New York City’s housing market can be a wild place for tenants: Rents can spike with little notice, and landlords have broad authority to deny renters a new lease once their agreements expire.

Tenants in about 1 million rent-stabilized apartments are mostly insulated from that instability — at least for now.

A handful of lawsuits challenging the constitutionality of the decades-old rent laws have wound their way through the federal court system and could reach the U.S. Supreme Court. The 2nd U.S. Circuit Court of Appeals struck down two of the lawsuits on Monday, citing prior case law and even a past Supreme Court decision unanimously upholding rent stabilization laws.

The plaintiffs, including owners of rent-stabilized apartments, say they plan to appeal to the Supreme Court – a step that concerns tenants and their advocates. They worry that dismantling laws that prohibit exorbitant rent increases and establish a right to a lease renewal could leave hundreds of thousands of families without secure homes.

“The 2nd Circuit has followed established precedent, but as we’ve seen, the Supreme Court has put politics over precedent, so they’re a wild card,” said Justin La Mort, a housing attorney at the organization Mobilization for Justice, who referenced recent rulings against long-standing abortion rights and labor law.

A recent Supreme Court decision, Cedar Point Nursery v. Hassid, opened the door for the latest challenge to the rent laws. In that case, the court reversed the right of labor union representatives to periodically visit private farmlands. The court majority called such visits an unconstitutional “taking” — the government controlling what companies or individuals do with their property.

Landlord groups say the state is doing something similar through its rent laws. The 2nd Circuit judges disagreed, writing that in the case of the tenant-landlord relationship “the landlords voluntarily invited third parties to use their properties.”

That decision hasn’t deterred landlord groups. Jay Martin, the executive director of the Community Housing Improvement Program, a group representing around 4,000 property owners, said New York’s current regulations have not been constitutionally tested.

Yet he dismissed tenants’ fears that the U.S. Supreme Court might issue a sweeping ruling undoing rent laws across the country. If the high court decides to take up the case, he said, it would likely only issue a ruling affecting New York, which would give lawmakers a chance to rewrite regulations.

“A victory in our lawsuit does not remove rent control,” Martin said. “We’re not challenging the precedent of the government to set rent regulations. We’re saying this specific system does not properly compensate (landlords).”

How did we get here?

Over the past five decades, the Legislature has revised the rules to favor either landlords or tenants depending on lawmakers’ political leanings. Rent laws now typically apply to buildings with six or more units built before 1974, as well as newer buildings that receive city financing or property tax breaks for including income-restricted units.

The most recent changes came in 2019 when lawmakers passed the Housing Stability and Tenant Protection Act, which made it harder for landlords to increase rents and drive out tenants.

Prior to the changes, landlords could say their units no longer qualified as rent stabilized once rent hit a certain threshold – about $2,800 a month. Those 2019 reforms also eliminated the ability for landlords to hike rents by as much as 20% — a “vacancy bonus” — when tenants moved out or were evicted. Finally, lawmakers limited the amount landlords could charge after significant renovations.

Those changes dramatically increased tenant protections and removed incentives for property owners to push out tenants in order to raise rents. They also limited landlords’ potential profits.

Some owners purchased buildings before the Housing Stability and Tenant Protection Act with the aim of forcing out, buying out or waiting out the tenants, raising rents past the stabilization threshold and then charging whatever they think they could get on the open market.

Other landlords say limits on rent increases and the elimination of the vacancy bonus make it tough to cover the cost of renovations after a tenant moves out. They say they either can’t afford or just do not find it profitable to renovate the units and put them back on the market, leading to tens of thousands of rent-stabilized units sitting empty, as rents rise and available housing stock shrinks.

Landlords and their trade groups are not happy with the changes and sued to overturn the new rules, and the broader rent stabilization system. Five cases related to the reforms have gone through the federal courts, including the two rejected on Monday. The other three are still awaiting federal appeals court decisions.

“We always recognized that it was likely that the 2nd Circuit would follow its prior decisions upholding the Rent Stabilization Law,” said Kimberly Winston, a spokesperson for trade groups representing landlords. “In our view, multiple decisions of the U.S. Supreme Court undermine those prior 2nd Circuit rulings and clearly signal that laws like this place an unconstitutional burden on property owners.”

What would it mean to lose rent stabilization?

New York’s current system of rent stabilization was first passed in 1969. The laws capped rent increases and limited the reasons tenants could be evicted from hundreds of thousands of apartments. Some other states and cities followed suit with their own rules to prevent dramatic rent hikes, and six states plus Washington, D.C. currently have some form of rent stabilization on the books. Many more explicitly ban rent regulation.

Eliminating the system would mean upheaval, chaos and crushing economic pressure for hundreds of thousands of households, say tenants and their advocates.

“It would devastate New York City,” said Ellen Davidson, a housing attorney in the Legal Aid Society’s Civil Practice Law Reform Unit, which advocates and helps craft tenant protection policies. “Rent stabilization is the biggest source of affordable housing for low- and moderate-income tenants. It has allowed them to raise families and thrive in this city, and if rent regulation went away they would not be able to live in this city.”

City data cited by the 2nd Circuit judges shows the median income for rent-stabilized tenants was less than $45,000 a year, with about 20% of tenants living below the federal poverty line in 2017.

While many property owners would likely maintain the status quo to retain existing tenants, private equity firms and major investors could step into an unregulated market and wring profits out of many of the apartments, leaving lower-income tenants with few options, she said. That is already happening in non-stabilized units in New York City and nationwide, where large investors have scooped up buildings and immediately hiked rents.

David Hershey-Webb, a tenant attorney with the firm Himmelstein, McConnell, Gribben & Joseph, said tenants who face steep rent increases generally have three options: move somewhere else they can afford in New York City, leave the Big Apple, or move into a shelter.

“If you’re paying $800, $900, $1,200 for rent and you have to go into a market where the median rent is double or triple what you’re paying, you’re gonna be homeless,” he said.

Housing scarcity has already led to rising costs. From 2017 to 2021, New York City lost roughly 96,000 units priced below $1,500 a month while adding about 107,000 units priced at $2,300 or more, according to the city’s most recent housing survey. Less than 1% of those $1,500 apartments were vacant.

Landlord groups and some economists say rent stabilization contributes to the affordability problem by driving up prices in the remaining unregulated apartments, which make up about half the housing stock in New York City. But tenants and their advocates counter that lifting the regulations would expose 1 million households to potential rent hikes and evictions at a time when New York City is already failing to fix a record-high homelessness crisis.

Alicia Singham-Goodwin, a 30-year-old public health researcher, said she has lived in a stabilized two-bedroom apartment in West Harlem with her partner for the past four years, paying $2,020 a month.

Singham-Goodwin said she previously had lived in unregulated units and was forced to leave each year due to rent increases. She said many of her neighbors have lived in their apartments for decades, fostering a strong community.

“It has been life-saving to not have to move every year,” she said. “I know I’m not going to get kicked out, I know my rent isn’t going to increase [significantly] and I know I’m going to get to stay here as long as I need.”

Elsewhere in the neighborhood, Meki Tate, 51, said she would likely have to leave New York City if she could no longer live in her rent-stabilized apartment — even though conditions there have deteriorated. Tate said she was injured by a falling piece of ceiling, which limited her employment options and her ability to pay a higher rent. She now works as a self-employed tarot card reader.

She questioned the argument that landlords, like the large firms that have bought up properties, would invest rent increases back into their housing.

“It’s not to say the bad actors become good actors because they have more money, it’s just easier to exploit people who have no other recourse,” Tate said.

But attentive owners with operating costs rising faster than income are getting hit the hardest, Martin said.

He said doing away with current rent regulations would spur lawmakers to craft new policies that allow them to earn more money from rent and better maintain buildings. Landlord groups like the Community Housing Improvement Program have called on the state to let landlords renovate vacant apartments and reset rents for new tenants. The organization issued a report Wednesday highlighting six-figure renovation costs at some rent-stabilized apartments where rents are capped around $1,000 a month.

“Because owners cannot be reasonably reimbursed for the repairs the units remain vacant,” the report states.

Solving the problems could be key to unlocking and rehabbing more affordable housing, said Matthew Murphy, the executive director of NYU’s Furman Center, a housing policy research group.

“A key challenge is finding the middle ground between housing affordability, housing quality and the appropriate financial return for an owner to maintain and invest in a building over a long period of time,” Murphy said. “But while finding this point is easier said than done, it is important to do so in every housing policy and program if the city is to maintain a housing rental housing stock that meets the diverse needs of New York City renters.”