At the beginning of this year, New York Governor Kathy Hochul published a 237-page policy book mapping out a “new era” for the state. The book laid out Governor Hochul’s plan for important subjects like housing, healthcare, public safety, climate action, higher education, and more. Last week, Governor Hochul also presented the 2022 Executive Budget to the state senate.
Many of these policy and budget proposals are highly relevant to New York property owners, managers, and renters. Here are three key takeaways to help you better understand their implications:
1. More Inclusive Screening Processes
One notable insight from the proposed changes is that New York will be pushing for more inclusivity in the rental screening process. Specifically, Governor Hochul proposed two pieces of legislation to protect renters from potential discrimination based on their credit or criminal history.
The first proposal, “A Credit to New York”, defines certain conditions that would prevent landlords from automatically denying rental applications due to a negative credit history or low credit scores. If a New York landlord intends to deny an application based on credit history, they must notify the applicant in writing and give the applicant five days to provide evidence of one of the following conditions:
On-time, in-full rental payments for the 12 months preceding the application or 12 months preceding March 2020;
That they receive one or more rental subsidies that will pay their rent in full directly to the landlord;
That the negative credit history or poor credit score is solely due to unpaid student loan or medical debt.
Typically, a poor credit score could signal inability to afford rent or high possibility of defaulting, a risk that most property owners and managers aren’t willing to take. For most landlords in the country, 620 is the minimum acceptable score. New York landlords on average tend to look for a minimum score of 650-700 in prospective tenants. Even though housing providers are encouraged to consider factors beyond credit, it is possible for them to narrow the application pool by credit score if there are many high-quality applicants in a leasing season.
However, when considering prospective tenants, credit scores might not be the most reliable indicator of trustworthiness. Obligo’s Open Banking-based qualification process extracts data from the renter’s bank account, including their net income, rent payment history, and average balance among other factors, to quickly and easily understand renter creditworthiness without the biases and pitfalls of methods like FICO.
Governor Hochul’s second piece of proposal regarding the screening process, “Fair Chance Housing,” will ban private landlords from automatically denying applicants who have been through the criminal justice system. Under the proposed legislation, landlords need to individually assess each case, including the renters’ circumstances of conviction and whether they have rehabilitated.
Supporters of this legislation argue that current background checks disproportionately affect low-income communities or communities of color, and the resulting lack of housing access increases the tendency of individuals with prior convictions to reoffend.
However, multiple landlord groups have spoken out against the proposal, saying that it puts unreasonable expectations on landlords to judge the character of former offenders. Last year, this coalition of opposition also prevented the passage of a proposed city bill to ban background checks altogether.
The state lawmakers’ push for a more inclusive and holistic screening process, while still under debate, reinforces the importance of trust between landlords and renters. Without trust and transparency, it’s impossible to build a rental community that feels safe and comfortable for everyone.
2. Expanding the Housing Supply to Boost Affordability
To make New York a more affordable place to live, the policy book also laid out a series of legislative actions to expand the state’s housing supply.
One noteworthy proposal is the repeal of New York City’s current maximum density of residential floor area. Governor Hochul intends to remove the current density cap of 12 and give the city autonomy to increase the density of residential development when appropriate.
Additionally, the governor has recognized the post-pandemic need for flexible zoning rules that would help convert empty office buildings and hotels into much-needed housing stock. She proposed legislation that will facilitate these conversions. For instance, any Class B Hotel within 800 feet of a residential zoning district will be able to use their current certificate of occupancy for permanent residences, subject to rent stabilization laws.
With the 421a property tax abatement set to expire in June this year, all eyes are on Governor Hochul for a new plan to replace this key incentive for rental property development in New York. This week, the governor released her revision in the executive budget, naming it “Affordable Neighborhoods for New Yorkers (ANNY)”. The new proposal, or 485w, shares a similar framework with the existing 421a tax exemption, but simplifies the options for developers and deepens the level of affordability required. Specifically, it offers two affordability options to qualify for the exemption:
– For rental buildings with 30 or more units, at least 10% of units would need to be affordable to households whose incomes are at 40% of the Area Median Income (AMI). Another 10% of units must be affordable to households earning 60% of AMI, and 5% of units affordable to households earning 80% of AMI.
– For rental buildings with fewer than 30 units, at least 20% of units must be affordable to those with household incomes earning 90% of AMI.
The proposal is a departure from 421a, which offers seven affordability options requiring a certain percentage of units be affordable to household incomes ranging from 40% to 130% of AMI. More details about the 485w proposal can be found in the New York State Senate’s analysis of the executive budget.
3. Pandemic Relief Continues After Eviction Moratorium Ends
New York’s eviction moratorium ended on January 15, which means renters who have been struggling with rent payments might be facing evictions. In the policy book, Governor Hochul proposed a legal assistance program to help renters outside of New York City get free counsel in eviction proceedings. Renters with incomes at or below 200% of the federal poverty line and facing eviction are eligible for the legal support.
Tenant advocacy groups are also banking on the passage of Bill S3082, known as the “good cause eviction” bill, which will essentially put a cap on rent increases for all housing accommodations (with a few exceptions) and protect renters from being evicted without “just cause,” as decided by a judge. The bill is hotly debated as landlord groups worry that it would encourage “permanent tenancy” and damage their ownership rights.
In good news for landlords, Governor Hochul proposed $2 billion of pandemic relief in the executive budget. The Community Housing Improvement Program, a landlord group, has been championing that this is the minimum amount needed statewide to cover unpaid rent from renters impacted by the pandemic. If the proposal passes in April, landlords and renters in need of assistance still might face a month-long wait for funds to be allocated.
How Obligo Can Help
COVID and its associated regulations are still affecting the housing market in New York and all across the country. As the dust settles, New York landlords will have more regulatory rules to digest, understand, and comply with. In the face of constant regulatory changes, Obligo offers a holistic security deposit management solution that helps property owners and managers stay compliant, provides renters with a deposit-free rental option, and simplifies the rental experience for everyone involved. Schedule a demo to learn more!