FARE Act Adds to “Landlord Strangulation,” NYC Owner Says

11 minutes read

Conventional wisdom holds that rent-stabilized apartments are snapped up instantly and held for years, if not decades.

But one landlord told me tenants are moving more and becoming pickier, making it harder for her to fill units that rent for close to market rate. For highly qualified tenants, apartment hunting has become easier as turnover has increased, she said.

The FARE Act, which took effect last June, has a lot to do with these trends, said the owner, who has also been a commercial real estate broker since 1980. I’ll identify her by her initials, LT.

LT’s explanation is rooted in economics and born out by personal experience: One of her tenants, a doctor, left his rent-stabilized apartment one month after moving in, and it took more than two months to replace him.

“Every time that particular apartment was shown, the feedback to the broker was, ‘Well, I have four or five others to look at,’” the landlord said.

The rent was not far from market-rate, which helps explain why it wasn’t leased immediately. But rent stabilization offers other tenants other benefits, such as below-inflation rent increases, automatic renewals and succession rights.

Still, LT said tenants are moving more often because under the FARE Act, they don’t have to pay a fee to the owner’s broker. This has made it less expensive for tenants to switch apartments, increasing costs for landlords.

In the past, the tenant might have had to pay a broker 15 percent of the annual rent. Now the landlord is typically paying the broker the equivalent of one month’s rent.

“When tenants do not pay the broker’s fee … they have very little invested in the apartment and tend to move far more frequently, costing the landlord even more money,” LT said.

A vacancy rate of 7 or 8 percent — normal for many cities but unheard of in New York, which last clocked in at 1.4 percent — is good for housing markets and apartment hunters but bad for landlords. Each vacancy costs an owner thousands of dollars.

LT said for a $2,100-a-month unit, the most basic painting and preparing of the apartment, plus the broker fee, add up to nearly $4,000. Tack on the missed rent during vacancy and the loss comes to $8,000. After operating expenses, it takes her well over a year to make that money back.

Bristling at this “low-return, constant-turnover” dynamic, LT focused her ire on Council member Chi Ossé, the author of the FARE Act.

“From my vantage point this law was an act of political revenge by a very young Brooklyn kid who achieved a bit of power by gaming the anti-landlord sentiment at large today,” she said. (The measure is popular with politicians of all stripes. Gov. Kathy Hochul, 67, of Buffalo, supports Ossé’s law, which the Real Estate Board of New York is challenging in court.)

Broker Sam Moritz, who has been in the business for nine years, told me he has also noticed a difference.

“I think the FARE Act has changed my rental business a good amount,” said Moritz, of Brooklyn-based EXR. “I have fewer landlords calling me and more trying to have me rent their apartments for a discounted broker fee — sometimes as low as half a month fee, which never happened before the FARE Act.”