(Bloomberg) -- The New York state legislature’s agreement on sweeping tenant protections and rent regulations brought a fierce reaction from landlord groups who say it will discourage property improvements and harm the city’s housing market.

In a city where real estate values and rents have an obsessive hold upon its residents, the legislation, hammered out Tuesday by leaders of the Senate and Assembly, shifts the balance sharply toward tenants. The package of bills would limit landlords’ ability to raise rents or remove units from regulation.

Shares of banks that lend to landlords declined in New York trading. Signature Bank fell as much as 4.7%, while New York Community Bank dropped about 5.25%.

The legislation, produced by a legislature controlled by a Democratic Party majority for the first time in decades, would repeal provisions that remove units from rent stabilization when rent crosses a high threshold or when the unit becomes vacant, or if the tenant’s income is $200,000 or higher in the preceding two years. It also eliminates the “vacancy bonus” provision that allows a property owner to raise rents as much as 20% each time a unit becomes vacant.

“What the state legislature has done is create a package of proposals that would single-handedly lead to the destruction of the city’s aging affordable housing stock over time,” said Joseph Strasburg, president of the Rent Stabilization Association, which represents 25,000 landlords among the city’s 1 million rent-stabilized apartments. The legislation would discourage landlords from investing in building improvements, he said.

“Tenants have pounded on Albany’s door for decades for the protections they deserve. We’ve stood with them, fought for them tooth-and-nail, and now the wait is finally over,” said New York City Mayor Bill de Blasio, who called the bills “a remarkable achievement that will halt displacement, harassment and unjust evictions.”

Renters’ advocate groups such as Housing Justice for All, a coalition of tenants’ rights groups pushing for such laws for more than 20 years, said the changes were needed to counter decades of abuse by some landlords and a shrinking supply of affordable housing. More than half of rental apartments in New York City are covered by some kind of rent regulation.

The laws would “end tenant harassment, displacement, destabilization and rising rents,” providing hope that “every renter, from Brooklyn to Buffalo, can live free from the fear of displacement and eviction,” according to a statement from Cea Weaver, campaign coordinator for the housing advocacy group.

Turning Point

“There is no question that this bill represents a major turning point in the decades-long fight between the New York City real estate industry and the statewide tenant movement,” said Mike McKee of the Tenants’ Political Action Committee. “This bill represents a victory for us and a crushing defeat for the real estate lobby.”

Lawmakers said they would most likely vote on the package Friday, a day before the current rent-stabilization laws are set to expire. The deadline set forward a furious effort by landlord groups to try to dissuade lawmakers from approving the bills.

Strasburg said Democratic lawmakers had merely acted to satisfy tenants as a a voting constituency without regard to “the severe consequences that it will have on the city’s housing stock and the communities and jobs that building owners invest in.” He predicted that aging buildings would fall into disrepair, with owners unable to afford renovations.

“The legislature must seriously reconsider these outlandish proposals and think about what is at stake,” he said.

Legislative leaders gave no indication that amendments to the bills would be forthcoming. In a joint statement, Senate Majority Leader Andrea Stewart-Cousins and Assembly Speaker Carl Heastie touted their deal as “the strongest tenant protections in history.”

They called it “the right thing to do,” and aimed their disapproval directly at the industry that drives much of the city’s economy and is now recoiling at their efforts, saying “for too long, power has been tilted in favor of landlords and these measures finally restore equity and extend protections to tenants across the state.”

Governor Andrew Cuomo said he intends to sign the bill.

“The best bill they can pass, I will sign,” he said at a news conference Tuesday. “The law will expire on Saturday. And if you want to hear an explosion in this state, you let the rent control laws expire. So literally, they have until tomorrow.”

Once the legislation is introduced, a vote can be held after three days.

While the package was thought to be a major blow to landlords, they did achieve a small victory, still being allowed to get rent increases for some improvements. It caps the improvement spending at $15,000 over a 15-year period and allows owners to make up to three increases during that time. The increases are temporary for 30 years rather than permanent, and violations must be addressed before they can collect the increase.

‘Responsible Reform’

The provision didn’t satisfy the Real Estate Board of New York, which said it favored “responsible rent reforms,” and had joined a coalition of property owners calling on Cuomo to veto the bills if the legislature refuses to amend them.

“This legislation will not create a single new affordable housing unit, improve the vacancy rate or improve enforcement against the few dishonest landlords who tend to dominate the headlines,” said Kerri Lyon, spokesperson for a coalition of property owners, including REBNY, Small Property Owners of New York Inc., Community Housing Improvement Program, and Strasburg’s group, the Rent Stabilization Association.

“It is now up to the governor to reject this deal in favor of responsible rent reform that protects tenants, property owners, building contractors and our communities,” the coalition’s statement said.

N.Y. Rent Rule Revamp Sends Shock Waves From Brooklyn to Israel

The new rules will discourage investment in New York City rental buildings, many of which are more than a century old, said Andrew Barrocas, chief executive officer of brokerage MNS. He compared the new rules to the city’s reaction to Amazon.com Inc.’s plans for an office hub in Queens. The tech giant canceled those plans after politicians raised concerns about the tax benefits the company was given, and the expected effect on housing costs.

“Between this and the Amazon debacle, we’re showing the world that New York City is anti-business, anti-growth, anti-a-lot-of-things,” Barrocas said. “I just think it’s bad for the city, because we’re a place people want to deploy capital. That capital is going elsewhere. In the last year, a lot of the people I work with have stopped buying in New York.”

--With assistance from Patrick Clark, Oshrat Carmiel and Keshia Clukey.

To contact the reporter on this story: Henry Goldman in New York at hgoldman@bloomberg.net

To contact the editors responsible for this story: Rob Urban at robprag@bloomberg.net, ;Flynn McRoberts at fmcroberts1@bloomberg.net, Christine Maurus

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