By Bob Tannenhauser
In a preliminary vote Tuesday night, the city’s Rent Guidelines Board (RGB) recommended increases for new rent-stabilized apartment leases of 2 to 5 percent for one-year leases and 4 to 7 percent for two-year leases. The increases would apply to leases signed or renewed on or after October 1, and a vote fixing the final size of the rent hikes is expected in the next few weeks.
“It is the second year in a row that the board has endorsed significant hikes,” The New York Times reported after the vote, noting that when the board votes on final increase figures, they “will almost certainly fall between the ranges put forward on Tuesday.”
The meeting was disrupted by tenant advocates, including several city council members, who stormed and encircled the podium, drowning out owner/landlord representatives as they presented their proposal for higher increases, which was ultimately rejected. The meeting quieted down to allow the tenant members to present their proposal, which was also rejected.
The meeting can be viewed below.
In making its annual decision on rent-stabilized leases, the board looks at cost increases for fuel, insurance and other landlord expenses, as well as wage levels and other factors that affect renters’ ability to pay. The preliminary ranges set at Tuesday’s meeting were lower than the ranges discussed at the board’s April 20 meeting. WSR reported then that the board’s formulas indicated that increases of 5.3 percent to 8.25 percent for one-year leases and 6.6 percent to 15.75 percent for two-year leases were needed for owners to keep their net operating income stable.
The final vote on the rent increases is expected to take place in June. In its story on Tuesday’s vote, the Times noted that for at least the past 20 years, the final figures approved by the board have been the same as those given tentative approval in the preliminary vote.
What’s clear to me is that a 5% increase on a one year lease means monthly payments go up 5% for 12 months.
What’s not clear is that a 7% increase on a 2 year lease means monthly payment go up what, 7% for the first year and remain the same for the second year?
It could mean something else.
Let’s say your current rent is $1,000. Low I know, but just to answer your question with your examples – how it works is, you could sign a 1 year lease for a new rent of $1,050 month, or a 2 year lease for a new rent of $1,070/month.
Yes, you’re paying more for the first year with that two year lease, but you’re locking in that rate, instead of risking an unknown increase in the 2nd year (or that the lease would not be renewed).
Median legal rent for stabilized units where the tenants renewed their lease was $1,509 for fiscal year 2021-22. The median rent was $2,324 for units where a new tenant signed a lease.
Plugging in last years RGB voted increases of 3.5% (one year) and 5% (two year) you get:
3.5% of $1,509 =’s $52.80
5.0% of $1.509 =’s $75.40
3.5% of $2,324 =’s $81.30
5.0% of $2.324 =’s $116.20
Above increases are per month for duration of lease term. Thus tenant paying $1,509 and takes at two year lease renewal at 5% will be paying new legal rent of $1,584.40 for an additional $904.80 per year. If they took at one year renewal for an additional $52.80 new rent is $1561.50.
Under last scenario said tenant faces another increase one year later (this year’s rates).
If 3% increase (one year) legal rent goes up to $1,608.34 and so it goes..
Basically the house always wins. Either tenant pays more per month over course of two year lease to lock in lower increase, or they pay less with one year renewal but legal rent will rise next year with another increase.
Rent stabilized leases are offered renewals as matter of right. Only courts can terminate a RS lease via non-payment or holdover proceeding. This and or if unit is vacated by tenant.
You’re correct BB, I forgot that part – it’s been 20 years since I was in a rent stabilized apartment (since then I have been a market renter)
Right. 2 year leases pay the same percent increase for 24 months.
The percentage hasn’t been decided for either 1 year or 2 year leases.
Yes, your monthly rent increases by 7% and then holds there for the 24-month term of the lease.
After 15 years of above- nflation property tax increases and then actual inflation on things like fuel , electricity and insurance, these proposed increases seem quite low. Especially considering the prior mayor packed the board with people who froze rent.
Our housing stock is old and requires investment. This is going to catch up with everybody.
Let’s be clear: annual rent increases are not intended to cover investment, just increases in operating expenses.
Investment in capital improvement is covered by additional rent increases known as MCIs. Unbelievably, these are permanent increases in the base rent, meaning that tenants pay increases on the increases with each lease renewal, forever.
Not only that, but since the increase is permanent, it usually outlives the life of the capital improvement.
fortunately, you own some of the most expensive real estate in the world and have benefitted from 15 years of very low interest rates. I think you’ll turn out just fine.
You, like many, are supposing tenants also haven’t had to pay increased bills, eg a massive increase in ConEd bills.
And what of it? Everyone has had to pay higher utility and other costs lately, why should RS tenants receive some sort of discount?
The problem is that bills have increased, for everyone one.
We all have had massive increases in our bills. The fallacy here is that the increase in expenses of property owners don’t matter.
It’s not that landlords cost increases don’t matter, but many landlords can spread costs (increased) around.
” many landlords can spread costs (increased) around.”
What you are saying is simply more of the same; market rate tenants pay more to make up for revenue short falls of rent regulated housing. In what world does that sound fair?
There is an important missing fact in this story. However anyone feels about these preliminary recommendations by the Rent Guidelines Board, it is noteworthy that all members are appointed by the mayor.
Only chairman of RGB serves at pleasure of mayor. Balance of board serve terms of various staggered lengths.
It is latter combined with mayoral term limits do combine to keep things in flux. By time a mayor may have gained full control of RGB via appointees his/her four or eight years in office may soon or actually end. Policies would then likely shift to align with whoever is next mayor.
Those “preliminary reports” are created each year by the administrative side of RGB. Basically a city agency whose job is to crunch data and present reports that give the voting side of RGB guidance (and it is just that) on how to set rents.
Voting side of RGB is perfectly free to (and has) disregard whatever information comes out of preliminary reports. Indeed they did so more than a few times under BdeB when increases of nil to zero percent were passed, this despite information from “preliminary reports” showed LLs were entitled to increases.
Whole process is a farce largely whipped up by media. RGB rarely if ever votes increases at the often quite high numbers that come from preliminary reports. But that doesn’t sell newspapers or generates clicks, so….
Oh? I’ve had years of 12% increases in the time Ive been in my apartment.
I’m glad this article articulates that the goal of increases is to keep net operating income stable. That is what is fair and reasonable.
A commenter to an earlier WSR article seemed annoyed that people could be upset, given that residential operating costs have gone up by double digit percentages.
If operating costs go up by 25% (just as made up example), that does not mean rents should go up by 25%, or even close to that. It depends on the nominal amounts of the two, and it’s likely that in most cases, rent exceeds operating costs by a substantial margin – yielding operating income.
If your operating costs go up by 25%, and you raise rents by similar percentages – that’s not making landlords whole, it’s profiteering. Which you can certainly attempt to do – but don’t expect people to think it’s fair, because it most certainly isn’t.
It is not “profiteering” (whatever that really means) is operating costs and rents go up at the same rate.
What is “fair and reasonable” is to have the market decide what rents should be, not a bunch of bureaucrats and “tenants rights” activists.
Once artificial price controls are mandated they will inevitably distort the market by negatively impacting the quality and quantity of housing.
Proof of this is NYC’s decrepit and rundown housing stock and our perennial housing affordability issues.
We can argue about whether an unfettered free market is the solution, but that was not my point, which is made in the context of the fact that rent stabilization exists.
However, it’s also true that the idea that market rate owners would try to suggest my costs have gone up 20% therefore I’m raising rent 20% is a plausible sounding but duplicitous justification. In nearly all cases that would be expanding your operating margins as well as income. A truer statement would be, I’m raising rent 20% because I can.
Actually you are wrong. If my rent is $100 and my costs are 70, and then both rent and costs go up by 20% each, then operating margin is still 30%. That’s the definition of operating margin (revenues-expenses)/revenues.
If you want to keep rents – expenses stable, then in real (post-inflation) this figure will keep declining and landlords will stop upkeep of their buildings.
Thanks for engaging constructively with my arguments. You are correct, I was wrong to say operating margin, what I should have said was return on investment.
Taking your example further, let’s say that your purchase price of that $100 rental was $3,000. Your current return after costs is $100-70 = $30/3,000 = 1% (per period).
Now your costs go up 20%, to $84, and in turn you raise rent 20%, to $120. Your new operating income is $36. So your ROI is now $36/3,000 = 1.2%.
I don’t see how flat operating income would stop upkeep of buildings. Instead of rent being raised $20 (20%), it would be raised $14 (14%). Increased costs – “upkeep” – is covered. S/he is still earning 10% on invested capital.
Re: “tenant advocates and several city council members” who “stormed and encircled the podium, drowning out owner/landlord representatives”
Aaah, isn’t it “loverly ” to see both elected reps and self-appointed “advocates” destroying freedom of speech and the willingness to hear opinions other than one’s own !”
R.I.P. (Rest In Pieces) Democracy, Civility, Fairness, etc.
Some statehouse reps in Tennessee did the same stunt, and Biden invited them to the White House to celebrate their “defense of democracy “. Orwell was prescient.
The ranges seem reasonable, possibly even too low. Our co-op operating expenses will increase more than 7% this year vs last, and if we raise the co-op maintenance (equivalent of rent) by the same, we would only break even. That is not profiteering.
Co op maintenance is NOT the equivalent of rent.
Let’s say I rent a one bedroom in a co op for $5k. Co op maintenance is not even close to $5k.
Legally co-op maintenance IS rent. Co-op unit “owners” are tenant-shareholders who sign a lease. But my point was that annual property operating costs for the rent stabilized units likely increased at least 7 percent.
Coop maintenance does, however, reflect the actual cost of operating the building. Which seems to be the lodestar you’re looking for.
The point is that the cost of operating costs increase the same for owners and landlords no ,matter the abode – and they go up every year
Legally and technically, co-op maintenance is rent. The co-op is just charging a wholesale rent to its shareholders (who are also tenants), with the option to impose assessments for capital projects.
Actually, in some co-ops it is.
Many tenants file complaints about the condition of their rental controlled unit. A lot of these units need solid investments to fix up. Some of these renovations/fixes would displace the tenant for some time while a unit is fixed. The issue is if a landlord can only collect under market value for the unit and still has to pay a mortgage, maintenance fees, taxes, etc, where is the extra money going to come from? In a market rate apartment, the market sets the price with cushion for investment back into the unit to fix up and maintain. There is no incentive to invest because there is no ROI with rent controlled apartments.
I don’t know why anyone would choose to own these buildings. It is a money losing proposition. Anyone who doesn’t have their head in the sand knows that we have had record inflation. This impacts a large amount of the costs of a building owner.
I am a Democrat who strongly believes in helping others. But I was also an economics major who learned about supply and demand. Let the landlords charge what they can. If this drives the working class away, there will be no one to do service jobs. Quality of life will go down dramatically for those who remain. They will move out, driving rents back down to equilibrium.
It’s not “just” the working class, who are already pushed further and further away, and into often-deplorable conditions. It also puts higher earners into untenable situations. For a household grossing $150,000 a year before tax, $4,000 rent — the mean for a 2 bedroom apartment in NYC– is, by any sane budgetary measure, unaffordable.
Losing both working and middle classes would also create a profound, long-term downward effect on the city’s economy.
The most recent survey showed that at least 91% of stabilized buildings operate at a profit.
So it’s not a money losing proposition.
If there were no bad actors and no massive wealth gap, that theory might hold water. Instead, low wage workers cram into hazardous “dorms” to take these jobs anyway. And those who don’t want to live in those conditions move further and further out of the city, simply enduring long commutes. When service workers come from as far as 3 hours on a daily basis (yes, truly), the equilibrium never snaps back into place. It just makes life for those at the bottom continually harder, and the wealth gap greater.
How insurrection-y ! Given the city’s sky high inflation, 2-7% seems fair.
Inflation is running at about 7%, thus any increase below that number essentially forces landlords to provide housing at a discount.
Pensions, Social Security and host of other payments tied to inflation have risen. Now thanks to latest NYS budget so will minimum wage in this state. But somehow, somehow landlords are being told “that’s all very well for everyone else but *you*.
Thing is NYC has been to this rodeo before; things are slowly but surely backsliding to 1970’s.
If conservatives had stormed the stage it would be called insurrection. Investigations would be conducted, arrests would made , Bragg would prosecute and people would go to PRISON.
No it wouldn’t.
Equating rent protests with the coup attempt by Trump and a faction of the Pentagon is extremist.
I remember reading something about this a while back but could not re-find the source, so please correct me if I am wrong, but don’t landlords receive some sort of tax abatement for having rent stabilized units? Or maybe it was that they received a tax abatement for making repairs and renovations to rent stabilized buildings?
Either way, it seems as though the brunt of this argument is always being placed on either the landlord or the tenant. Why isn’t the government stepping in to offer some sort of ease for landlords that allow them to keep the rents low? Is that even something that can work? I’m not a fan of landlords myself, but it does seem as though the buck keeps getting passed back and forth between these two parties while the government (most of them landlords themselves or otherwise benefiting from land ownership in some way) all seem to shrug and remain content to let us duke it out ourselves.
Regardless, rents are insanely expensive and the rates at which they continue to go up are getting to a tipping point. My partner and I are extremely lucky to make a combined 6 figure income and have found ourselves pushed further and further out many times now – including out of a rent stabilized unit that became far too expensive despite being stabilized! If we’re feeling this level of stress and pressure and have had to uproot our lives and move 4 times in 5 years, I can’t even imagine the pressure others less fortunate are feeling.
I won’t ever go as far as some to doom and gloom that NYC is slipping back into the 70’s (because it’s not) but it is getting to a point where it will be nothing more than a playground for the rich. Except nobody will be here to serve them anymore because the rest of us can’t afford to live here! ¯\_(ツ)_/¯
Other property tax break for RS or RC apartments applies to senior citizens or disabled persons; SCRIE and DRIE
Under those programs eligible rent regulated tenants can have their rents frozen and not subject to future increases. Property owner receives credits on his tax bill in lieu of said rent increases.
No, there is not any sort of “tax break” per se for all RS units.
“In New York City, apartments are under rent stabilization if they are in buildings of six or more units built between February 1, 1947, and December 31, 1973. Tenants in buildings built before February 1, 1947, who moved in after June 30, 1971, are also covered by rent stabilization. A third category of rent stabilized apartments covers buildings with three or more apartments constructed or extensively renovated on or after January 1, 1974 with special tax benefits. Generally, those buildings are only subject to stabilization while the tax benefits continue or, in some cases, until the tenant vacates.” https://rentguidelinesboard.cityofnewyork.us/resources/faqs/rent-control/
Last bit refers to tax schemes like J-51-A and 421-A which offer landlords abatements on property taxes for a specific period of time if they build or renovate. During this period (usually between 30-35 years) apartments fall under RS. Once tax abatement period expires usually apartment will revert to free market.