How the Supreme Court is likely to think about New York City’s housing regulation regime

When New Yorkers argue about rent regulation and the city’s nearly 1 million rent-stabilized units, they argue about many different things. They argue about whether the Rent Guidelines Board should increase rents on rent-stabilized units, some arguing that substantial rent increases are too much for tenants and others that low or no increases are unfair to landlords and will reduce the quality of the housing supply. They argue about whether there should be “vacancy decontrol,” or the moving of units out of rent regulation at the end of leases for at least some units, something that was banned by the state legislature in 2019. And they argue about the prevalence of high-income tenants in rent-stabilized units, and whether there should be “luxury decontrol,” something that was also banned in 2019. And much else, too, including how landlords can be compensated for improving apartments, particularly after the legislature limited the ability of landlords to increase rents due to improvements in 2019, but then relaxed this (a bit) in 2024. 

The last mayoral election was largely about these fights, with Zohran Mamdani campaigning on a promised four-year rent freeze for stabilized tenants. I’m not going to adjudicate these arguments for you — you’ve heard them all before, I’m sure. 

But one issue that comes up in debates about rent stabilization is whether some change or another will set in motion a series of events that render the broader system of rent stabilization unconstitutional. These arguments can be difficult to assess because the U.S. Supreme Court, in recent years, has changed several aspects of its takings clause analysis — the primary basis for challenging the law’s constitutionality — even as New York has been reforming its rent stabilization program.

For the uninitiated, the 5th and 14th Amendments require the government to pay “just compensation” if it engages in a “taking” of property — something that is easy enough to determine in the case of government taking ownership of a piece of property, but that can be conceptually and doctrinally complicated when owners of property argue that regulations have become so severe that they amount to a taking. (I’m leaving aside arguments that limits on rent increases violate state law, something recently addressed well in Vital City.)

First, depending on your perspective, the good or bad news: It is very unlikely that the Supreme Court will find the whole system unconstitutional. Courts have repeatedly upheld rent-regulation regimes, and in 2024 the Supreme Court declined to hear sweeping challenges to New York’s current system. But the content of some of the more aggressive parts of the state legislature’s 2019 changes to rent stabilization and some of the Court’s new decisions have raised real questions about the constitutionality of particular aspects of rent stabilization. Indeed, a recently filed case — one brought by owners of “zombie apartments,” who claim that their vacant apartments can’t be rented out profitably due to the legal limits on the ability of owners to recoup investments in needed renovations — may be the first in a series of these targeted challenges. 

Here’s a guide to the types of challenges that can be, and have been, brought against rent stabilization. Broad-based challenges to the existence of rent stabilization are unlikely to succeed, but there are a number of narrower challenges — from owners of “zombie apartments,” from owners seeking to move back into their own units, or from developers required to build rent-regulated units as a condition for building new apartments — that might. Any one of these cases could upend local politics and housing markets to different degrees. 

Broadsides

Repeatedly over the last 100 years, the Supreme Court has found that rent regulation is a constitutional exercise of what’s known as the police power and is not an unconstitutional “taking” of property under the 5th and 14th Amendments. The test the Court now uses to analyze claims that regulations amount to takings is called the Penn Central test, named after a case that challenged the application of New York City’s landmark laws to Grand Central Station. It’s very deferential to public regulations. 

 After the massive 2019 changes to rent stabilization, several landlords brought lawsuits that offered the Supreme Court a chance to reverse itself, but it declined to hear the case. Even Justice Clarence Thomas, who wrote a statement respecting the denial of certiorari in one of the cases that suggested an openness to challenges to the rent stabilization laws, asked for more narrow claims about specific applications of rent stabilization, rather than broad challenges to the overall system. 

That said, the Court has reversed a number of long-standing precedents recently, so I suppose you never know. 

“Zombie apartments”

The more serious current line of attack is narrower. It focuses on vacant apartments that owners say cannot realistically be returned to the market because the legal rent is too low to justify the cost of renovation. That argument became more salient after the 2019 reforms to rent stabilization laws sharply restricted rent increases for vacant apartments and for “Individual Apartment Improvements,” or in response to renovations. (A 2024 reform raised the cap on IAIs, but did not undo the broader changes.) The 2019 law also ended vacancy decontrol, which allowed vacant apartments with higher rents to leave the rent stabilization system. 

In Lucas v. South Carolina Coastal Council, the Court held that a regulation becomes a “per se” taking by the government — that is, it doesn’t have to go through the Penn Central balancing test and is simply determined to be a taking and thus require compensation — if it deprives property of all economically beneficial or productive use. Landlords recently brought a case that argued that specific apartments they owned needed too many renovations and were limited to charging rents too low to have any economic utility. A key question in the case is whether “hardship” provisions inside the rent stabilization laws, which allow landlords to argue for emergency rent increases under certain limited circumstances, are sufficient to protect these landlords (and thus make their constitutional claims unsuccessful). 

Although the outcome of the case is not certain, this amounts to a serious challenge to rent stabilization. If Mayor Mamdani is successful, as expected, and the Rent Guidelines Board approves a rent freeze, while costs like insurance continue to rise, the number of vacant units that a landlord cannot profitably rent out will likely increase. (How many units this is true of is the subject of substantial debate.) That said, while the landlord plaintiffs in the new challenge have asked for broad remedies, like an end to vacancy control, the city may be able to get out from under such a decision by allowing rent increases in these “zombie” units — effectively a stronger, judicially imposed “hardship” exception — rather than ordering fundamental change to the rent stabilization system. 

Owner re-entry

The 2019 state reforms also tightened owner-occupancy rules. Under current law, an owner generally may only take one rent-regulated unit out of the rental market for the owner’s or an immediate family member’s primary residence, and only on a showing of immediate and compelling necessity. The elderly, disabled and long-term tenants receive additional protections.

Could this rule be challenged? Possibly. In Cedar Point Nursery v. Hassid, the Supreme Court held that a California state law that required farmers to provide union organizers with temporary access to their farms constituted a permanent physical occupation, as it removed farm owners’ right to exclude. (Interestingly, this case is a direct descendant of another New York City case, one in which the Court held that requirements that apartment buildings allow for cable television boxes and wires constituted a physical taking.) Cedar Point’s focus on the right to exclude suggests that rent regulations that limit the ability of owners to move back into their own apartments may be the kind of thing the Supreme Court has in its sights as the next extension of its takings jurisprudence.

This issue came up in the post-2019 challenges to rent stabilization and was rejected by the Second Circuit Court of Appeals. But the court noted that the plaintiffs had not actually tried to remove a tenant for personal use, and therefore had not pleaded sufficient facts to bring this kind of “as applied” challenge. 

If a challenge of this sort succeeded, and the Supreme Court held that owners must have the power to reoccupy their units, it could have a huge effect on New York’s system of rent stabilization. Owners of rent-stabilized units would have an incentive to sell to individuals who want to move in, to turn rentals into condos, leading to a very substantial flow of units out of the rent stabilization system.

Inclusionary zoning

One of the most contested parts of New York’s broader system of rent regulations is its “mandatory inclusionary housing” policy, under which new buildings in rezoned areas must include at least certain amounts of below-market-rate subsidized rents. The Court in recent years has built out its “exactions” doctrine, holding that governments cannot condition a land-use permit on surrendering money or property unless the condition bears an “essential nexus” and “rough proportionality” to the development’s impacts. That is, the condition must mitigate the effects the development itself has on the community, and must not be excessively harsh given the size of those effects. Recently, the Court has expanded this doctrine in a number of ways, including applying it to monetary conditions (i.e. requirements that developers pay money for the right to build.)

A number of courts have considered whether inclusionary zoning amounts to an “exaction,” meaning the demand of a payment or property in return for the right to build. Doing so requires answering two separate questions — whether inclusionary zoning is a condition at all, and whether it can be justified. 

From one perspective, inclusionary zoning is a condition, as a building permit is being conditioned on an agreement to rent out units at below market rents. From another perspective — one adopted by the California Supreme Court — an inclusionary zoning requirement is just a normal zoning regulation, akin to a limit on the height of a building, something that has been constitutional since Village of Euclid v. Ambler Realty. The problem is that any regulation can be restated as a condition — a three-story height limit can be described as a rule that says “you can’t build unless you agree to build fewer than three stories.” As a result, it is conceptually difficult to say whether policies create ordinarily valid use regulations or conditions that may raise concerns under the Court’s takings clause jurisprudence. Given the ubiquity of inclusionary zoning regulations, the Supreme Court is going to have to clear this up at some point.

If the Court does determine that an inclusionary zoning regulation is a condition, it is likely to find that it is a taking. Jurisdictions pass inclusionary zoning regulations on builders of market-rate housing to encourage the creation of below-market-rate “affordable” housing. But new market-rate buildings don’t exacerbate the need for affordable housing. Instead, by inducing “chains of moves,” economists have shown that they lead to lower rents, even very nearby. This is the longstanding “irony of inclusionary zoning.” It is a tax on a product (new buildings) that would, on its own, reduce the problem the regulation is trying to solve. Governments might try to challenge this well-established social science finding, arguing that it is not true in a particular context, or would offer other justifications for the regulation, like neighborhood economic diversity. But it seems pretty likely that courts would reject these arguments, at least in most cases. 

However, even if New York City’s inclusionary zoning regulations are found unconstitutional, tax law might save parts of the basic setup. Under New York’s old 421-a program and its replacement 485-x program, builders in certain areas get partial exemptions from property taxes if they meet certain conditions, one of which is including affordable units. (The percentage and the rents vary with the size and location of the project.) It’s pretty clear that a voluntary tax incentive is not a conditional taking. And builders frequently need the tax exemption because of New York City’s punishing property tax regime for apartment buildings.

Further, it’s not exactly clear what the effect of removing inclusionary zoning would be on building in New York. The effect would depend on what else the City does. If the City responded to a Court decision banning inclusionary zoning by downzoning, arguing that if housing is not going to be “affordable,” it shouldn’t be built at all, then the decision wouldn’t encourage building. On the other hand, if the City responded by either allowing existing zoning rules to stay or, better yet, further relaxing zoning to encourage construction, it would lead to much more building. 

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Given the ideological balance on the Supreme Court, a successful constitutional challenge to aspects of rent stabilization has felt like the shoe that hasn’t dropped in local housing politics for quite a while. While there is a decent — quite good, even — chance the Court never takes this up, everyone on both sides of these fights should be ready in case they do. Washington could scramble New York politics, public policy and economics for the umpteenth time.