The Sad Tale of NYC's Rent Stabilized Housing

Approximately 2.4 million New York City residents live in rent stabilized apartments—slightly more than live in the entire city of Houston. New York’s rent stabilization program is by far the largest and most impactful rent control scheme in the United States today, shaping the economy of the US’s largest gateway city.

Unfortunately, NYC’s rent stabilization regime is in serious trouble. Today, an investor can buy a fully-tenanted, five-story rent stabilized Brooklyn apartment building for less than the cost of a nice house in the Atlanta suburbs and far less than the value of the land itself—but it’d probably be a bad idea to do so, for reasons we’ll explore here. NYC’s rent stabilized buildings face an increasingly dire financial situation while tens of thousands of units sit vacant and un-rentable in a city with a severe housing shortage.

While today’s letter is nominally about New York, the story of the City’s rent stabilization program offers a cautionary tale for other cities and states facing rising rents and regulatory pressure. And the sheer size of New York’s rent stabilized housing stock creates contagion risk for certain banks and other exposed institutions. Specifically, we’ll tackle:

• The history of NYC’s rent stabilization and how it got broken;
• The state of NYC’s rent stabilized housing stock today: income and expense analysis, foreclosures, and a study of the data available;
• Where things might go from here, including macro risk beyond NYC and the financial markets, naming several banks with heavy exposure;
• Lessons for owners and developers outside of New York.