Is Rent-Control Unconstitutional? Supreme Court May Decide Soon

James Harmon's luxury rental on West 76th StreetJames and Jeanne Harmon are nothing if not persistent. The couple, landlords who own a Beaux-arts style townhouse on West 76th Street on Manhattan's Upper West Side, have been attempting to overturn New York City rent-regulations in federal courts for the past 4 years, and their efforts are beginning to pay off. Despite the fact that the couple’s lawsuit lost in the U.S. District Court and the Second U.S. Court of Appeals, the Supreme Court is interested in taking it. In an unprecedented move, the justices are asking both New York City and State to file a formal response to the couple’s suit by this Monday. So thanks to the efforts of one couple, the constitutionality of rent-regulation in New York City is being called into question for the first time in history, and the implications for Manhattan real estate are impossible to overstate.

It wouldn’t be a stretch to say that the real estate market in Manhattan is defined by rent-regulations: roughly 2 million New Yorkers enjoy rent restrictions. These programs create artificially low rents for thousands of people in Manhattan apartments, although critics say that such programs prevent neighborhood development and subsidize those lucky enough to live in those apartments, many of whom don't need affordable housing. Although New York is famous for rent-control, only about 20,000 people in Manhattan still have rent-controlled apartments. Rent-stabilization, on the other hand, is a hugely influential city program that prevents landlords from increasing their rents by more than 3.75% when their leases are renewed. If that system were to come to an abrupt end – and that’s a distinct possibility - the result would likely be that many rent-regulated tenants would have to leave their apartments because they can’t afford market rates.

The basis of his lawsuit is that rent regulations violate the ‘Takings Clause’ of the Fifth Amendment, which states that private property will not be taken for public use without just compensation. Harmon’s rent stabilized tenants pay 59% beneath market rates. One of those tenants, Nancy Wing Lombardi, She has lived in her apartment since 1976 and currently pays about $1,000 a month for a 1-bedroom luxury apartment, despite the fact that she is a vice president of a boutique executive search firm and owns a house in Long Island. Harmon doesn’t blame her personally, but points to her as a perfect example of why this flawed system should be discontinued. He told the Wall Street Journal that, "The problem here is not with the tenants; it's with New York law. It doesn't matter who you are or what your means are. You too can hit the rent-stabilization jackpot."

No one has formulated a response to the Harmon’s lawsuit as of yet, but so far the argument in favor of rent-stabilization centers around the consequences of deregulation. Andrew Scherer, a Columbia University professor, told the WSJ that, “Unless we’re going to replace it with something that directly addresses the enormous need for affordable housing, we have to live with it and make the best of it.”