Is Rent Stabilised income really lower?

David Goldsmith

All Powerful Moderator
Staff member
Or are they just leaving out income from units being warehoused in anticipation of the 2019 changes being overturned in court?

It seems pretty obvious that there are thousands of units currently being kept vacant/not being renovated on purpose in the hope that they won't have to be rented at virtually no increase over the last registered rent.


Rent-stabilized housing income falls for the first time in 20 years: report
The Rent Guidelines Board to meet next week

For the first time in nearly two decades, the Rent Guidelines Board is reporting a decline in average net operating income among rent-stabilized properties in the city.

A report released Wednesday states that NOI declined slightly by .6 percent from 2017 to 2018. It’s the first drop reported since the board’s analysis of income and expenses from 2002 to 2003. Rental income increased by an average 3.7 percent and total income by 3.6 percent. Operating costs increase an average of 5.8 percent.

The board, tasked with determining rent increases on stabilized apartments, will be meeting remotely, starting next Thursday. Last week Mayor Bill de Blasio called on the board to freeze rents.

“The study makes it clear that an increase in rent is warranted,” said Rent Stabilization Association President Joseph Strasburg. “We don’t see how this mayor can ask for a zero increase in light of these numbers.”

The report doesn’t reflect the effect of the economic crisis brought on by the coronavirus pandemic, nor does it show how the Housing Stability and Tenant Protection Act of 2019 — which severely limited the ways that landlords can increase rents on stabilized properties — has impacted NOI

Both tenant and landlord groups have criticized the RGB’s analysis for relying on incomplete data. The analysis excludes buildings with fewer than 11 units, arguably excluding the most cash-strapped properties. Landlords have also pointed to the fact that the board’s analysis of costs doesn’t include debt service and certain maintenance bills.

The report also provides a separate analysis of NOI adjusted for inflation. Both this year and last year saw a decrease in NOI when taking inflation into account. From 1990 to 2018, after adjusting for inflation, NOI has increased 48.7 percent, according to the report.

Last year, the RGB approved a 1.5 percent increase for one-year leases and a 2.5 percent hike for two-year leases for both rent-stabilized apartments and lofts. In 2018, the board approved an increase of 1.5 percent, but that was preceded by two years of rent freezes.

The report acknowledges that its analysis depends on landlords supplying accurate costs and income to the city’s Department of Finance. While the board acknowledges potential misrepresentations, adjustments to the cost and income analysis relies on a 1992 audit of Real Property Income and Expense (RPIE) statements for 46 stabilized buildings. When taking into account the audit, which found that owners generally inflated costs by 8 percent, the average monthly cost per apartment drops from $1,034 to $949.7, according to the report.

Not only is the audit nearly 30 years old, but “results are somewhat inconclusive since several owners of large stabilized properties refused to cooperate,” according to the report.

During one of last year’s meetings, tenant attorney and former RGB executive director Tim Collins called on the board to conduct another audit. He noted that a more accurate picture of costs was needed, saying at the time, “For every owner who tells you they are losing money, well, put up or shut up.”
 

David Goldsmith

All Powerful Moderator
Staff member
CHIP, a landlord advocacy group, seems to be admitting it's members are keeping 20,000 units vacant on purpose. Apparently the claim is they can't be rented because they are not up to code, etc. I've seen some of these units and they could easily be rented with barely more than a paint job.
 

David Goldsmith

All Powerful Moderator
Staff member
Just to be clear what CHIP is asking for is a change to be even more lax that prior to the 2019 rule tightening, before which owners were limited to increases if 1/40th of the renovation costs. A major reason the legislature removed this provision was proof of widespread fraud in claims of renovation costs. The ask is now for owners to be able to "reset" rents to whatever the want regardless of renovation costs.

Landlords offer to re-open 20K warehoused apartments*

*If Albany allows a vacancy reset on rents​

Landlords have a deal for Albany.
They would fix up and return 20,000 rent-stabilized apartments to the market. In return, lawmakers would give them a way to pay for it — by allowing for a vacancy “reset” on rents.
The Community Housing Improvement Program, which made the pitch Tuesday, says the 20,000 units sit vacant because the 2019 rent law severely limited the rent increases needed to fix them up. An exodus of renters during the pandemic contributed to that total.
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The Housing Stability and Tenant Protection Act nixed the 20 percent rent bump allowed when tenants vacate a rent-stabilized apartment, and curtailed rent increases to pay for renovations.
CHIP said because stabilized renters can cling to a below-market-rate unit for decades, by the time they leave it’s often in bad shape. A basic renovation can cost $75,000 or $100,000, owners said.

But under the 2019 law, only $15,000 in improvements to an apartment can be recovered via rent increases every 15 years, which works out to $89 per month on top of rent that is often around $1,000. Rather than make an investment guaranteed to lose money, landlords mothball the unit and wait for Albany to change the law.

CHIP said allowing landlords to set a new first rent after a tenant vacates would give owners the ability to fund renovations and put units back on the market. The group also wants to set a new initial rent for vacant units, rather than be limited to the 20 percent increase provided by the old rent law.
“We’re not asking to deregulate these units,” said Jay Martin, executive director of CHIP. “We’re simply asking for the ability of an owner to reset the rent to market rate after a vacancy.”

So-called vacancy bonuses are a common feature in rent control laws elsewhere because they are seen as necessary to maintain the housing stock. But in New York it led to some landlords harassing tenants into leaving, prompting lawmakers to eliminate it in 2019.
To draw lawmakers’ attention to the issue, CHIP launched the site Vacancy NYC and a cross-platform social media campaign to engage “a new type of audience that is increasingly savvy, politically engaged and among the most impacted when it comes to finding affordable housing in New York City.”
Tik Tok, one of the platforms CHIP will hit, has lately been rife with complaints from young renters about being priced out of New York’s rental market.
Two months ago, rising rents broke records as vacancies fell to their lowest level for any February since 2008. Brokers say workers’ expectation to be back at their desks this spring has driven the demand.

Meanwhile, tenants who snagged multi-month concessions a year ago have been hit with rent hikes as high as $1,000.

Daniel Mishin, CEO of short-term affordable rental company June Homes, said he has seen an influx of Gen Z tenants looking to stay in the city by snagging the firm’s short-stay deals. Mishkin sees the city’s warehoused inventory as an untapped market that would improve affordability.

“All those vacant units, it’s a black hole,” said Mishin. “This is housing that could really help New Yorkers, you know?”
A report by the Rent Guidelines Board last week revealed that in the year after the rent law passed, the city’s stabilized housing stock deteriorated. In 2020, distressed properties — meaning their operating and maintenance costs exceeded their gross income — made up 6.5 percent of the rent-stabilized housing stock, up 1 percentage point from the previous year.

CHIP estimates that, on average, an owner renting a unit for less than $1,500 a month is losing money on operating costs.
If the state gives owners reason to bring the 20,000 warehoused units back online, it would make a small dent in the city’s housing supply needs. A January report by the Real Estate Board of New York found the city needed at least 560,000 more apartments by 2030 to meet demand. Current pipelines will supply just 14 percent of that.

Albany has shown no interest in undoing the major provisions of the rent law, so CHIP’s effort is unlikely to lead to legislation passing before the legislature adjourns for the year in June. But it could start a conversation that gains traction over time. Some investors have purchased rent-stabilized buildings on the hunch that the legislative pendulum may swing the other way.

To date, lawmakers have favored a stick over carrot approach to bringing warehoused apartments online. Two years ago, Assembly member Linda Rosenthal introduced a bill that would penalize landlords who kept units vacant for more than three months. Owners could ask for fees to be waived for uninhabitable apartments.
 

David Goldsmith

All Powerful Moderator
Staff member

Rent board staff proposes increase of up to 4.5%​

Average hike was 1% under de Blasio​

After landlords’ operating costs jumped 4.2 percent last year, the Rent Guidelines Board staff released reports Thursday recommending rent increases of 2.7 to 4.5 percent on one-year leases for rent-stabilized units and 4.3 to 9 percent on two-year leases.
The ranges are considered starting points, and the board has often ignored the suggestions. 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.

The agency uses three formulas with different approaches to the goal of keeping landlords’ net operating income from rent-stabilized units constant.

The oldest of the formulas, which looks at both the increase in costs this year and the projected increases for next year, called for a 2.7 percent hike for one-year leases and 4.3 percent for two-year deals. A formula that inflates debt service resulted in the highest increases: 4.5 percent for one year-leases and 9 percent for two-year deals.

Landlords’ costs jumped across the board from April 2021 to March 2022 except for property taxes, which dropped 3.7 percent because buildings lost value. Fuel costs rose the most, 19.6 percent, followed by insurance at 10.9 percent and maintenance at 9.2 percent.
Christina Smyth, an owner representative on the board, cautioned that the drop in taxes is an “anomaly,” caused by the pandemic.

“It can’t be understated that across the board, expenses are up,” she said. “We’re not trying to hit home runs for either side. We’re just trying to cover expenses.”
Economy-wide inflation helped drive up costs this year, and a separate report found that average interest rates for new multifamily mortgages increased 15 basis points, to 3.91 percent — the first increase in four years.

Tenant advocates are worried that the board will approve increases this year, in part because Mayor Eric Adams appointed NYU finance professor Arpit Gupta as a new public representative on the board. Gupta, a fellow at the free-market think tank Manhattan Institute, expressed skepticism about rent control in a December article, leading some tenant leaders to question his fitness to deliberate on rent for regulated apartments.

Adams also appointed Legal Aid Society attorney Adán Soltren to fill the tenant representative vacancy on the board. In a statement Thursday cheering the selection, Legal Aid called on the board to approve an “indefinite” rent freeze.

“During this time of great uncertainty, it’s unconscionable to consider any rent increase on some of our most vulnerable neighbors,” the group said.
During the de Blasio administration, the board froze rents on one-year leases three times, and last year for the first six-months on such leases. Increases otherwise hovered below 2 percent for one-year leases, and below 3 percent for two-year leases.

Overall, the de Blasio-era increases were about 1 percent annually. The final vote during the Bloomberg administration hiked rents 4 percent on one-year leases, and 7.75 percent for two-year renewals. The city has about 966,000 rent-stabilized apartments.
Mayor Eric Adams has publicly stated that he would support a rent freeze if it were supported by analysis. He has also said, however, that he would not back a freeze because it would harm small property owners. It is unclear how much influence Adams has on board members appointed by his predecessor.

Landlords are expected to request higher increases than those laid out by the board staff Thursday. Vito Signorile, vice president of the Rent Stabilization Association, said the board’s analysis is flawed because it is seeking to keep net operating income at a constant, when it is at an historic low.
A separate report by the board’s staff found that net operating income, which does not include taxes or mortgage payments, plunged nearly 8 percent, the largest decrease in 17 years.

“We had no doubts that the message this year is: follow the data,” he said in an interview. “The board has no reason at all to shy away from this recommended data.”
 
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