New York Landlord Moves to Upend Rent Control at Court
By Greg Stohr and Henry Goldman-Apr 22, 2012 7:00 PM ET
James Harmon is so upset about New York rent laws that allow some tenants in the Upper West Side brownstone he owns to pay about 60 percent less than market prices that he’s making a federal case out of it.
Harmon and his wife, Jeanne, are asking the U.S. Supreme Court to overturn those rent limits, and as early as today the high court will say whether it will take up their challenge.
The Harmons are targeting a 43-year-old state statute that has become part of New York’s fabric, shaping its neighborhoods along with the wallets and lifestyles of millions of city residents. The law covers almost half the city’s 2.2 million rental units, drawing the ire of property owners who say it violates their freedom to get what the market will bear.
“The Constitution gives us the right to decide who will live in our own home and under what terms,” said Harmon, 68.
Supporters say the rent-stabilization law protects tenants from what otherwise would be among the highest prices in the country, out of reach for many New Yorkers.
Rent-stabilized apartments have become the stuff of both lore and scandal in New York. Former Mayor Ed Koch lived in one for years. So have celebrities from Cyndi Lauper to Carly Simon, according to the New York Times. 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.
Yet the median income for those in the 987,000 rent- stabilized households last year was just $37,000, according to the city’s most recent housing and vacancy survey, released in February. And only 4 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.”
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 brokerage firm, said in a report this month.
Gladys Puglla earns $38,000 a year as a bill processor in the city’s Administration for Children’s Services and pays $1,138 a month for a three-bedroom apartment in the Bushwick section of Brooklyn. A similar unit in the area could go for $1,400, said Heather Glassberg of MCR Realty in Brooklyn.
“We have a lot of low- and middle-income families that live under rent control, and if they take it away, there’s going to be the worst chaos,” said Puggla, 48. “I’m already housing my family, and I will have to put them in one room and rent out the other.”
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 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.
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 rates are 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.
Landlords may begin charging market rates only under limited circumstances, as when a vacant unit reaches $2,500 a month. For occupied apartments, the rent must hit that threshold and the household income of the tenants must be at least $200,000 for two consecutive years.
The law gives tenants 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.
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, purchased for $320,000 in 2001, according to the Harmons’ 2008 complaint.
James Harmon, a lawyer who is representing himself in the case, says he began contemplating legal action after reading a 2000 New York Times story about his building. The story — “30- Year-Old With a Lease on Real Estate Karma” — quoted the tenant saying the $1,190 monthly rent was “practically free.”
The Harmons contend the rent-stabilization law is an unconstitutional “taking” of private property without compensation. They say that previous Supreme Court decisions allow rent-control laws only for emergency situations and that New York’s decades-old system has effectively become permanent.
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.
“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.
Tim Collins, a real estate lawyer and former executive director of the Rent Guidelines Board, said that even with rent regulations, landlords have benefited from government housing policies.
“If anyone got a big windfall from government intervention, it was the Harmon family,” said Collins. “Over the past half-century, the city’s restrictive zoning, landmarks and fire regulations helped suppress housing supply, which greatly increased the value of apartment buildings.”
New York City and state are both urging the Supreme Court to reject Harmon’s appeal without a hearing — something the court does in 99 percent of its cases.
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 State General Eric Schneiderman argued in court papers.
The high court signaled interest in the case in December, when it asked the city and state to respond to the Harmons’ bid for review. Even so, the Supreme Court’s history with rent control suggests the odds may be against the New York couple. In 1992, the court unanimously upheld a California city ordinance regulating rents in mobile-home parks.
The justices were unanimous again in 2005 when they backed Hawaii’s limits on the rent that oil companies can charge gas- station dealers. Writing for the court, Justice Sandra Day O’Connor said judges generally shouldn’t second-guess lawmakers about the efficacy of economic regulations.
Should the court take up this case and strike down the law, more than a few New Yorkers will find themselves on the move.
“I try not to think about it,” said Tupper, the Hell’s Kitchen resident. “Maybe I’m in denial. But rationally I know this court could do anything.”