By Bob Tannenhauser
There are thousands of rent-regulated apartments on the Upper West Side.
Every year, the Rent Guidelines Board (RGB) determines the size of the rent increases allowed on these apartments.
Their purpose is to ensure that the landlord’s net operating income (NOI) remains stable, i.e. is the same as it was the year before, in the face of increased operating costs.
On April 14, the RGB released a report setting forth three methods for computing the increases, which would yield raises ranging from 2.7% to 9% on rent-regulated apartments.
“The ranges are considered starting points, and the board has often ignored the suggestions,” according to The Real Deal. “In fact, the board froze rents in 2020 and approved a partial freeze on one-year leases last year, despite initial recommendations for higher increases.”
To be clear, the report does not include a recommendation for a particular percentage increase in rent. What it does do is set forth the different methodologies used to analyze the impact of projected increases in landlord expenses on net operating income.
The Board used what is called the Price Index of Operating Costs (PIOC) to measure the change in seven categories of costs incurred in the operation and maintenance of buildings with regulated units. These include: real estate taxes, labor costs, fuel, utilities, maintenance, administrative costs, and insurance costs.
In 2021, except for real estate taxes, which decreased by 3.7%, all of the other costs numerated increased. Fuel increased by 19.6%; insurance by 10.9%; maintenance, 9.2%; administrative costs, 6.7%; utilities 5.8%; and labor costs by 4.1%. The seven components were weighted to take into account their impact on overall operating costs, and the resulting price increase index was determined to be 4.2%, and is expected to rise 4.7% in 2022.
In simple terms the report provides formulae for generating the estimated increase required for one- and two-year leases to compensate owners for the increases in operating costs as measured by the PIOC.
The first formula — Net Revenue — takes into account the term of the leases actually signed by tenants, but does not adjust for inflation. Under the Net Revenue formula the 4.2% increase in PIOC would yield a 3% increase for one-year leases and 6% for two-year leases.
The second formula — Consumer Price Index-Adjusted NOI — considers the proportions of one- and two-year leases and adjusts for inflation, and would yield a 4.5% increase for a one-year lease and 9% for a two-year lease.
The third formula — the traditional formula — relies upon the PIOC projection and would yield a 2.7% increase for a one-year lease and 4.3% for a two-year lease.
The report acknowledges that all of the formulas have “limitations…and may be best thought of as a starting point for deliberations.”
Both landlord and tenant advocates have attacked the report.
“A public meeting where testimony will be heard is scheduled to take place virtually on April 26,” 6Sqft reported. “A vote on the final determination will take place this summer.”