Tag Archives: rent regulation

Owning the New Yorker

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Mickey Barreto, in New York. — Photo: Reproduction/Fantastic

Mickey Barreto, in New York. — Photo: Reproduction/Fantastic

I was interviewed by TV Globo, the largest broadcaster in Latin America, about Mickey Barreto who claimed to own the New Yorker hotel in Manhattan. The video is in Portuguese, but there is a rough English translation of the transcript. The transcript opens,

After Living for Free in a NY Hotel for 5 years, a Brazilian Puts the Entire Building in His Name and the Case Ends up in Court

A Brazilian is in the middle of a controversy involving New York ‘s housing legislation . After staying in a hotel room for 5 years, Mickey Barreto believes he owns the entire building.

The confusion ended up in court . He was even arrested on fraud charges. While free awaiting trial, Mickey spoke to Fantástico. New York hotels are among the most expensive in the world and living on Manhattan Island is not for everyone, but Brazilian Mickey Barreto paid nothing.

Barreto lived for free, for 5 years, at the New Yorker hotel. And there’s more: he managed to put the entire building in his name. A negotiation made based on New York City rent law. The hotel says there was fraud.

The Brazilian, who is actually called Marcos Aurélio Canuto Muniz Barreto, managed to understand a complex law — and benefit from it.

The New Yorker Hotel opened in 1930, with more than a thousand rooms and 43 floors . At the time, it was one of the largest in the world. It hosted politicians and celebrities, such as inventor Nikola Tesla, baseball player Joe DiMaggio and boxer Muhammad Ali. In 1972, it faced a crisis and closed its doors. It ended up becoming one of the cheapest hotels in the city.

When Mickey Barreto arrived from California in 2018, he said he had no plans to stay at the hotel for long. Until he learned of an old law in New York that allowed someone to stay with all room service included and pay very cheaply.

Under the law, still in effect, New York hotels built before 1969 that charged less than US$88 per week that year — a cheap rate at the time — would have to give guests a rental contract for 6 months or more. The guest would then have the right to become a permanent resident. “The legislation limits the amount that each owner can charge for rent in New York in certain apartments. It is a 1969 law that applies to different places. And through a legal loophole, hotels considered cheap entered this regulation. Mickey Barreto discovered that this hotel is technically included in the rules defined by law”, explains David Reiss, a jurist at the Brooklyn School of Law.

The hotel resisted, but Barreto won the case in court and that was how he started living at the New Yorker. But, in addition to refusing to pay, Mickey Barreto wrote a deed and managed to register the hotel in his name, claiming that a judge gave him ownership of the hotel.

“According to the law, having possession is not the same thing as being an owner . Every tenant has possession of the apartment where he lives, but that does not mean that he is the owner. There is no legal basis for this correlation. I think he only gained in Justice because the hotel didn’t send any lawyers. And here in the United States, if you don’t send your lawyers, you’re going to lose”, says the jurist.

Already calling himself the owner of the New Yorker, Barreto went to the hotel’s restaurant and demanded that the concessionaire pay him for renting the place. He was ignored, but continued to bother employees and even demanded a complete reform of the entrance.

Rent Regulation from NY to NZ

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Indira Stewart (left) and the rest of the TVNZ Breakfast Team

I was interviewed by Indira Stewart on the TVNZ Breakfast show, the biggest morning news show in New Zealand, about New York City’s system of rent regulation (I serve as the Chair of the NYC Rent Guidelines Board).  You can find the interview here.

Cities With the Worst Rent

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photo by Alex Lozupone

Realtor.com quoted me in Cities With the Worst Rent: Is This How Much You’re Coughing Up? It opens,

Sure, rents are too dang high just about everywhere, but people living in Los Angeles really have a right to complain: New analysis by Forbes has found that this city tops its list of the Worst Cities for Renters in 2018.

To arrive at these depressing results, researchers delved into rental data and found that people in L.A. pay an average of $2,172 per month.

Granted, other cities have higher rents—like second and third on this list, San Francisco (at $3,288) and New York ($3,493)—but Los Angeles was still deemed the worst when you consider how this number fits into the bigger picture.

For one, Los Angeles households generally earn less compared with these other cities, pulling in a median $63,600 per year. So residents here end up funneling a full 41% of their income toward rent (versus San Franciscans’ 35%).

Manhattanites, meanwhile, fork over 52% of their income toward rent, but the saving grace here is that rents haven’t risen much—just 0.4% since last year. In Los Angeles, in that same time period, rent has shot up 5.7%.

So is this just a case of landlords greedily squeezing tenants just because they can? On the contrary, most experts say that these cities just aren’t building enough new housing to keep up with population growth.

“It is fundamentally a problem of supply and demand,” says David Reiss, research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School. “Certain urban centers like Los Angeles, San Francisco, and New York are magnets for people and businesses. At the same time, restrictive local land use regulations keep new housing construction at very low levels. Unless those constraints are loosened, hot cities will face housing shortages and high rents no matter what affordable housing programs and rent regulation regimes are implemented to help ameliorate the situation.”

Addressing NYC’s Affordable Housing Crisis

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photo by Hromoslav

The NYC Rent Guidelines Board (of which I am a member) held a public hearing as part of its final vote on rent adjustments for the approximately one million dwelling units subject to the Rent Stabilization Law in New York City. My fellow board member, Hilary Botein, and I submitted the following joint statement at the hearing (also available on SSRN and BePress):

The Rent Guidelines Board determines rent increases for New York City’s 1 million rent-stabilized apartments. We must weigh the economic conditions of the residential real estate industry; current and projected cost of living; and other data made available to us. To make our decision, we reviewed reams of data and multiple analyses of those data. We also held five public hearings at which we heard hundreds of tenants speak, sing, chant, cry, and demonstrate. These hearings are among the only opportunities that tenants have to speak publicly about their housing situations, and they made clear the extremity of the housing crisis in the City, and that it will get worse without significant intervention.

Tenants who came to the RGB hearings are not a representative sample of rent-stabilized tenants in New York City. But they told us a lot about the state of housing in the City.  We felt that it was incumbent on us to respond to what we heard, even where it did not relate directly to the jurisdiction of the Board.

New York City cannot expect any meaningful housing assistance from the federal government in the near term. Our observations therefore focus on state and municipal actions that could address some of the issues that regularly cropped up at our hearings.

There is a desperate need for affordable housing that is pegged to residents’ incomes. Housing is deemed “affordable” when housing costs are 30 percent of a household’s income. There is no guarantee that rent stabilized housing remain affordable to a particular household, and there is no income eligibility for rent stabilized housing.  This aspect of rent regulation explains its durable political appeal, but makes it an imperfect vehicle for meeting the needs of low-income tenants.

Mayor de Blasio is protecting and developing hundreds of thousands of units of affordable housing through the Housing New York plan announced at the beginning of his term. More recently, his Administration announced a program to create 10,000 deeply affordable apartments and a new Elder Rent Assistance program.  But more can be done to help low-income tenants.

The Senior Citizen Rent Increase Exemption (SCRIE) and Disability Rent Increase Exemption (DRIE) programs have proven their effectiveness in “freezing” the rents of more than 60,000 low and moderate income rent-stabilized households. The state should create and fund a similar program for low-income rent stabilized tenants who pay more than 30 percent of their incomes towards housing costs.

State laws governing rent stabilization must be amended. Three elements of the law particularly penalize low-income tenants in gentrifying neighborhoods, and were behind the most distressing tenant testimonies that we heard. They are not within the RGB’s purview, but change is critical if the law is to operate as it was intended to do. The state legislature has considered bills that would make the necessary changes. First, owners can charge tenants a “preferential” rent, which is lower than the legal registered rent for the apartment. Preferential rents are granted most often in neighborhoods where the rent that the market can bear is less than the legal rent. This sounds like a good option for both tenants and owners, and perhaps that was its original intention. But now, as neighborhoods gentrify and market rates increase, the prospect of increasing a preferential rent with little notice has become a threat to tenants’ abilities to stay in their apartments. Preferential rents should be restricted to the tenancy of a particular tenant, as was the law before a 2003 amendment. Owners would then be able to increase rents for those tenants no more than the percentages approved by the Board.

Second, owners can tack on a 20 percent “vacancy increase” every time an apartment turns over. This increase incentivizes harassment, and should be limited to situations of very long tenancies, to keep owners from actively seeking to keep tenancies short.

Third, owners making what is termed a Major Capital Improvement (MCI) – a new roof, windows, or a boiler, for example – can pass this expense on to tenants via a rent increase that continues in perpetuity, after the owner has recouped her or his expenses. We also heard allegations of sketchy capital improvement applications that were intended to increase rents without improving the conditions in the building. The state legislature should review how MCIs work in order to ensure that they are properly incentivizing landlords to invest in their buildings to the benefit of both owners and tenants.

New York City needs a repair program for broken gas lines. We heard from tenants who had not had gas in their apartments for more than a year. We understand that fixing gas lines is particularly complicated and expensive, and that gas leaks raise serious safety concerns, but it is unacceptable for families to go for more than a year without gas, and we are concerned about fire safety issues resulting from people using hot plates. The city needs to step in and make the repairs.

We have a housing crisis. Low income tenants, who live disproportionately in communities of color, experience this crisis most acutely. We will not find systemic solutions within the housing market. All solutions require a lot of money, and we cannot count on anything from the federal government. But it is imperative that our state and local governments act, or New York City’s already burgeoning shelter system will be forced to take in even more people. Since the 1970s, New York City has been a leader in committing public resources to housing its low income residents, and that legacy must continue.  The Rent Guidelines Board cannot solve the housing crisis, but other arms of the New York State and City government can work together to reduce its impacts on low-income households.

Rental Potholes

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photo by Eric Haddox

Realtor.com quoted me in Rental Potholes—and How to Avoid Falling Into Them. It opens,

Until you have the money to buy your own home, renting is eventually a part of just about every person’s life. And typically this transaction tends to work out just fine. Until it doesn’t. Because there is indeed plenty that can go wrong, leaving renters learning some difficult lessons through trial and error. To make sure you aren’t one of them, check out these rental roadblocks—and what you can do to keep from getting stuck.

Somebody’s watching you

“My work took our family to Florida and in our haste to find somewhere to live with our two kids, we found a gorgeous townhouse seaside rental. The ocean views were incredible, just what we’d dreamed of. So incredible, in fact, that we didn’t realize the unit lacked window coverings of any kind! And as much as I loved looking at the ocean, there were times when some level of privacy was desired; people could see into the whole house if they were walking along the beach. When we shared this ‘oversight’ with the landlord, his offer was to split the costs of full-house window coverings! We decided not to help the property owner increase the value of his home. We continued to enjoy ocean views on a 24/7 basis but moved out after a year.” – Rhonda Moret, Del Mar, CA

Lesson learned: Don’t let your enthusiasm keep you from doing your due diligence before thoroughly vetting a place and signing on the dotted line.

“This responsibility falls squarely on the tenant; you can’t expect someone else to look out for your interests. That’s your job,” says David Reiss, academic program director for Brooklyn Law School’s Center for Urban Business Entrepreneurship. But by the same turn, don’t fall for a landlord’s request to “split the cost”—any renovations should be his responsibility all the way.

Bye-bye, security deposit

“When I handed our landlord a $1,000 security deposit, I assumed I’d get it back whenever we left, and didn’t bother to do a walk-through of the apartment to make sure it was in decent shape. Big mistake! Once we moved out, the landlord sent us a letter stating he was keeping the security deposit because we had broken a window in the garage. Only we hadn’t—that must have been done by a previous tenant. We got charged for someone else’s damage.” – Mindy Jensen, Wheaton, IL

Lesson learned: “Doing a walk-through inspection is important if you want your security deposit back,” says Reiss. “It’s important to add details like time stamps to everything and get documentation that your landlord received the report.”

Also consider recording a video with your smartphone while you walk through the place. The more backup material you have, the better the odds that you’ll get back what you deserve.

Your pet or your pad

“A few years ago, my family and I rented a townhouse. There was a pet shop on the corner selling the cutest puppies, and we fell in love with a French bulldog and bought him. That’s when things started to get ugly. We hadn’t checked the rental agreement to see if we could own a pet. When our landlord found out, she became hysterical and asked us to leave—or get rid of the dog. We ended up homeless, but with a very cute puppy. Fortunately, we stayed at a friend’s place until we found a dog-friendly home.” – Derek McLane, Sydney, Australia

Lesson learned: “Read the fine print before you sign. This is pretty fundamental, even if it is not fun to do,” says Reiss.

At the very least, ask your landlord what the rules are and to specify where the pertinent parts can be found in the lease. Be aware that many leases don’t allow pets, or will make pet owners pay an extra fee known as pet rent.

You’ve got mail … a mile away

“I was living in an amazing apartment when the mailboxes in the foyer were vandalized to the point where the USPS deemed them ‘unsafe for delivery of mail.’ We were ‘temporarily’ redirected to pick up mail six blocks up and four very long avenue blocks over until the landlords had an opportunity to repair our mailboxes. A year and a half later, they still hadn’t been fixed—and to make matters worse, a stairwell skylight had collapsed. I was forced to take on the practically full-time job of challenging my landlord to make repairs. I finally was able to make something happen by researching the building and finding out that my landlord had illegally jacked up the rent more than was legally allowed by rent-stabilization laws. Eventually, my efforts resulted in a rent reduction, reinstated mail delivery, and a very bad tenant/landlord relationship.” – Tim Tucker, Las Vegas, NV

Lesson learned: “Know your rights. Tenants have a lot of them, particularly in rent-regulated apartments,” says Reiss.

Buying Into The Sexiest Real Estate

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Metropolitan Transportation Authority of the State of New York - Construction at Hudson Yards

Newsmax quoted me in How to Buy and Sell in the Sexiest of Real Estate Markets. It opens,

With the opening of the 7 subway station at 34th Street last year, more than 100 shops and 5,000 residences, the Hudson Yards neighborhood in Manhattan is creating new demand for housing.

“We’ll likely witness a progression of rising prices as the entire development grows both residentially and commercially,” said Brad Malow, licensed real estate broker with Charles Rutenberg, a real estate firm in Manhattan.

Stretching from West 30th to 34th Streets and 10th to 12th Avenues, Hudson Yards is just one example of how supply of inventory impacts pricing in the world of real estate.

“The problem right now in the sales market is that supply is not catching up fast enough to pent up demand,” Malow told Newsmax Finance. “If supply increases and demand stays the same, what usually results is lower pricing.”

The New York housing market is very different from most others in the U.S. The vacancy rate in New York has hovered at 2% on average, according to a Douglas Elliman/Miller Samuel data and new development inventory is up 101% with supply and demand fluctuating from season to season.

That makes proper pricing important to the marketing of all types of property given the extraordinarily low vacancy rate.

“The supply of new housing is very low given the size of the market and the rental market is heavily regulated, depressing the rents for many units,” said David Reiss, professor of law with the Brooklyn Law School in Brooklyn.

Rapidly Rising Rents

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The Community Service Society has released its Fast Analysis of the 2014 New York City Housing and Vacancy Survey which “analyzed just-released U.S. Census Bureau data from the 2014 version of its New York City Housing and Vacancy Survey, a survey of 18,000 New Yorkers conducted every three years under contract with the New York City Department of Housing Preservation and Development.” The analysis

reveals that rents have risen rapidly, especially in the city’s inner-ring neighborhoods. Rents rose by 32 percent citywide since 2002, even after removing the effect of inflation. The sharpest increases occurred in neighborhoods surrounding the traditionally high-rent area of Manhattan below Harlem. Central Harlem led the way with a shocking 90 percent increase, with Bedford-Stuyvesant second at 63 percent.

The loss of rent-regulated housing to vacancy deregulation is combining with the loss of subsidized housing and with rising rents overall to dramatically shrink the city’s supply of housing affordable to low-income households. Between 2002 and 2014, the city lost nearly 440,000 units of housing affordable to households with incomes below twice the federal poverty threshold.

The study “focused on the rents being paid by tenants who have recently moved. This eliminates the tendency of lower rents paid by long-time tenants to smooth out market changes and mask the changes that affect tenants who are looking for a place to live.” (Slide 3)

This focus somewhat undercuts CSS’ claim that rents in general are rising rapidly because rents for vacancies typically rise much faster than those for existing tenancies. That being said, the study confirms the sense of many that outer-borough neighborhoods are rapidly gentrifying and becoming unaffordable to the households who had historically made their homes there. As CSS indicates, their analysis will certainly be relevant to the debates raging over how to regulate NYC’s housing stock.

It is also relevant to debates over zoning. New York City’s population has grown by almost a million and a half people since 1980. That increase puts a lot of pressure on the cost of housing. Unless, the City comes up with a plan to increase the supply of housing, market pressures will just keep pushing rents higher and higher. Mayor de Blasio is well aware of this, so it will be interesting to see whether the City Council will be on board with plans to increase density throughout the City. Greater density is a necessary component of any affordable housing strategy for NYC.