Testimony: A Landlords’ Recovery, not a Tenants’ Recovery
Samuel SteinOksana Mironova
Thank you for the opportunity to testify before the Rent Guidelines Board (RGB) as you consider various data points on the health and stability of the rent stabilized housing stock. We appreciate the invitation to share with the board our perspective on the data that the RGB staff has presented so far and to offer proprietary data from our annual survey, the Unheard Third.
The RGB’s actions will impact millions of New Yorkers, many of whom are struggling to remain in their homes.
Our names are Samuel Stein and Oksana Mironova, and we are senior housing policy analysts at the Community Service Society of New York (CSS). CSS is an independent nonprofit organization that addresses some of the most urgent issues facing low-income New Yorkers, including the city’s chronic unaffordability crisis. Our annual Unheard Third survey is the longest running scientific poll of a low-income community in the United States.
RGB Data Shows a Dramatic Reversal from Prior Trends – But Only for Landlords
This year, every member of the RGB has served at least one term. This means that everyone should recognize a start difference between the data the RGB staff compiled and presented this year, and the data they shared last year. One year ago, the data – much of it from 2021 – painted a portrait of both tenant and landlord hardships. Specifically, it portrayed deep losses for landlords in “Core Manhattan.” Newer, market-rate buildings had the biggest losses, most likely as a result of high-income flight from the city during the worst of the Covid pandemic. In our testimony last year, we argued that the market had returned to normal since 2021, and then some – asking rents were skyrocketing, vacancy was plummeting, and “Core Manhattan” was most definitely not suffering.
That is exactly the picture this year’s RGB data paints. Landlords’ Net Operating Incomes (NOI) are up 10.4 percent over the previous year. This increase is historic: the 4th highest jump in the past 32 years. The last time the RGB was presented with comparable NOI growth was the 2017 RGB cycle, when the board approved a rent increase that was less than half of last year’s adjustment. Over the long term—the last 32 years—landlords’ inflation-adjusted NOI went up 48.4 percent citywide, with the highest gains outside of Manhattan. Over this time period, Brooklyn’s NOI increased 153 percent.
Meanwhile, the data also shows that the proportion of income landlords put toward expenses went down 0.9 percentage points, as vacancies plummeted and rent collection rates rose – trends demonstrated in the Income and Expense report, the Mortgage Survey, and the initial findings of HPD’s Housing and Vacancy Survey. From a tenant’s perspective, low vacancy is a hardship. Tenants have little individual bargaining power against their landlord, as they have no place else to go. From a landlord’s perspective, low vacancy is a boon. Not only do they have more bargaining power in a negotiation with a tenant, but hundreds of applicants clamor for any available apartment, no matter the condition or location. Apartments turnover quickly, generating more and more revenue.
Simultaneously, commercial vacancies are down, and are subject to no rent regulation whatsoever, contributing to many landlords’ revenues.
In addition to regular rental revenue, rent stabilized landlords have received over $1 billion from Major Capital Improvements since 2019 alone, a massive additional transfer of income from tenants to landlords that is covering the cost of building-wide investments. Landlords also received $2.8 billion in ERAP payments. While we support ERAP and continue to fight for its expansion—because it is effective homelessness prevention—landlords have been repaid for the large majority of peak-Covid rent shortfalls.
In this year’s data, the biggest jump in NOI was in “Core Manhattan,” at 42 percent. In the longitudinal study, however, we see that NOI rose in every borough, and in 95 percent of Community Districts. Last year, the same report showed NOI decreases in 85 percent of Community Districts. This year’s data is the inverse of last year’s and bears out our and many others’ predictions that the market had rebounded.
The highest share of distressed apartments, and the biggest increases in distress, are in upper Manhattan and the Bronx. A large share of these distressed units is in subsidized buildings that are also rent regulated, with the distress resulting from low-income tenants being unable to afford to pay their rents. Many non-subsidized units in upper Manhattan and the Bronx face similar rent collection issues, though their distress is rooted in high debt loads, as a result of overleveraging. An RGB rent hike will do nothing to improve collections. Instead, it will plunge more families into deeper debt, setting up the conditions for their evictions. A viable alternative to mass evicting long-term, low-income tenants in favor of higher-income households in upper Manhattan and the Bronx is the provision of ongoing rental assistance.
Even though Manhattan may be an island, property ownership is not. The tech nonprofit, JustFix, recently calculated the percentage of rent stabilized buildings in “Core Manhattan” that share owners with rent stabilized buildings elsewhere in the city. They found that a majority – 54 percent – were in geographically diverse portfolios that included both Core Manhattan and other parts of the city. These portfolios included buildings in upper Manhattan, the Bronx, Brooklyn, and Queens. The impact of high NOI gains in “Core Manhattan” is not isolated to that part of the city; instead, the robust gains there are combined with modest gains and modest losses in the other four boroughs.
JustFix also researched landlord portfolio size, finding that the super majority of tiny (1 building) and small (2-5 buildings) landlords do not own any rent regulated units, 90 and 80 percent respectively. The vast majority of stabilized units are owned by landlords with large portfolios.
If NOI reporting shows that landlord incomes have more than recovered, the PIOC report suggests that the cost of running a fully rent stabilized apartment has stayed relatively steady from last year. This year’s PIOC figure and the commensurate rent increases—which, we strongly believe should no longer be presented in the absence of a comparable tenant figure—are significantly lower than they have been for three out of the past five years.
This year’s RGB data shows incomes growing faster than expenses for landlords, but it also shows the opposite for tenants. Real average wages decreased 6 percent from last year. This marks the second consecutive year of real wage decline – the only time that has happened in the history of the RGB’s Income and Affordability study. One in five renter families lives below the poverty line, and in fact, according to the Columbia Poverty Tracker, most New Yorkers (56 percent) are either “in poverty or low-income.” The Income and Affordability study showed that even as more jobs are added to the New York City economy, unemployment claims rose by 5 percent last year, and are 10 percent higher than they were in 2019.
New York City rents have risen far faster than overall prices, with a 965 percent increase in rent since 1968 compared to 797 percent increase in prices. This growth in New York City rents is 142 percentage points higher than the national average for this time period. As a result of combined job losses and rent increases, the city faces an ongoing stream of evictions, with rent stabilized tenants bearing the brunt. According to the Income and Affordability report, 58 percent of households who face eviction in housing court and qualify for Right to Counsel are rent regulated. In Brooklyn and the Bronx, 65 percent of evictions took place in rent regulated apartments.
Taken together, we see that the data the RGB staff has presented thus far shows that rent stabilized landlords have rebounded significantly since last year, but tenants continue to suffer and cannot afford another rent hike.
HVS Data Shows a Historic Tightening of the Rent Stabilized Market
The headlines from the initial findings of the 2023 Housing and Vacancy Study (HVS) were stark: at 1.4 percent, New York City has one of the lowest vacancy rates in recorded history. But for rent stabilized apartments, the figure was even more alarming: between 2021 and 2023, the rent stabilized vacancy rate fell from 4.57 percent to 0.98 percent. As the RGB’s Income and Expense and Mortgage Survey data confirms, rent stabilized landlords are collecting rent for more households than in prior years.
There was also a similar drop in market-rate vacancy, from 5.29 percent to 1.84 percent. Many market rentals are in partially rent stabilized buildings or in all-market developments that share owners with rent stabilized buildings, meaning they are also contributing to rising rent stabilized landlord incomes.
Beyond vacancy rates, the HVS provides many other insights. First, the relative affordability of rent stabilized apartments compared to market rent apartments continues to be vital to the city. Rent stabilized apartments remain the largest source of housing for low-income and working-class tenants. Rent stabilized tenants have lower median incomes than their market-rate counterparts, and they are also more racially diverse, include more immigrants, more people with disabilities, and more seniors. The HVS showed a decline in rent stabilized one-person households, from 46 percent in 2021 to 41 percent in 2023, possibly indicating more solo tenants taking in roommates to afford rising rents. The survey also suggests that rent stabilized tenants, like public housing tenants, are facing rising food insecurity issues, and are experiencing insecurity overall at a far higher rate than market-rate renters.
Rent stabilized housing is also a very wide spectrum – and this is one of the system’s strengths. While it includes very low-cost apartments (fewer and fewer of them each year), 15 percent of rent stabilized units are in the top price quartile for the city. Incomes among tenants overall have gone up since the last HVS, but sadly this is not an indicator of rising wages among low-income tenants. Instead, it is a statistical byproduct of new, wealthier residents counted in the survey, while low- and middle-income New Yorkers disappear. A recent report from the Fiscal Policy Institute shows that many New Yorkers area moving to counties with lower housing costs, saving 19 percent on average by moving out of the city. Many have ended up in Hudson County, northern New Jersey, and even Fairfield County in Connecticut, nearby and fairly high-cost places that are still more affordable than New York.
The two problems most associated with unduly low rents – declining conditions and increased warehousing – are not expressed in the 2023 HVS. Where conditions problems are rising fastest is not the bottom of the rent distribution, but rather the third quartile of rents ($1,640-$2,399). Meanwhile, occupied apartments in the lowest rent quartile saw a decline in their percentage of apartments with three or more problems. Across the city, the biggest jump in conditions problems was in buildings with between three and five units – by definition, buildings with no rent stabilized apartments.
Similarly, the HVS does not back up the claim that low rents are leading to intentional vacancy and warehousing. In 2023, 26,310 “vacant, unavailable” were rent stabilized, down from 42,860 in 2021, a 39 percent decline. With these 26,310 units, we do not know if they are vacant and unavailable because someone is moving in tomorrow or because they are off the market because of conditions issues. Overall, there are fewer units being held off the market than before the pandemic – and for that matter, before the 2019 revisions to the rent laws. This is a very good sign, showing that rent stabilization is doing what it is supposed to do: balancing the scales between tenants and landlords in a tight housing market without forcing landlords to keep units off the market.
CSS’s Unheard Third Survey Demonstrates Ongoing Struggles for Rent Stabilized Tenants
For an even more in-depth look at hardships faced by rent stabilized tenants, we offer data from our most recent Unheard Third survey. Every year, for the past 21 years, CSS has contracted a professional polling firm to conduct a statistically rigorous survey of New York City households. The last survey was conducted in July and August 2023.
When asked what housing problems they faced, the most common answer—from 43 percent of rent stabilized tenants—was being able to afford rent. Similarly, when asked what would help respondents get ahead economically, the most popular choice by far was affordable housing (over such other choices as affordable healthcare, more jobs, education, etc.). Most rent stabilized New Yorkers said they could not afford a $400 emergency expense without borrowing from a friend or family, selling something, or taking on debt. In the last year alone, about one in six rent stabilized respondents said they had moved in with other people because of financial problems.
One out of five rent stabilized tenants of all incomes owned rent arrears, while nine percent of all rent stabilized tenants were threatened with eviction by their landlord. Overall, we have found that more moderate-income households are facing eviction than in previous years. Before the pandemic, 37 percent of our tenant respondents (across all housing types) reporting an eviction attempt were moderate- or middle-income. In our latest survey, 53 percent of respondents were.
Across all rental housing types, Black households, households with children, and households with limited savings were all more likely to owe back rent and be threatened with eviction than tenants overall. Nearly one in three tenant households with children, across all income categories, faced an eviction threat. Latino households faced eviction threats at the same rate as tenants overall (9 percent) but were slightly more likely to owe back rent. One in four Latino households reported owing back rent in 2023.
The Data Do Not Justify a Rent Increase
A recent New York Times review of the economic data found that New York City’s pandemic recovery has been “incomplete and uneven.” “In many parts of New York, especially among the working class, it does not feel like the city is back on its feet,” the journalists wrote, and yet “many business leaders have been pleased by the city’s economic rebound.” This, too, is the story this year’s RGB data tells. The NOI statistics are the complete reverse of last year, with historic jumps in landlord incomes paired with a declining share of revenue spent on building expenses. But the economic markers for tenants have not much improved, with real wages declining two years in a row. The only positive data points for tenants are likely a mirage: a sign not of economic advancement for tenants, but rather of low-income displacement from the pool of tenants surveyed.
Meanwhile, landlords will now be able to permanently raise rents between tenancies to at least double—and in some cases more than three times—the former cap for Individual Apartment Improvement increases. Using normal rent stabilized turnover rates, we estimate that this change could result in an additional $1.5 billion in rent increases over the next five years, beyond RGB’s annual rent adjustments. Meanwhile, the legislature did not pass the Housing Access Voucher Program, a proposal supported by all parties presenting today, landlord and tenant – which would have helped thousands of low-income rent stabilized tenants remain in their homes when they could no longer afford the rents.
Given the rapid recovery and monumental NOI increases over the long term, paired with difficult conditions faced by low-income tenants, we recommend a rent rollback or a rent freeze. We also encourage the board to conduct another I & E audit in order to present the most accurate data possible.
If you have any questions, please do not hesitate to reach out to us at omironova@cssny.org and sstein@cssny.org.