Citi Habitats, a real estate brokerage, said in an April 16 report.

New York’s history of rent regulation goes back to 1920, when a post-World War I housing shortage prompted the state to enact temporary rules, upheld two years later by the U.S. Supreme Court. The federal government imposed emergency controls during World War II as part of a nationwide push to prevent rents from soaring in cities central to the war effort.

Rent Guidelines Board

The current system dates to 1969 when the state responded to rising rents and falling vacancy rates by enacting the Rent Stabilization Law, which now governs almost all the city’s rent- limited apartments, including those of the Harmons.

Under the law, cities may limit rents if their vacancy rate is less than 5 percent -- a test New York easily meets. Its vacancy rate in 2011 was 3.12 percent, the city survey showed.

The system limits annual rent increases to a percentage set by the Rent Guidelines Board -- 3.75 percent for a one-year lease in the most recent adjustment. About 40,000 units are still covered under the older rent-control regime, which ties increases to a landlord’s operating costs.

The law gives tenants broad rights to remain in an apartment or pass it on to a family member.

The Harmon family has owned the West 76th Street brownstone since 1949, when James’s grandparents bought it with a $22,000 mortgage, according to court documents. James and his brother inherited the building in 1994, and James bought out his sibling’s interest in 2005 for $1.5 million.

‘Taking’ of Property

The Harmons live on the first floor. The three upper floors each have two units -- one rent-stabilized, one market-rate. The tenants in the low-rent apartments have all lived there since at least 1982. One owns a home in the Hamptons on Long Island, purchased for $320,000 in 2001, according to the Harmons’ 2008 complaint.

The Harmons contend the rent-stabilization law is an unconstitutional “taking” of private property without compensation. They say previous Supreme Court decisions allow rent-control laws only for emergency situations and that New York’s decades-old system has effectively become permanent.

“This simple case challenges the power of the city and state of New York to impose on the Harmons the unconstitutional burden of involuntarily and permanently renting a part of their residence to tenant-strangers,” the couple argued in their appeal.

A New York-based federal appeals court threw out the Harmon suit on a 3-0 vote, rejecting their contention that the law was akin to a physical occupation of their property.

New York City and state both asked the Supreme Court to reject Harmon’s appeal without a hearing.

Previous Supreme Court decisions say that judges “should not sit as super-legislatures reviewing matters of economic policy, but should ask only whether a legislature’s policy judgments are rational,” New York Attorney General Eric Schneiderman argued in court papers.

The case is Harmon v. Kimmel, 11-496.

To contact the reporters on this story: Greg Stohr in Washington at gstohr@bloomberg.net; Henry Goldman in New York at hgoldman@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

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