New York Legislation Hurts Low-Income Tenants
Over the last few years New York has adopted legislation that provides short-term benefits for some low-income tenants but creates very serious potential long-term issues for many of the same people, including higher rents, a potential housing shortage, and more homelessness.
In 2019, the New York State Legislature passed the “Housing Stability and Tenant Protection Act”, which caps security deposits to one month’s rent while increasing the processing time for evictions from three weeks to about three months. As a result, the legislation almost guarantees that a security deposit will not cover the lost rent that occurs during an eviction.
By increasing the costs and risks of the rental market, the legislation inadvertently discourages landlords from investing in new apartments for lower-income tenants, resulting in a lower supply over the long term. A reduction in supply results in an increase in price through the law of supply and demand, resulting in higher rents for tenants.
Existing landlords will respond to the increased risk of loss by increasing the rent, making it harder for the working poor to afford an apartment. Unlike a higher security deposit, however, a higher monthly rental will never be returned to the tenant, thus costing tenants more money in the long run.
The higher risk of loss gives landlords an even stronger incentive to avoid leasing to tenants that are more likely to default. As a result, the working poor with lower credit ratings, income levels, or employment experience will find it increasingly difficult to find an affordable apartment.
Some landlords may require low-income tenants to find someone to co-sign their lease, a difficult and demeaning experience. Those who cannot find someone to co-sign their lease will be excluded from portions of the housing market.
For those who are excluded from the housing market because of their risk factors or who cannot afford the higher rents caused by this legislation, public housing or homeless shelters at taxpayer expense may be their only option. Indeed, homelessness is increasing dramatically in New York City.
To make matters worse, the New York Legislature also approved an extremely broad eviction moratorium until September 2021. Unlike the federal provisions, the State legislation does not require tenants to make any partial payments.
Although the federal government has provided rental assistance, New York has been excruciatingly slow in making those funds available. For some landlords these funds may be too little or too late to avoid potential bankruptcy. Many of the apartments that remain will suffer from deferred maintenance.
Some landlords will be forced to sell some of their apartments in order to generate the cash needed to survive. While some of those apartments will remain rental units under new ownership, some of the apartments will become owner-occupied and no longer available for rental, thereby creating a potential housing shortage and increasing overall rents as the supply of apartments continues to drop below market demand.
At the end of the eviction moratorium, tenants who did not make any monthly payments will be facing a substantial potential judgment for unpaid rent, which will likely affect their credit rating and make it more difficult for them to rent another apartment.
Landlords determined to recoup some of their losses may pursue income executions, garnishments, or other collection efforts, all of which reduce the income available to these delinquent tenants and make it more difficult for them to afford another apartment.
Although the “Housing Stability and Tenant Protection Act” purports to ban discrimination against tenants based on prior evictions, landlords can lawfully request a credit report that would show an eviction judgment. Some landlords may simply be unwilling to rent to such tenants.
If the New York State Legislature had asked economists to design a legislative scheme to use market forces to hurt lower-income tenants, damage the housing market, and create more homelessness, economists would have recommended that the legislature:
¯ Increase the financial risks of renting to the working poor by limiting security deposits and increasing eviction times. Done.
¯ Reduce the supply of housing available to the working poor by discouraging investments in lower-income apartments by reducing profitability and increasing the risk of loss. Done.
¯ Further reduce the supply of housing by putting some landlords out-of-business, thereby causing rents to increase through the law of supply and demand. Done.
¯ Make it more difficult for some low-income tenants to be eligible to rent an apartment because of judgments for unpaid rent that damage their credit ratings. Done.
¯ Deprive some landlords who rent to the working poor the revenues needed to maintain and repair their properties. Done.
If the New York State legislature was serious about helping the working poor on a long-term basis to find decent and affordable housing, it would harness the power of private sector market forces by reducing the risk and cost of renting to the working poor, allowing reasonable security deposits, assisting low-income tenants in paying those security deposits, providing rent guarantees where appropriate, expanding the availability of rent vouchers, assisting landlords in financing repairs and maintenance for lower-income housing, and increasing the supply of affordable housing.
Until the New York legislature recognizes and harnesses the power of the free market system, it will continue to enact short-term solutions that create serious long-term problems for the very people it purports to help.
Andrew Goodell has degrees in Political Economics and Mathematics from Williams College, and a law degree from Cornell Law School. He represents Chautauqua County in the New York State Legislature and voted against the above legislation.