With election day swiftly approaching, it’s essential to draw attention to the potentially destructive impacts Proposition 33 could have on California’s real estate market. The consequences of New York’s Housing Stability and Tenant Protection Act of 2019 (HSTPA) serve as a clear example of what could unfold in Los Angeles if Prop 33 passes. New York's experience demonstrates that while policies may be well-intentioned, they can easily backfire, causing serious damage to property values, stalling developments, and placing immense strain on landlords and tenants alike. Education is key here, and New York has given us a striking example of what not to do.

Background of the HSTPA OF 2019

The Housing Stability and Tenant Protection Act of 2019 was passed by New York lawmakers as a measure to address rising housing costs and provide stronger protections for tenants. The Act introduced several key changes:

• It imposed permanent limits on how much landlords of rent-stabilized properties can increase rents, even after tenants vacate.

• It restricted landlords from passing renovation and improvement costs onto tenants, significantly reducing owners’ ability to recover expenses.

• It eliminated vacancy decontrol, meaning rent-stabilized units no longer revert to market rates when a tenant moves out.

• It increased protections against evictions and added stricter guidelines for tenant screening processes.

While the intentions behind the Act were to create more affordable housing and protect tenants from displacement, the actual results have been deeply problematic for property owners, both large and small.

Property Values Declined by Nearly 50%

Many properties with rent-stabilized units have seen their values plummet, with some apartments in New York City reportedly losing up to 50% of their value, according to a report by Bloomberg. This sharp decline is due to investors factoring in the capped rental income and prohibitive regulations, which have significantly reduced the attractiveness of owning rent-controlled buildings. Properties that once generated substantial income are now seen as high-risk and low-reward.

For instance, data from Maverick Real Estate Partners shows that rent-stabilized buildings sold for an average of $203,000 per unit last year—a 34% decline since 2019. By contrast, non-regulated apartment prices surged by 23%. The fallout has been significant, with the value of rent-stabilized units plummeting by up to $75 billion. The FDIC sold $15 billion in loans backed primarily by rent-stabilized properties at a 40% discount. Amid this crisis, New York Community Bancorp Inc., which holds about $37 billion in apartment loans (half backed by rent-regulated units), saw its stock plunge 38% in one day.

Rising Vacancy Rates Reaching 25%

One of the most unforeseen consequences of the HSTPA has been an increase in vacancy rates, particularly in rent-controlled units. The inability of landlords to finance necessary repairs, combined with caps on rental income, has left many units uninhabitable. According to a report from GlobeSt, some landlords have had no choice but to leave units vacant, as they cannot afford to make the repairs needed to bring these apartments up to habitable standards.

Halted Development & New Construction

Developers are increasingly wary of investing in New York’s multifamily housing market, fearing that new regulations could further tighten their ability to manage and profit from rental properties. As a result, new construction has slowed considerably, with many developers redirecting investments to markets with fewer restrictions and more predictable returns.

Impact on Landlords & Tenants

The stringent caps on rent increases and limits on passing through renovation costs have made it extremely difficult for landlords to maintain properties or turn a profit. According to a survey conducted for the Real Estate Board of New York, many owners find it “economically unfeasible” to invest in crucial building improvements, leading to disinvestment in rent-stabilized housing.

Smaller, independent landlords, in particular, have been disproportionately affected. With little financial flexibility, many have been forced to sell properties at a loss or hold onto assets that are no longer financially sustainable. Even larger investment firms are struggling, as they now face significant limitations on the returns they can generate, making multifamily investments far less attractive.

The HSTPA of 2019 has brought significant disruption to New York’s multifamily housing market. While the law was intended to provide greater protections for tenants, it has ultimately created a landscape in which landlords—both small and large—are financially hamstrung, property values have plunged, and new construction has stagnated. The policy serves as a cautionary tale for other cities considering similar legislation, illustrating the delicate balance needed between protecting tenants and maintaining a healthy real estate market.

As we continue to monitor these developments in New York, it’s crucial for us in Los Angeles to understand how similar policies might affect our own real estate market. VOTE