NYC ends rent freeze after 2 years, but neither landlords nor tenants are pleased

In 2015, property managers and landlords in New York City expressed outrage after the Rent Guidelines Board (RGB) voted to freeze one-year lease increases on more than 1.2 million rent-stabilized apartments. Never in the history of the board had the RGB failed to authorize at least a marginal increase to account for the increased cost of living. Rent for two-year leases only increased by 2 percent.

Then in June of last year, as if to add insult to injury, the RGB approve a rent freeze for the second consecutive year. The same marginal increase was approved for two-year leases.

The Rent Stabilization Association (RSA), which represents 25,000 local landlords, called the move “unconscionable.” They weren’t going to sit idly and accept the decision. They decided to fight back. They filed a lawsuit against the RGB in Manhattan’s Supreme Court, arguing that the RGB unlawfully took “tenant affordability” into consideration instead of the economic condition of the residential real estate industry. This, the RSA says, is in violation of the Rent Stabilization Law.

Fast-forward to today: the market is still strong, the cost of housing continues to rise—but it’s also an election year. All eyes have been on NYC Mayor Bill de Blasio, who’s up for election this November. Although he doesn’t set RGB policy, he appoints the 9-member board.

In April, in a close 5-4 vote, the RGB decided to end the rent freeze.

Initially, this seemed like great news for NYC landlords, property managers, and investors—but they aren’t happy. Neither are tenants. In fact, nobody is particularly happy with the RGB vote.

So what gives?

See, the RGB voted to increase rents at NYC’s rent-stabilized apartments—yet the rent levels they approved were marginal at best. The April vote specified that rents on one-year leases could be increased by 1 to 3 percent, and rents on two-year leases could increase by 2 to 4 percent. The final rate was set at the RGB’s meeting on June 27, with the RGB voting 7-2 to increase rents on one-year leases by 1.25 percent, and 2 percent for two-year lease extensions.

Landlords say that this isn’t enough of an increase. The RSA was pushing for a 4 percent increase on one-year leases and an 8 percent increase on two-year leases, citing increasing taxes and costs incurred by local property owners in recent years.

In addition, the RSA claims that rent-stabilized landlords have seen an 11 percent increase in their operating costs over the past three years—a problem exacerbated by the two-year rent freeze and the meager 1 percent increase allowed the year before that.

By the RGB’s own estimates, landlords’ costs have jumped 6.2 percent in the past year alone. This rise was driven by a 24.6 percent increase in fuel costs, an 8 percent increase in insurance costs, and a 7.8 percent increase in taxes.

“When rents are frozen and property taxes continue to grow, it’s not even a profit issue for owners—it’s about staying afloat, especially for the small mom-and-pop owners who are the true providers of affordable housing in this city,” says RSA spokesman Vito Signorile.

Tenant rights advocates aren’t buying it, however.

Using the same RGB study, tenant groups point to data showing that net operating income (NOI) on rent-stabilized buildings in NYC has increased every year for more than a decade. NOI jumped by almost 11 percent between 2014 and 2015 alone—the largest year-over-year increase since 1998.

No matter how you slice the data, it’s undeniable that the cost of living in NYC continues to go up. In addition, most of the units covered by the city’s rent stabilization law are older, making them more expensive to maintain over time.

“Costs always go up; they never go down, whether it’s insurance or fuel or water and sewer [taxes],” says David Schwartz, a principal at developer Slate Property Group. “Nobody ever wants to see their rent go up, but the fact is that it’s expensive to maintain these buildings.”

Meanwhile, Mayor De Blasio’s spokeswoman Melissa Grace says, “Sometimes the board’s decisions will be popular, and sometimes they won’t—but we’ve charged members with grounding decisions in the facts, including tenant affordability. When taken together with the lowest guidelines in history, including two freezes, these four years will continue to set a record at the board for prioritizing affordability.”