New York City’s Rent Guidelines Board (RGB) has voted to cut rents for rent-stabilized apartments again, although you might not know this from media reports.
Earlier this week, the RGB, the city watchdog responsible for setting maximum legal rent increases for the city’s roughly 1 million rent-stabilized units, voted to allow rent increases of 2.75% for one-year leases and 5.25% for two-year leases. .
In nominal terms, this is a rent increase. Rents did fall compared with the year’s inflation rate of 3.3%, as measured by the Consumer Price Index (CPI).
According to a recent housing survey conducted by the city, rents for rent-stabilized apartments actually fell 3% from 2021 to 2023.
However, media outlets reporting on the board’s decision framed it as a shocking rent increase.
“Your rent is going up.” contain The headline of one article suggested that the New York City RGB follow the lead of the Kingston Rent Board in New York, which voted in favor of a nominal 15% rent cut in 2022.
“People will be homeless as a result. People will not be able to pay for their medications as a result,” said Adán Soltren, a tenant representative for the nine-member RGB.
This seems unlikely given the actual level of nominal rent increases allowed. The median price for a rent-stabilized apartment is $1,500 per month, which means a 2.75% increase would mean a $41 per month rent increase.
Although the average income of rent-stabilized tenants is lower than that in market-rate apartments, New York’s rent stabilization program is not means-tested. Many of the program’s beneficiaries are themselves wealthy owners of second homes in the Hamptons, reason has been reported recently.
In a free market that allows for a lot of new construction, rents can and do fall. Developers make money by building new homes, putting downward pressure on existing housing. Landlords of older buildings charge what they can get. They can also redevelop the building into higher quality housing if the rate of return is less than a reasonable rate of return.
Under New York City’s regulatory regime, most new construction is foreclosed on by zoning laws, driving up market rents. Rent stabilization keeps rents well below market rates for rent-controlled properties, which are also protected from redevelopment.
Rather than increased supply driving down prices, price controls drive down quality and scare scarce capital away from other markets where reasonable returns can still be obtained.
Owners of rent-stabilized buildings in New York complain that ongoing effective rent cuts are “cutting” their buildings’ funding. 2019 amendments to New York’s rent stabilization law largely eliminated the ability of landlords to deregulate their units or raise rents to cover the costs of renovations and capital improvements.
This leaves RGB-approved rent increases as the only way for landlords to increase building operating income. The value of rent-stabilized buildings has plummeted since 2019, sending banks that lend heavily to New York’s multifamily industry into financial turmoil.
A new generation of rent control policies adopted by states like California, Oregon and even New York (which approved “just cause eviction” policies covering some non-rent-stabilized housing earlier this year) allow landlords to raise rents by a certain percentage plus inflation.
The logic is that landlords get paid in dollars, and when the dollar falls in value (and prices rise), larger allowed increases are needed to offset a system that would otherwise force real rents to fall.
New York’s decades-old rent stabilization system provides no such subsidies. Instead, RGB has effective carte blanche to price nearly 1 million apartments across the city.
The result is a rent-stabilized housing stock increasingly starved of income and capital, while tenant advocates welcome any rent increases allowed (even if they are effectively rent reductions).
