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Inside The Rent Guideline Boards Latest Decision

Call it a failed opportunity for Mayor Bill De Blasio to give rent regulated tenants a major and much needed break. On Monday June 23rd 2014 the new Guidelines Board of New York City handed down their first set of decisions regarding the latest round of rent hikes for those tenants who have one and two year leases. In a 5-4 vote the governing body handed down 1% rent increases for one year leases and 2.75% for two year leases. The deciding vote surprisingly came from Bill De Blasio appointee and public representative Steve Flax who sided with the building owner’s reps. Interestingly enough Flax did deride those he voted with stating that the deal that was being presented was actually his idea and for the other side to put it on the table was nothing more than a political gimmick. The decision was ultimately was met with jeers and boos by both sides of the rent increase fight. For tenants, they came away feeling betrayed by Flax and a lost chance for a long awaited rent freeze. For the landlord/building owners groups, they saw the record low rent increases as being woefully low and won’t cover the increases in operating costs. The only group coming out of the session were tenants of SROs and boarding houses who received a 0% increase. As of now there are only 17,000 SRO (class A and B) units still left in the city. For many who reside within them, the rents are three to four times the legal rent as dictated by the Rent Guidelines Board.

Building owners and others in the real estate sector came out of the processors feeling no better than did the activist groups or the vast majority of tenants who sat in on the vote. The local magazine City Limits focused on the real estate disappointment. The piece started off with the outrage by executive director of the Community Housing Improvement Program Patrick Siconolfi who stated “It is wrong, irresponsible and will ultimately stifle investment in our city’s most important affordable housing stock," To push the point even further Building owner representative Magda Cruz lashed out at the public and tenant reps for supporting a rent freeze, calling it a political stunt which ignores the current financial realities as she sees it. Sighting the latest RGB reports she stated that she was forced to go against her better judgment in supporting the proposal. She claimed that the reports themselves suggested a 5.5% rent increase was warranted, something she was pushing for early on. It is true that operation costs did increase considerably. Broken down, the following increases were as followed: Overall operation costs rose by 5.7% while fuel costs price increased by between 5.6% and 7.8%. Real Estate taxes saw a 5.0% increase on class two properties. Labor costs are also up, 3.0%.
The findings in the cited report were much more mixed than Magda Cruz was willing to acknowledge, however. While there were positives found by researchers including overall economic growth which grew by 2.7% and that 2013 saw the creation of 83,100 new jobs throughout the five boroughs, poverty and evictions also increased substantially.

Between the years of 2012 and 2013, the rate of evictions increased by 0.4%. This comes even though actual number of eviction cases fell. This is due to the fact that many rent regulated tenants tend to be unaware of their rights as residents or lack the resources to maintain a challenge in housing court. As it is the number of people who are collecting cash assistance also rose by 0.6%. This is the fifth straight year that the number of respondents saw substantial increases. Researchers found that the rate of poverty has exploded in all five boroughs. In 2011 poverty rates increased by 20.9% while 2012 saw a 21.2% jump in poverty rates. When broken down by borough, the numbers should come as little surprise. Staten Island which saw the smallest influx of poverty saw an increase of 11.6%. Queens was second on the list with 16.2% while poverty rates in Manhattan rose by 17.8%. In an unfortunate state of predictability Brooklyn and the Bronx fared the worst. The number of the poor in Brooklyn increased 24.3%. The Bronx saw a massive 31.0% jump.

When broken down by age groups, 18 year olds saw the largest increase in poverty rates at 31.4%. The next age group was between the ages of 18 and 64 rose by 18.4%. Residents 65 years old or older saw their rate of poverty increase by 19.1%. Families who live in poverty increased by 18.2% , while families with more than one child under 18 years of age saw a jump of 26%. Related to the financial woes by those who find themselves in poverty are the massive increases to their rent which continues to take up larger and larger portions of tenants’ income. Half of all tenants are now paying 33.6% of their gross salary towards rent. According to the authors of the report, “Rent stabilized tenants are facing a higher financial burden than tenants on the whole, with a median gross rent-to income ratio of 34.9%, meaning a majority of rent stabilized tenants are not able to afford their apartments, based on the HUD benchmark for housing affordability.” The further break down to how the increase in rent to salary ratio can be found in the above link to the RGB reports.

The results connected to increase in poverty are rather alarming. As of 2013, the number of those who were homeless was at 49,000, up 14.1% from the year before. This is the highest rate of homelessness in New York City since the Great Depression according to several sources.

Leading up to the vote Mayor Bill De Blasio called for a rent freeze, citing unwarranted rent hikes over the past several years along with the rise in the above mentioned hardships faced by rent regulated tenants. But as noted in an article written by Andrew J Hawkins for Crains Magazine, De Blasio seems to have been undercut by one of his own staff members, Deputy Mayor Alicia Glen, a former Goldman Sachs executive, who publicly spoke out against any rent freeze. She also reached out to at least two members of the RGB, Steven Flax and the Chairwoman Rachel Godsil. Glen, has since denied any lobbying for rent hikes on any tenants saying the administration was uniform in supporting a rent freeze. Two unidentified members were quoted in the article as saying that her office was supporting rent hikes and felt that the administration was giving mixed messages. .
Alicia Glen was quoted in the Crain’s article speaking publicly against the rent freeze stating that, "I think that if you look at the data, and I'm not the world's expert on the data, there is a strong argument that based on the net operating income and the margins that [landlords] have enjoyed in this very high-rising rent environment over the past couple of years, I think there is an argument to be made that this year a smaller increase would make some sense,”

The one board member under focus after the vote is Steven Flax who was heavily lobbied by both sides of the fight. Flax has been the regional community reinvestment manager for M&T Bank for the past twenty years. The bank provides mortgage refinances and loans and has many rent regulated building owners as clients. According to the Hawkins, the bank received several calls from many building owners threatening to pull their business from the bank if Steven Flax voted in favor of the rent freeze. The Mayor’s office was pressuring Flax to vote for the freeze in what became a tug-of-war situation. In the end Flax proposed the 1% increase for the one year leases and 2.75% increase on two year leases during a May preliminary hearing. As it turned out, his proposal was introduced by the building owner’s side of the Rent Guidelines board in order to guarantee Flax’s vote.
Only time will tell how tenants’ rights groups will move forward from here. The failure of the RGB to deliver a rent freeze at a time when political will seemed at its apex has been somewhat dispiriting to lower and middle income, rent regulated tenants. But what is known at this time is that both sides will use the remainder of this year and the beginning of next to position themselves to force a rent freeze for tenants’ groups or larger rent increases for those who represent the real estate industry.
Until next time…

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