Community Housing Improvement Program v. City of New YorkCommunity Housing Improvement Program v. City of New York
The New York City Rent Stabilization Law (“RSL”) was first enacted in 1969 as part of a decades-long legislative effort to address the myriad problems resulting from a chronic shortage of affordable housing in the City. The RSL is designed to prevent excessive rent levels and to ensure that property owners can earn a reasonable return by, among other things, capping rent increases and limiting the legal grounds for evictions. Over time, however, the Legislature has amended the law in response to changing political and economic conditions. Sometimes the statute has provided stronger protections for tenants and at other times for property owners. The RSL was most recently amended by the Housing Stability and Tenant Protection Act of 2019 (“HSTPA”). The constitutionality of this amendment and of the RSL as amended are the subject of this appeal.
BACKGROUND
In an entirely unregulated market, rent levels are governed solely by the law of supply and demand.1 See Brief for Nat’l Ass’n of Realtors as Amicus Curiae at 19. Such a market, however, can be unforgiving. It has little regard for the consequences it produces, whether they are inadequate returns on investment,
exorbitant
The City’s first rent regulations were passed in response to severe housing shortages around the time of World War I.2 The war caused new construction to fall and rents to soar.3 In response, renters organized rent strikes, and escalating confrontations between landlords and tenants ensued.4 Ultimately, the State Legislature stepped in and passed the City’s first rent control program in 1920, which capped rent increases and prevented evictions without cause.5 The regime, which expired after ten years, was the subject of ongoing litigation.6 The housing
problems
The next regime of rent control was enacted by the federal government. In 1942, President Franklin D. Roosevelt signed into law the Emergency Price Control Act (EPCA).8 The EPCA was passed in response to inflationary pressures brought about in part by World War II and created a nationwide system of price controls. The law froze New York City rents at 1943 levels for several years until Congress allowed it to expire, replacing it with the Federal Housing and Rent Act of 1947.9 Under that statute, buildings constructed after February 1, 1947, were exempted from controls while older buildings remained covered.
A few years later, Congress passed the 1949 Federal Housing Act, which permitted States to take control of rent regulation.10 Then, in 1950, New York created the Temporary State Housing Rent Commission, which regulated landlord-tenant relationships—including over 2 million rental units in the City.11
Those
The City’s modern regime of rent regulations was introduced in 1969 by the RSL. The RSL established the Rent Guidelines Board (“RGB”)—an official body whose members represent the interests of landlords, tenants, and the public—which was charged with setting the amounts by which rents could be increased.12 In carrying out this function, the RGB was obligated to consider the economic condition of the housing market, certain costs for which landlords were responsible, the returns generated to landlords, the housing supply, and increases to the cost of living.13
The RSL has been amended several times. In 1971, for example, the State passed the Emergency Tenant Protection Act (“ETPA”), which permits the City to renew the protections of the RSL when it declares a “housing emergency” based upon a set of statutory criteria.
1993,
Recently, the RSL was amended by the HSTPA,16 which was passed in “response to an ongoing housing shortage crisis, as evidenced by an extremely low vacancy rate” that caused tenants to “struggle to secure safe, affordable housing” and municipalities to “struggle to protect their regulated housing stock.” Sponsor’s Mem., 2019 N.Y. Laws ch. 36. The HSTPA limited landlords’ capacity to charge excess rent attributed to major capital improvements and individual apartment improvements. See 2019 N.Y. Laws ch. 36, Part K. The law repealed vacancy decontrol and high-income decontrol, which had removed units from regulation when the rent or tenant’s income reached a specified level. The law also repealed certain vacancy and longevity increases, which had permitted landlords to raise rents above the otherwise allowable amounts if a unit became vacant or if a tenant had remained in place for an extended period. See id., Parts B & D. In addition, the law limits landlords to recovering one rent-stabilized unit per building for personal use upon a showing of necessity, with additional restrictions
when
This regulatory regime has all along been the subject of sharp disagreements: landlords believed that their investment returns were too low and that they retained too little control over their properties while tenants believed that their rents were too high. Landlords in particular have consistently contended the regulations impeded their ability collect sufficient rents to fund required maintenance and improvements and to generate reasonable investment returns. Landlords have consistently contended that the RSL has failed to achieve its stated goal of increasing the availability of housing to low- and moderate-income residents.17
The Appellees, on the other hand, contend that the RSL did not go far enough to enable people of modest incomes to live in the City.18 They further contend that in enacting the RSL, New York’s elected representatives were well aware of the role that rent stabilized housing played in increasing the supply of apartments for low- and moderate-income residents and reducing community
disruption
The City contends that the vast majority of those who benefit from rent stabilization are low- and middle-income people. In 2016, the median income for rent stabilized households was $44,560, one third lower than the median income for private, non-regulated households.20 Of the city’s 946,000 rent stabilized apartments, 189,000 units (20%) were occupied by families living below the poverty line. And more than 600,000 units (64%) were occupied by families who qualify under HUD classifications as low-income, very low-income, or extremely low-income. Eliminating rent stabilization, the Appellees contend, would undoubtedly result in a surge of homelessness. It would also result in a dynamic whereby large swaths of essential workers who help maintain our vibrant City,
including
Throughout its life, this regulatory regime has been the subject of continual attention in the State and City Legislatures. This is hardly surprising. Striking an appropriate balance between the sharply diverging interests of landlords and tenants involves negotiation and compromise over a very long list of complicated and difficult questions. Resolving such questions is a quintessential function of a legislature. At the end of the day, it is highly probable—indeed, virtually certain—that no interested party will be entirely satisfied by what the legislature does.
Rent regulation in the City has also been the subject of decades of litigation. Property owners have challenged New York rent control and stabilization regulations on a host of grounds, contending that it violates the Takings Clause,
the
PROCEDURAL HISTORY
After the passage of the HSTPA, the Landlords sued the Appellees in the United States District Court for the Eastern District of New York. They alleged that the newly amended RSL effected, facially, a physical as well as a regulatory taking and that it violated the
An
The court next turned to the substantial difficulties associated with facial regulatory takings challenges. It observed that the Landlords were unable to identify a case where a facial challenge to rent-control-related legislation had succeeded. The court acknowledged the possibility that the RSL could effect an as-applied regulatory taking, but noted that “it is unlikely that [it] will be identified in the context of a facial challenge.” Id. at 45.
Next, applying factors set forth in Penn Central Transp. Co. v. City of New York, 438 U.S. 104, 124 (1978)—economic impact, interference with investment-backed expectations, and character of the governmental action—the court
DISCUSSION
I
A
The Landlords have leveled a facial challenge to the RSL. To prevail on a facial challenge, the plaintiff must “establish that no set of circumstances exists under which the [challenged] Act would be valid.” United States v. Salerno, 481 U.S. 739, 745 (1987). In other words, the plaintiff must show that the statute “is unconstitutional in all of its applications.” Wash. State Grange v. Wash. State Rep. Party, 552 U.S. 442, 449 (2008). Facial challenges to the RSL have regularly fallen short of this high bar. See, e.g., Rent Stabilization Ass’n v. Dinkins, 5 F.3d at 595; W. 95 Hous. Corp., 31 F. App’x at 21. The Landlords suggest, however, that this is no longer the correct standard to apply to the facial challenges they bring. They contend that, instead of applying Salerno’s well-established standard, this Court should utilize one of two more lenient approaches to striking down statutes on a facial challenge. We disagree.
They
In Patel, the Supreme Court considered a facial challenge to a statute authorizing certain warrantless searches. Id. at 417. In response to the challenge, the City cited situations in which a warrant was not required under already established law: that is, “situations where police are responding to an emergency, where the subject of the search consents to the intrusion, and where police are acting under a court-ordered warrant.” Id. at 417–18. It argued that those situations showed that a warrantless search was permissible in some circumstances, and so the new law permitting certain warrantless searches could not be “unconstitutional in all of its applications,” as Salerno required. Id. The Court
As a separate basis for avoiding the rigors of Salerno, the Landlords rely on United States v. Stevens, 559 U.S. 460 (2010), arguing that to succeed on their facial challenge, they need only establish either “‘that no set of circumstances exists under which [the statute] would be valid, or that the statute lacks any plainly legitimate sweep.’” Appellants’ Br. at 35 (quoting Stevens, 559 U.S. at 472) (emphasis in brief). The Landlords contend that, in its use of the phrase “plainly legitimate sweep,” the Stevens Court held that a facial challenge in any legal
In Stevens, a criminal defendant challenged the statute of his conviction—criminalizing the creation, sale, or possession of depictions of animal cruelty—as facially invalid under the
We understand Stevens, then, not as rejecting Salerno’s demanding standards for facial challenges generally, but as reinforcing the principles that (i) Salerno provides the prevailing standard for facial challenges to statutes outside the context of the
B
The Takings Clause of the
The Supreme Court has, over the years, considered various Takings Clause challenges to government actions. See e.g., Griggs v. Allegheny Cnty., Pa., 369 U.S. 84 (1962); Nollan v. California Coastal Comm’n, 483 U.S. 825 (1987); Arkansas Game & Fish Comm’n v. United States, 568 U.S. 23 (2012). In Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982), the Supreme Court considered a statute requiring landlords to permit cable companies to install equipment on the landlords’ properties. The Court held that such a mandatory invasion amounted to a permanent physical occupation by a third party—the cable companies—of the landlords’ properties and was therefore a per se physical taking. In addition, the
A decade later, in Yee v. City of Escondido, 503 U.S. 519 (1992), the Court declined to apply to this logic to rent-control laws and rejected a Takings Clause challenge. Yee involved a mobile-home rent control ordinance that set rent at below-market rates. The Court held that the ordinance—even considered in conjunction with other state laws effectively permitting tenants to remain at will—was not a physical taking. It reasoned that the statutes did not facially require landlords to rent their properties in perpetuity because evictions were permitted in some conditions, id. at 528, and because the “tenants were invited by petitioners, not forced upon them by the government,” id. The Court further noted that States have wide latitude to regulate the landlord-tenant relationship, such as by placing “ceilings on the rents the landowner can charge or requiring the landowner to accept tenants he does not like.” Id. at 529 (cleaned up).
In Horne, in contrast, the Court found that a physical taking had occurred. In that case the Court considered a challenge to a Department of Agriculture marketing order requiring raisin growers to hand over a percentage of their crop to the government. 576 U.S. at 350. The Court held that the statute effected a
Most recently, in Cedar Point the Court evaluated a regulation granting labor organizations the “right to take access” to an agricultural employer‘s property for up to 120 days a year to solicit support for unionization. 141 S. Ct. at 2069. The Court held that because the regulation granted a right to invade the grower‘s property it amounted to a per se physical taking. Id. at 2072. Cedar Point, however, emphasized that “[l]imitations on how a business generally open to the public may treat individuals ... are readily distinguishable from regulations granting a right to invade property closed to the public.” Id. at 2076–77.
Our court has also considered various Takings Clause challenges to regulations, including some to earlier versions of New York‘s RSL. See, e.g., Southview Assocs., Ltd. v. Bongartz, 980 F.2d 84, 94–95 (2d Cir. 1992) (finding that denying a land use permit did not constitute a physical taking); Fed. Home Loan Mortg. Corp., 83 F.3d at 48 (finding application of rent stabilization
B
Applying these principles, we conclude that no provision of the RSL effects, facially, a physical occupation of the Landlords’ properties. In Cedar Point, the Court held that the government may effect a physical occupation of property by granting a third party the right to invade “property closed to the public.” 141 S. Ct. at 2077.22 That has not occurred here. Rather, the Landlords voluntarily invited third parties to use their properties, and as the Court explained in Cedar Point, regulations concerning such properties are “readily distinguishable” from those compelling invasions of properties closed to the public. Id. As the Supreme Court made pellucid in Yee, when, as here, “a landowner decides to rent his land to tenants” the States “have broad power to regulate housing conditions in general and the landlord-tenant relationship in particular without paying compensation
Nor does the RSL compel the Landlords “to refrain in perpetuity from terminating a tenancy.” Yee, 503 U.S. at 528. The statute sets forth several grounds on which a landlord may terminate a lease. These include failing to pay rent, creating a nuisance, violating provisions of the lease, or using the property for illegal purposes.
All in all, as with previous versions, the RSL “regulates land use rather than effecting a physical occupation.” W. 95 Hous. Corp., 31 F. App‘x at 21. The caselaw is exceptionally clear that legislatures enjoy broad authority to regulate land use without running afoul of the Fifth Amendment‘s bar on physical takings. See Yee, 503 U.S. at 527.
C
The Landlords contend that the RSL effects, facially, a physical taking because it requires them to offer tenants renewal leases, interferes with their ability to evict tenants and reclaim units for personal use, and allows tenancies to be
We disagree. None of these provisions involve unconditional requirements imposed by the legislature. Landlords, instead, must adhere to these provisions only when certain conditions are met. Consider, for example, the statute‘s successorship provisions. No tenant enjoys an unfettered right to transfer tenancy rights to a successor. Instead, the successor must meet a host of requirements, such as, for example, being a member of the tenant‘s family who has already lived in the apartment for two years. What is more, even assuming arguendo that the successorship provisions do unconditionally require landlords to rent to uninvited successors, that would deprive the Landlords only of the ability to decide who their incoming tenants are. That limitation, as the Supreme Court has recognized, has “nothing to do with whether [a law or regulation] causes a physical taking.” Id. at 530–31.
Furthermore, none of the caselaw on which the Landlords rely lends any appreciable support to their contention that the RSL effects, facially, a physical taking. The Landlords’ reliance on Loretto, Horne, and Cedar Point, their main authority, is misplaced for a common reason: None of them concerns a statute that
Moreover, Yee, the only case on which the Landlords rely that does involve a statute regulating the landlord-tenant relationship, confirms our conclusion. Yee, as noted, involved a facial challenge to rent control statutes that limited owners’ ability to terminate tenancies where the initial tenant had transferred her rights to another. 503 U.S. at 523–24. Like the Landlords here, the petitioners argued that the law effectively forced property owners to rent the property out to these individuals and prevented owners from changing the use of their property. The Court upheld the law because it merely limited—but did not bar—an owners’ ability to do both of these things. Id. at 527–28. The same is true here.
II
The Landlords also mount a facial regulatory taking challenge to the RSL. Legislation effects a regulatory taking when it goes “too far” in restricting a landowner‘s ability to use his own property. Horne, 576 U.S. at 360; Yee, 503 U.S. at 529; Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, 415 (1922). In determining whether a use restriction effects a taking, we apply the balancing test set out in Penn Central Transp. Co. v. City of New York, 438 U.S. 104 (1978), a case involving a challenge to New York City‘s historical preservation law,
Penn Central instructs courts to engage in a flexible, “ad hoc, factual inquir[y]” focused on “several factors that have particular significance.” 438 U.S. at 124. Three of them are: (1) “the economic impact of the regulation on the claimant,” (2) “the extent to which the regulation has interfered with distinct investment-backed expectations,” and (3) “the character of the governmental action.” Id. The Landlords assert that, taken together, these factors support their characterization of the RSL as a facial regulatory taking. We disagree.
The RSL may well have an appreciable economic impact on the profitability of some buildings subject to its provisions. When permissible rent increases are outpaced by operating cost increases, the result may be a reduction or, in some cases, the elimination of net operating income. We acknowledge that some property owners may be legitimately aggrieved by the diminished value of their rent-stabilized properties as compared with their market-rate units. Furthermore, we understand that many economists argue that rent control laws are an inefficient way of ensuring a supply of affordable housing. But while legislative judgments may take into account these varying policy perspectives, we are bound to follow the standard set forth for a facial regulatory taking under Penn Central. Appellants
Instead of alleging that every landlord has suffered an adverse economic impact, the Landlords principally rely on data purporting to show the average economic effects of the RSL. But these effects do not establish that the RSL can never be applied constitutionally, which is the requirement for a facial challenge. As the Supreme Court stated in Concrete Pipe & Prods. of Cal., the “mere diminution in the value of property, however serious, is insufficient to demonstrate a taking.” Concrete Pipe & Prods. of Cal. v. Constr. Laborers Pension Tr., 508 U.S. 602, 645 (1993); see also Park Ave. Tower Assocs. v. City of New York, 746 F.2d 135, 139–40 (2d Cir. 1984) (collecting cases rejecting takings claims where property value declined by 75% to 90%). We therefore conclude that the economic impact factor of the Penn Central analysis does not support the Landlords.
With respect to the Landlords’ investment-backed expectations, once again, we can assume arguendo that some property owners may have had their
Different landlords, who purchased properties at different times and under different RSL regimes, will necessarily have a range of differing expectations. Some may have been aggrieved by various provisions of the RSL, while others may not have been and, indeed, others may have seen the profitability of their investments rise. It is therefore impracticable to assess a class of owners’ expectations without analysis on an individualized basis. Moreover, we must consider the reasonableness of alleged investment-backed expectations vis-à-vis those who can “demonstrate that they bought their property in reliance on a state of affairs that did not include the challenged regulatory regime.” Allen v. Cuomo, 100 F.3d 253, 262 (2d Cir. 1996) (internal quotation marks omitted). We cannot make that analysis on a groupwide basis in a case where, as here, the challenged
Turning to the character of the taking, a regulatory taking “may more readily be found when the interference with property can be characterized as a physical invasion by government.” Penn Central, 438 U.S. at 124. The Landlords argue that the RSL constitutes a physical invasion because it burdens property owners with non-removable tenants and, in so doing, eliminates landlords’ rights to determine the use of their property or to use it themselves. They contend that the RSL confers a local public assistance benefit on tenants that is inappropriately funded by a subset of New York City building owners rather than the government.
Here too, the RSL is part of a comprehensive regulatory regime that governs nearly one million units. Like the broad public interests at issue in Penn Central, here, the legislature has determined that the RSL is necessary to prevent “serious threats to the public health, safety and general welfare.”
Finally, the Landlords urge this Court to consider two additional, less commonly cited Penn Central factors that, they argue, tend to show that the RSL results in a regulatory taking: noxious use and a lack of a reciprocal advantage. Even assuming for the sake of argument that these factors apply, the claims fail.
First, the Landlords assert that because the RSL does not address a safety issue or “noxious use” of a property, this factor supports the conclusion that a regulatory taking has occurred. This argument relies on a logical fallacy that because noxious use laws typically do not constitute takings, the RSL must be a taking because it does not govern noxious use. We have never held that only regulations of noxious uses can survive takings challenges. Merely because the existence of noxious use regulation can overcome a takings challenge does not mean that, conversely, the lack of noxious use regulation supports a takings challenge. Accordingly, this factor does not support the Landlords’ takings claim.
III
Finally, the Landlords contend that they have plausibly alleged that the RSL and the 2018 City Council emergency declaration violate the Due Process Clause
But as the Supreme Court has noted, the Due Process Clause cannot “do the work of the Takings Clause” because “where a particular Amendment provides an explicit textual source of constitutional protection against a particular sort of government behavior, that Amendment, not the more generalized notion of substantive due process, must be the guide for analyzing these claims.” Stop the Beach Renourishment, Inc. v. Fla. Dep‘t of Envtl. Prot., 560 U.S. 702, 720–21 (2010) (cleaned up); see Albright v. Oliver, 510 U.S. 266, 273 (1994); Harmon, 412 F. App‘x at 423. In any event, as the Court has noted, the liberties protected by due process “do not include economic liberties.” Stop the Beach, 560 U.S. at 721.
CONCLUSION
For these reasons, we AFFIRM the judgment of the District Court.