By Joshua Burd
The state’s commercial real estate industry is pushing back on a new ordinance in Newark that aims to limit rent increases at new, non-rent-controlled apartment buildings, arguing it will stifle development and the creation of affordable housing — while openly doubting its legality.
The ordinance, which the city council adopted last week, imposes fines of up to $1,200 for each unit in which a landlord raises rent by more than 5 percent in a single year. The measure applies to properties that are not subject to rent control laws — which equates to 30 percent of the city’s rental housing, including all new construction — and defines such increases as “unconscionable,” citing language that appears in a state anti-eviction law.
While Mayor Ras Baraka said the law is aimed at preserving affordability, critics say it will have the opposite effect.
“Newark is a difficult place to develop to start with,” said Chris Murphy, a land use attorney and partner with Murphy Schiller & Wilkes LLP. “I think it’s going to be incredibly difficult if something like this moves forward and isn’t challenged.”
Murphy, whose firm is based in Newark, noted that state law exempts newly constructed apartments from local rent control for a period of 30 years. That’s meant to align with a typical mortgage financing period, he said, with the “clear policy rationale” of encouraging new development that can expand the housing stock.
But the Newark ordinance “tries to create a workaround” of the 30-year exemption and will make it challenging for builders to finance new construction, Murphy said. That will cause them to think twice about developing in the city, he added, which will only fuel rent growth by constricting new supply.
“I get the underlying sentiment that we need to keep Newark affordable for the people that are here, but I don’t think this is the solution,” he said. “All this is going to do is create less housing because fewer people are going to develop.”
Nicholas Kikis, the New Jersey Apartment Association’s vice president for legislative and regulatory affairs, echoed those concerns. He believes the city is “on a very weak legal footing in doing this, and a cap on rent increases on newly constructed units is completely indistinguishable from rent control,” he said, while it figures to have “a direct detrimental impact on development.”
“Newark has always had less new construction than a city of its size should have,” Kikis said. “And now you’re looking at a policy like this that’s only going to make it harder.”
The city council approved the ordinance on June 7. In announcing the vote, Baraka said the measure was necessary because Newark residents not protected by rent control are seeing housing costs rise faster than income growth. To that end, he cited Zillow data that shows the city’s average rent increased in 2022 by 11.2 percent, from $1,802.50 to $2,004.78.
He added that the city’s Office of Tenant Legal Services, which provides free legal services for low-income tenants facing eviction, reports that those residents have faced rent increases of up to $945 in the East Ward, $816 in the South Ward, $750 in the Central Ward, $550 in the North Ward and $445 in the West Ward.
“Newark faces a crisis of affordability,” Baraka said in a news release, later adding: “The Unconscionable Rent Increase Ordinance is one important step that we have taken toward keeping Newark affordable. It’s not the only one, but it’s a big step toward continuing to be the kind of culturally and economically diverse city that makes Newark so special.”
Those other steps have included an update to the city’s Inclusionary Zoning Ordinance, requiring that any project over 30 units set aside 20 percent as affordable housing. But critics of the newest measure argue that, if developers pull out of the city, the housing supply will remain flat across all price points.
Murphy pointed to the backlash in St. Paul, Minnesota, where voters in 2021 approved a hard annual cap of 3 percent on rent hikes for apartments. The number of units approved under new construction permits in the city plunged by 48 percent in 2022, according to published reports, which cited data from the U.S. Department of Housing and Urban Development.
City officials in St. Paul later approved a 20-year exemption for new construction.
“There’s a public policy rationale for why new apartment units are not subject to rent control,” Murphy said. He added that Newark’s inclusionary zoning rules already protect lower-income renters that end up in new buildings, given that rates are based on the area median income.
What’s more, he said, there is no legal connection between the new ordinance and the state Anti-Eviction Law on which it’s based. The latter allows tenants who are facing eviction to use an “unconscionable” rent increase as a defense in landlord-tenant court — and makes no mention of rent control — meaning the Newark ordinance is a “workaround” that he feels is not legal.
“Even if somebody challenges it and it is overturned, it’s another year where people say, ‘You know what, I’m going to hold off on Newark for a little while,’” Murphy said. “Is that good for anyone? I don’t think so.”
Kikis, meantime, said housing affordability is a statewide crisis that is closely tied to the lack of supply. That means the stock of affordable housing is unlikely to grow in municipalities that discourage new construction, he argued, especially for those that rely on so-called inclusionary projects.
“We’re far from where we need to be,” Kikis said. “So we need the private sector to be incentivized to go into places like Newark, which can be a challenging place to do business, and make those investments in new units. And if they’re told from the get-go that the newly constructed units they’ve just invested in are going be rent-controlled before shovels even hit the ground, they’re going to look elsewhere.”
You can’t make it up: Newark’s thinly veiled rent control law is reckless (and illegal)
