Answer extracted from the Coffee & Cap Rates: Commercial Real Estate Podcast podcast — listen to the full episode below.
How has the confluence of HSTPA, COVID-19, rising interest rates, and insurance costs created a perfect storm for rent-stabilized building operations?
Four separate financial shocks have converged on rent-stabilized buildings simultaneously: the Housing Stability and Tenant Protection Act of 2019 (HSTPA) capped rent growth on vacant units; COVID-19 created persistent 10–20% collection losses and economic vacancy that persists into 2026; interest rates spiked in 2022, multiplying debt burdens; and insurance premiums surged dramatically. Together, these forces have squeezed owner finances so tightly that building violations and Alternative Enforcement Program violations have risen sharply—like a hockey stick since 2022—because owners can no longer afford basic maintenance and repairs.
The cascade: Four shocks hitting simultaneously
HSTPA was passed in 2019 specifically to restrict rent growth on vacant apartments, preventing what the law called "vacancy bonuses." In principle, this protected tenancy rights; in practice, it removed a critical revenue lever for building owners. When combined with the pandemic's economic shock starting in 2020, the effect became devastating.
COVID-19 didn't just create temporary vacancy—it fractured the collection model. Landlords faced 10–15–20% collection problems across their portfolios, and those problems have never fully healed. Tenant nonpayment and economic vacancy, when layered on top of a law that forbids raising rents on empty units, meant cash flow simply vanished.
Then in 2022, the Federal Reserve's aggressive rate hikes hit. For owners already carrying debt on aging buildings, the jump in interest rates translated directly to higher debt service and squeezed reserves even further. A building that was barely managing suddenly faced refinancing costs that made operations unsustainable.
Finally, insurance premiums exploded. Labor costs, litigation risk, and property damage claims all spiked, and rent-stabilized buildings—many built before 1974, with aging systems and higher maintenance risk—saw the largest percentage increases. As Kenny Burgos explains in the episode, owners reached the breaking point.
The physical consequence: Deferred maintenance becomes policy
When owners run out of money, they don't stop operations immediately—they defer maintenance. They skip elevator servicing, delay roof repairs, postpone plumbing fixes, reduce staffing. This is not neglect born of greed; it is financial constraint forcing a choice.
The result is visible in violation data: building violations and Alternative Enforcement Program (AEP) violations have risen sharply since 2022, almost like a hockey stick. These are not violations born of negligence but of owners who genuinely cannot afford to fix problems at the pace the city expects.
Over 80% of the rent-stabilized stock consists of pre-1974 buildings—older structures with outdated infrastructure and higher baseline maintenance needs. A younger building might survive a cash crunch with minor deferrals; a 50-year-old building cannot.
"A vacancy reset does not increase rent on any single in-place tenant today, it doesn't cost the city or state government a dollar, and it brings housing supply on the market, softening free market rents."
Kenny Burgos — CEO of NAYA (New York Apartment Association), lifelong Bronx native and former New York State Assembly member who served during the Biden administration and specialized in housing policy. Burgos advocates for market-based solutions within rent stabilization, arguing that allowing owners to reset rents on vacant units would preserve both the building stock and the principle of tenant protection for occupied apartments.
Burgos's point highlights the policy dilemma: HSTPA was designed to protect tenants, but by removing the vacancy reset mechanism entirely, it has inadvertently destabilized the entire building stock. Owners lack the financial flexibility to weather multiple simultaneous shocks.
Why this matters: The market signal is clear
The Q1 2026 transaction data tells the story: while multifamily transactions hit $2.4 billion, rent-stabilized deals were dominated by a single $451 million Flagstar bankruptcy transaction. That one forced sale accounted for nearly all significant rent-stabilized volume—a sign that the market has nearly frozen because asset values have collapsed and owners are trapped.
Building valuations in the rent-stabilized sector have fallen 50–60% since 2019. In the Bronx, per-unit sale prices have dropped to $50,000 or even lower—pricing levels not seen since the 1980s. An owner who bought at 2015 or 2016 prices is underwater; refinancing is impossible; selling is a loss.
The perfect storm has left owners with no exit, no capital, and mounting violations. As the full episode explores, this dynamic has profound implications for housing supply and urban stability.
Key takeaways
- HSTPA's vacancy control mechanism eliminated a critical revenue tool for owners, coinciding with the COVID-19 collapse and persistent 10–20% collection losses.
- Rising interest rates in 2022 multiplied debt service costs for rent-stabilized building owners already stretched by pandemic cash flow losses.
- Insurance premiums surged dramatically, hitting pre-1974 buildings (80% of the stock) disproportionately hard due to aging systems and higher risk profiles.
- Building violations and Alternative Enforcement Program violations have risen sharply since 2022 as owners defer maintenance to survive financially, not out of negligence.
- Rent-stabilized valuations have crashed 50–60% since 2019; per-unit sale prices in the Bronx have fallen to 1980s levels, leaving owners trapped with no viable refinancing or exit.
See also
What specific policy mechanism in New York's 2019 rent stabilization law has had the most devastating impact on housing supply and building valuations?
The implementation of vacancy control is the most critical component that has broken the rent-stabilized housing market. It regulates empty apartments such that rents cannot reset to market levels when tenants vacate, eliminating a crucial revenue lever for owners and creating a perverse incentive to defer maintenance and reduce building quality.
What key market indicators should commercial real estate investors monitor going forward?
Investors should watch interest rates as a top priority, monitor changes in the economy and stock market that could affect property fundamentals, track rent growth and vacancy trends, and pay close attention to regulatory changes in New York and other jurisdictions that could impact returns.
How are retail property markets changing in terms of investor ownership patterns?
Brands are increasingly buying their own permanent retail locations rather than leasing. Examples include VanCleef purchasing their own lease on Madison Avenue, representing a broader shift toward direct real estate ownership among major operators seeking control and long-term stability.