Tenants, Landlords Battle Ahead Of Potential Rent Hike For Stabilized Units

Groups representing the owners of more than 1 million rent-stabilized apartments in New York City spent hours Tuesday pushing the city’s Rent Guidelines Board to approve a rent hike of up to 9%, but tenant advocates say low-income New Yorkers can't afford any additional rent burden and landlords are capable of bearing additional costs in an inflationary environment.

It’s the RGB’s job to figure out what amounts to a fair rent increase for rent-stabilized apartments on an annual basis. Tuesday’s public hearing on rent hikes posed existential questions from NYC’s rent-stabilized landlords and tenants to the RGB: from what happens to the existing housing stock if owners can’t pay their operating costs to what happens if tenants can’t afford rent increases.

The RGB is currently looking at data it collects to analyze operation and maintenance costs for rental housing. It weighs that against economic factors weighing on tenants, including wages, employment, eviction data, poverty levels, market forces, and public policy on housing and affordability. This year, landlord groups are asking the RGB to allow an increase of 6% for one-year leases and 9% for two-year leases — while tenant groups say many residents can’t support bumps anywhere close to that high.

Across NYC, the RGB found that net operating income — building revenues after expenses — took its second-largest dip in the past three decades, declining by 7.8% over the past year. It also found that the number of distressed properties went up by a full percentage point to 6.5%. Both landlord and tenant groups said the RGB’s data isn’t the full picture. 

Landlord groups have been sounding the alarm since the RGB released its latest report, arguing that the number of distressed buildings is far greater than the RGB acknowledges, due to the combination of the pandemic, the 2019 Housing Stability and Tenant Protection Act and the RGB’s policy of not including building mortgage payments or maintenance costs. 

During Tuesday’s public hearing, landlord groups said many building owners had been forced to draw on their savings to cover operating costs during the pandemic, as a result of HSTPA and decreases to net operating incomes.

“When rent wasn’t being paid at the height of the pandemic, owners continued to dip into those reserves to pay their operating expenses and other expenses to ensure that buildings were clean, safe and adequate living conditions,” Rent Stabilization Association Vice President of Communications Vito Signorile told the RGB. “This isn’t just about money to cover expenses at the moment. This is about a steady flow of income to ensure that building owners are prepared for maintenance that may come at any time.”

But tenant advocates who spoke at the hearing said most landlords have found ways of keeping profits flowing. University Neighborhood Housing Program Director of Research Jacob Udell testified that owners have been refinancing their properties and using those deals to pull money out of their buildings, rather than invest in upgrading tenant living facilities.

While building owners argued that many are struggling to cover costs, tenant advocates said residents in rent-stabilized apartments will struggle with any increase in their rent. Although the city’s economy is improving, several tenants testified to the RGB that their income remained unstable and their wages hadn’t increased sufficiently.

Roughly two-thirds of rent-stabilized tenants were low-income in 2011, according to research from the NYU Furman Center. A 2017 analysis by the New York City Housing and Vacancy Survey found that the median income for rent-stabilized households was $20K less than tenants in nonregulated units.

“We’re talking to folks on the grounds who are really struggling,” said Sheila Garcia, RGB tenant member and director of organizing at Bronx-based nonprofit New Settlement. “You’ll continue to hear from tenants that a $10 difference means the ability to pay their rent or not.”

REBNY Senior Vice President of Planning Basha Gerhards said that the RGB’s data overrepresented Manhattan and Queens.​​ The biggest drops in NOI were in Manhattan buildings with fewer rent-stabilized units, which suffered as tenants moved to the outer boroughs or left the city altogether at the height of the pandemic, according to the RGB’s findings.

REBNY, RSA and CHIP, another landlord group, presented self-reported owner data on income and expenses compiled by rental properties seeking tax reassessments. The result was a dataset representing approximately 3% of rent-stabilized landlords — significantly smaller than the RGB’s data, which covers around 10% — highlighting the plight of small owners.

Small landlords, owning between six and 15 units, make up two-thirds of the RSA’s 25,000 members and provide the bulk of NYC’s rent-stabilized housing, an RSA spokesperson told Bisnow.

The data collected by REBNY, RSA and CHIP showed that owners of pre-war and smaller buildings paid a higher share of taxes and had higher operating costs, eating as much as 25% of an owner’s income, Gerhards said.

“In absolute terms, small buildings have higher costs," she said.

Costs have increased significantly for owners, Small Property Owners of New York President Ann Korchak told the RGB. Korchak said she will pay $32K more in property taxes than she did in 2014, and she is facing mounting costs as other building maintenance bills increase: insurance cost 15% more this year, her accountant upped prices by 13%, exterminator bills increased by 8% and heating cost 25% more, as well as other costs like a 15% pay raise for her building’s super. 

Korchak — whose only debts on her building were her initial mortgage — is now considering refinancing options, she said.

“Small operators will be the first to fail if the board does not follow the data and acknowledge that housing has costs, and those costs must be covered by rent,” she testified Tuesday. “As building expenses increase, so must rent. The stability of our renters is dependent on our stability.”

Tenant advocates also refuted landlord claims that lower net operating incomes have put the profitability of rent-stabilized buildings at risk. 

“The reality is that, by the best evidence we have, owners are still overcompensated,” Collins Dobkin & Miller LLP partner Tim Collins said during the virtual hearing. “Owners still have better net operating incomes than they’ve had historically.”

A fuller measurement of how landlords profit over the long term should look at property values, which Udell said during the hearing have increased significantly. According to one analysis from NYU’s Furman Center, multifamily properties rose in value between 400% and 600% from 2000 to 2014, Udell said at the hearing. 

UNHP also did its own analysis just of Bronx-based, rent-stabilized properties, Udell said, which found that the average property price rose from $10K in 1996 to $175K in 2020. 

“If the goal of the board is to assess the economic viability of the rent-stabilized stock to make judgments on rent increases, rising property values must be considered,” Udell said. “Evidence of property value appreciation in the New York City rent-stabilized market suggests that owning rent-stabilized property is an extremely profitable affair.”

The RGB and landlord groups both acknowledged that it’s not the RGB’s responsibility to ensure that landlords maintain a profit, or that tenants remain housed.

“If the rents are remaining frozen and there’s limits set forth by the HSTPA, we have to ask the question: Is the legislature prioritizing the right things?” Signorile said. “I think we have to ask our elected officials why more isn't being done to help these tenants.”