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Legislators in Albany are haggling over the future of rent regulations for about a million apartments in New York City. Under the current law, which expires June 15, landlords can raise the rent on vacant rent-regulated apartments when monthly payments reach $2,000.
Last week at a typically boisterous meeting, New York City’s Rent Guidelines Board voted to increase rents at the city’s roughly one million rent-regulated apartments. The increases set by the board range between three and 5.75 percent for one-year leases and between six and nine percent for two-year leases.
The 5 to 4 vote on May 3 is preliminary; the Board will hear public testimony on June 16 and June 20 before a final vote on June 27. Increases will take effect for leases starting Oct. 1.
Like the regularity of the start of allergy season, passions are inflamed every spring during the lead up to the board’s vote, which usually achieves the difficult trick of angering both tenants and landlords.
Tenants and their supporters say that New York City has become too expensive to live in, and therefore every affordable unit needs to be preserved so the city doesn’t become solely a playground for the rich.
Landlords and their advocates say that New York City has become too expensive to do business in, and therefore every apartment needs to rent for market rate so the city doesn’t become a junkyard of abandoned buildings.
Like every year, variations on these arguments will play out during the Rent Guideline Board’s deliberations over the next month focus on rules set in motion by the Rent Regulation Reform Act of 1997, and reaffirmed by the Rent Law of 2003. This year, however, is also different: the annual increases will be discussed against the backdrop of Albany’s fevered negotiations over the future of rent regulation, which expires on June 15.
Rent regulation, where tenants pay below market rate rents, is a response to what is deemed the city’s housing emergency, where fewer than five percent of apartments are vacant at any time. (For a detailed explanation of rent regulations in New York State see bottom of article).
For state legislators in Northern Manhattan and the Bronx, the future of rent regulation is critical because it affects hundreds of thousands of their constituents.
“It’s an important issue because there are so many units that are under rent regulation in the Bronx,” said Assembly Member Peter Rivera, who represents portions of Parkchester, Throggs Neck, and Pelham Bay. “If it expires and is not renewed, you will have skyrocketing rents for many individuals. The odds are that you will have a panic in the streets, for lack of a better term.”
Last month the Democratic-controlled Assembly passed its wish list for reforming rent regulation. It would repeal vacancy decontrol, reduce the amount a landlord can increase rent after making apartment improvements, return some deregulated apartments back under control, raise the high income and high rent deregulation thresholds to $300,000 and $3,000, and give more authority to the city to strengthen rent protections.
But since the Democrats lost control of the State Senate in 2010, the Republican majority has expressed little interest in changing the law.
The district of State Senator Adriano Espaillat includes all of Northern Manhattan and parts of Riverdale and the Upper West Side. It has the highest number of rent-regulated apartments, about 79,000, of any Senate district in the state. With what he calls a housing crisis on hand, Espaillat argues that simply extending the status quo is not good enough: the laws need to be strengthened to keep as many residents in place as possible.
“[Rent regulation is] the single most important issue for Northern Manhattan that I can think of,” he said. “If you talk about an economic development issue, I haven’t seen one with as much impact as this one.”
While rent regulation may seem like a cut and dried issue – who wants to price struggling New Yorkers out of their homes? – landlords say that they need to be able to charge higher rents in order to keep pace with increasing costs.
The range of possible rent increases that the Rent Guidelines Board voted on May 3 is tied in part to a price index of how much building operating costs, such as taxes, labor, fuel, and utilities, are predicted to rise. Over the last few years, that price index has ranged from increases of 3.4 to 7.8 percent. It is estimated to be 6.5 percent in 2011.
Since tenants in rent-regulated apartments are paying below market rates, the full costs of the building have to be made up elsewhere, either by charging more for the non-regulated apartments or by taking it out of the owner’s own pocketbook.
“How is an investor supposed to be able to afford to own a building if government is forcing landlords to subsidize rent stabilized apartments and continuing to put upward pressure on costs?” asked Robert Shapiro, First Vice President of Sales at Massey Knakal Realty Services who specializes in brokering apartment buildings in Northern Manhattan. “It makes it so economically unfeasible for a landlord to be able to make repairs and maintenance and upkeep on the building without it being a loss.”
All sides agree that politics and the governor are going to be keys to resolving the issue.
Throughout the battle, Democrats have been optimistic that they hold enough bargaining chips to be able to strengthen rent regulations.
Early in the year Republican senators passed a cap on property taxes that would largely benefit upstate homeowners. The Assembly has yet to pass the bill. Neither house has voted on legislation that would renew 421a tax breaks for developers, another possible compromise.
Governor Andrew Cuomo has spoken about the need for continuing some form of rent regulation but he has not tipped his hand as to what that might be. Noting that the issues the governor has championed during his first four months in office were gay marriage, no new taxes to balance the budget, and – the first piece of legislation he sent to lawmakers – the property tax cap, Espaillat said that now Cuomo “has to do something for poor and working class people.”
To remind everyone of the consequences at stake, Espaillat has installed a clock in the Senate that counts down the seconds until June 15 when the legislation expires.
During a phone call on Thu., May 5, Espaillat added another degree of pressure, vowing that if by June 1 nothing has happened to strengthen rent regulations, Democrats will take “an unprecedented step” toward resolving the issue.
What that might be he wouldn’t say, but it could provide a decisive moment in how many local tenants will be able to afford to live in their apartments in the coming years.
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About Rent Regulation
There are two types of apartments that are subject to price controls from New York State:
Rent-stabilized apartments are located in buildings with six or more units that were built between Feb. 1, 1947, and Jan. 1, 1974.
About half of the city’s two million renter-occupied housing units are rent stabilized, according to Census data from 2008.
Manhattan has 578,518.
While tenants in rent-stabilized units can have any income level, about 15 percent of households spend at least 80 percent of their income in rent.
Rent-controlled apartments are units in buildings built before February 1947 and are much more highly regulated as far as rent increases and who can live there.
There are less than 50,000 rent-controlled apartments in all of New York State.
So how do apartments become unregulated?
Landlords can increase the rent based on the amount set annually by the Rent Guidelines Board or by making improvements to the unit. If that increase puts the monthly rent over $2,000 and the apartment becomes vacant, the unit is no longer rent regulated. This is known as high rent/vacancy decontrol.
As prices in the city have risen over the years, this process has removed more and more units from regulation every year. In 1994 565 apartments were decontrolled. In 2009 13,557 units were removed from rent regulation, according to the data compiled by the NYS Division of Housing and Community Renewal.
The second way a unit becomes decontrolled is if the rent of an occupied apartment exceeds $2,000 and the household earnings are at least $175,000 in consecutive years. This process, known as high rent/high income decontrol, only affects a few hundred units a year.
Reducing the number of rent-stabilized apartments
As rents slowly climb in rent-regulated apartments, the number of units that have exceeded the $2,000 threshold and undergone vacancy decontrol has increased nearly every year since 1994.
1994 Bronx: 3 Manhattan:544
1995 Bronx:1 Manhattan:927
1996 Bronx:10 Manhattan:1,203
1997 Bronx:6 Manhattan:1,121
1998 Bronx:7 Manhattan:2,247
1999 Bronx:11 Manhattan:3,586
2000 Bronx:7 Manhattan:2,586
2001 Bronx:53 Manhattan:4,490
2002 Bronx:64 Manhattan:5,431
2003 Bronx:83 Manhattan:7,048
2004 Bronx:101 Manhattan:7,271
2005 Bronx:184 Manhattan:7,303
2006 Bronx:217 Manhattan:7,187
2007 Bronx:375 Manhattan:7,114
2008 Bronx:447 Manhattan:8,600
2009 Bronx:537 Manhattan:8,718
Source: NYS Division of Housing and Community Renewal
Who lives in rent-stabilized apartments?
Close to 30 percent of New York City households living in rent-stabilized apartments spend at least 50 percent of their income on rent.
Gross rent as percentage of household income
Total 1,001,215 households
80%+ 151,829 households
70-79% 34,825 households
60-69% 43,297 households
50-59% 57,860 households
40-49% 83,951 households
30-39% 119,877 households
20-29% 190,131 households
10-19% 198,372 households
1-10% 54,854 households
N/A 66,218 households
Source: U.S. Census
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