"Change" – to make the future of something different from what it is or from what it would be if left alone.
The long campaign is over and we have a new President-elect whose promises of “change” for our country signal a new era for our country. For now, the eyes of the nation will be focused on Washington, where the Democrats have strengthened their majority in the House and Senate, and a new adminstration takes over after 8 years of Republican rule. However, President-elect Obama’s 2 to 1 victory in electoral votes also signals significant changes for many State governments, with Democrats taking control of the govenorship in a number of key states, and control of State and local governments passing from Republican to Democrat control.
In New York, Democrats – who controlled the State Assembly for years – finally captured the New York State senate. Over the years, N.Y.’s Democrat-controlled state assembly introduced and even passed numerous bills designed to provide tenants with more rights. However, companion legislation has never gotten out of committee in the republican-controlled state senate, therefore no new laws made it to the governor for his signature. Over the years, under existing laws, the number of rent regulated apartments in New York City has been substantially reduced. Conversions of rental buildings has brought new co-op and condo apartments into the market, and vacancy decontrol has allowed the number of free market rental apartments to increase, or sold by Sponsors in buildings they converted. The value of rental properties, especially those with large number of non-regulated tenants, has increased dramatically.
With Governor Patterson’s outspoken concern about preserving and strengthening tenants’ rights, as the supply of rent regulated housing continues to drop, and democrats now firmly in control of both houses in the State legislature, pro-tenant legislation has a real possibility of being enacted. There are already reports, for example, that legislation will be introduced that will bring major changes to the Martin Act, which governs the conversion process for rental properties. If this happens, landlords will find it more difficult, if not impossible, to convert rental buildings to condos with both regulated and non-regulated, market-rate tenants having a greater control over the process. Legislation is also expected that, if enacted, would provide lifetime protection for market rate tenants, especially if the legislature decides to incorporate them into rent stabilization or enacts regulations limiting rent increases. Luxury and vacancy decontrol would also likely be restricted or eliminated.
These changes, if enacted, will have an important impact on New York City’s real estate market. For example, new restrictions on conversions may result in a drop in the number of buildings converting to condominium or cooperative ownership. the gradually diminishing number of pre-war rental buildings which would be expected to convert in future years under existing regulations, will be difficult to convert if new laws are enacted. Fewer rental apartments being converted, and greater protection for tenants, will also affect the inventory of available rental apartments: if market-rate tenants achieve the same lifetime rights and protections now afforded to rent stabilized tenants, the turnover of apartments and inventory of vacant rental apartments can be expected to decrease.
With ever-tightening credit expected to reduce the number of new condominium buildings being developed, changes in rent regulations could mean a significant reduction in new rental and condominium units being introduced into the marketplace. This, in turn, could result in a paradigm shift in the current supply/demand equations affecting prices for coops and condominiums, and the rents charged for rental apartments. Fears of reduced demand could be met by reduced inventory. The resulting affect on the value of cooperative and condominium apartments will be interesting to monitor.
Stay tuned. Things are going to get interesting!