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NYC'S HOUSING PROBLEMS IN VIEW AS MAMDANI WINS PRIMARY

Investors are looking at the potential economic and financial impact of Zohran Mamdani's New York City Democratic mayoral primary win this week, and in particular, at his plan to freeze rents on rent-stabilized city apartments if he becomes the mayor.

Hardika Singh, economic strategist, market intelligence, at Fundstrat Research, writes in a note Thursday: "Affordability and New Yorkers’ particular lack of it right now was a big selling point in Mamdani’s campaign, and one way he plans to tackle that challenge is by freezing rents on regulated apartments."

He says that about half of the rental units in the city fall under that category.

"Rent regulation and freeze has long drawn the ire of Wall Street and landlords, who say that it provides no incentive for them to build new houses or do maintenance and upgrades to existing ones. Previous Democratic mayors have run on the same tired idea in the past, and upset billionaires in the process," Singh writes.

Mamdani, a self-described democratic socialist, won this week's primary in what was considered a big upset as his supporters banded together to prevent the more moderate former New York Governor Andrew Cuomo from triumphing.

Mamdani's opponents have raised plenty of concerns about his rent-freeze plans.

"For argument’s sake, there’s some merit to what they’re saying," Singh writes in the note.

"Rent freezes have contributed to further exacerbating the housing market supply in the city, and even renters seemed to have grown weary of it, as it led to the lack of habitable housing. Luxury apartments seem to be all the rage for builders right now, and those aren’t exactly affordable."

Singh writes that after recent changes banning brokers from charging tenant fees in the city, rents have skyrocketed 15% and the city's vacancy rates dropped.

But he says landlords are complaining too about higher costs, partly stemming from sharply higher insurance expenses.

The situation is complicated and not easy to solve, he says, noting that members of a NYC board decide on whether prices for rent-stabilized apartments can go up each year.

They are appointed by the mayor, so Mamdani would have some control, Singh writes, but says "he has a long road ahead of him, and it’s also quite possible that he tries some other avenues to ease the city’s housing crisis rather than just freezing rent."

Real estate .SPLRCR is leading S&P 500sector declines for a second straight day on Thursday, last down about 0.7% and underperforming the broader market, with the S&P 500 index .SPX last up about 0.7%.

Shares of New York-exposed REITs were mostly down on Wednesday, but they are largely recovering Thursday. SL Green Realty SLG.N is up 2.7%, while Vornado Realty VNO.N is up 2.8% and Empire State Realty Trust ESRT.N is up 3.2%.

Instead, Equinix's stock EQIX.O is the biggest drag on the real estate sector, with the the data center company's stock down 7.3% after it forecast revenue growth below expectations.

(Caroline Valetkevitch)

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