Rent Board Forgoes Freeze, OKs 1 Percent Hike

The call for a rent freeze was made in several languages, but none that persuaded five members of the RGB.

Photo by: Norman Oder

The call for a rent freeze was made in several languages, but none that persuaded five members of the RGB.

Unwilling to deliver an unprecedented rent-freeze sought by tenant advocates and even Mayor Bill de Blasio when in campaign mode and belatedly before the vote, the mayor-controlled Rent Guidelines Board (RGB) Monday night agreed to a 1 percent percent increase in one-year rents and a 2.75 percent percent increase in two-year leases.

Though a 1 percent increase represents a historic low in the RGB's history, the decision infuriated tenants in the audience, who, before the vote at the Cooper Union in Manhattan, chanted, in call-and-response style, "Rent freeze! Roll back!"

"This is a huge disappointment," said Katie Goldstein, Executive Director of Tenants & Neighbors, after the meeting. "The RGB had an opportunity to begin a course correction to make up for past high increases that have contributed to the affordability crisis, and didn't. A third of rent-stabilized tenants are paying over 50 percent of their income towards rent and this decision will likely increase that amount."

Owners, however, also professed dismay at the result.

Patrick Siconolfi, executive director of the Community Housing Improvement Program, a trade group, called the 1 percent increase too little to account for owners' increases in costs. "It is wrong, irresponsible and will ultimately stifle investment in our city’s most important affordable housing stock," he said, according to Crain's New York Business.

Tensions within board

The RGB began its 2014 deliberations by voting on an increase for rent-stabilized hotels, including SROs. The owners' proposal of a 3 percent increase was voted down 5-4, with de Blasio appointees Rachel Godsil, Harvey Epstein, Sheila Garcia, Cecilia Joza, and Steven Flax in opposition.

That majority then agreed to freeze rent for hotel tenants, provoking deafening cheers from the audience and hinting that this board might do the same for rent-stabilized units. But it soon became clear that the swing vote in that first tally was moving the other way for the vote on apartment rents.

One owner representative proposing the increase for apartments, Magda Cruz, emphatically said the board was being subjected to improper political pressure, chided some colleagues for ignoring evidence, and declared, in tones verging on disgust, "I now find myself having to compromise beyond all economic facts." She then put forward not the owners' preferred 5.5 percent one-year increase—the largest of eight proposals on the table, which ranged down to a 6 percent cut—but rather one acceptable to the board's swing vote.

That provoked the board's new chairperson, freeze supporter Godsil, to observe that "we are also permitted to consider potential inequities that resulted in part by determinations made in previous years," during which landlords got a good deal.

The key vote in the 5-4 decision—supported by the two public members appointed by Mayor Mike Bloomberg and the two owner members—was public member Flax, vice president for community reinvestment at M & T Bank, one of six de Blasio appointees. (There are four public members plus the chair, as well as two owner and two tenant members.

"My colleagues just submitted a proposal that was going to come from me," Flax said, "and then accused the board, and perhaps this whole meeting" of participating in a charade.

"My intention was to push the conversation to the center-left position," he said emphatically. "I heard what you were saying," he said, gesturing to tenants in the audience, and repeating the words in Spanish. "I know what the city is going through. But I'm also want to say...I'm proud to say I developed and managed affordable housing. You're not going to be happy with what I'm going to say."

"The takeaway from that experience," he said in grave tones, was that it costs money to run buildings, adding, “I do believe that my proposal is sincerely a historic change." While not a political win for the mayor, he suggested it was a win for tenants.

Tenant member Garcia, in turn, criticized Cruz for a "political stunt" of her own for not putting forward the owners' proposal.

Public member David Wenk, a Bloomberg administration holdover, groused that "the process has really broken down this year," given that the RGB has typically "passed along somewhere between 50 and 75 percent of the increased cost burden" but instead was following "a political mandate for a rent freeze."

Godsil countered, calling such a "challenge to the process" troubling. "It is the data we reviewed this year, and not any mandate by anyone, that leads to the proposal I put on the table." She noted that, in 2008, the RGB's increase (4.5 percent) had taken into account past decisions that under-compensated landlords. "I think it is similarly appropriate," she said, to account for overestimation of owner costs.

Sara Williams Willard, an owner member appointed by de Blasio, said she came from an apolitical position. "I have taken it on the chin for this," she said, apparently referencing her vote—along with everyone but Cruz—to set a preliminary range of 0-3 percent for one-year renewals beginning in October.

Tenant representatives Garcia and Epstein supported a freeze with righteous energy—"net operating income is up eight years in a row!" Epstein declared—but it was clear that Flax held the balance on the board.

In the crowd, which frequently interrupted speakers with chants and shouts, drowning out deliberations and causing Godsil to frequently call for calm, a chant surfaced: "Steve, do the right thing!"

"Despite the disingenuous and in fact possibly duplicitous way some of my colleagues manipulated this vote, I have to vote my conscience," Flax said apologetically. "I have to say, this moment is a nightmare." He apparently was referring not to the vote itself, but the intense pressure he'd felt from both the right and the left, "some of it dirty, some of it principled."

"I would like to vote my conscience, also," Garcia countered. "Our mandate is to simulate a fair housing market," she said, indicating that the proposed increase was "not a fair housing market." Despite the seemingly small proposed increase, she noted of landlords, "they get MCIs," or major capital improvement increases.

A different year

The increase is the lowest ever in the history of the board, which, since it was established in 1969, seven times affirmed increases of 2 percent and 4 percent, respectively. There are nearly 1 million rent-stabilized units, representing some 45 percent of the city's total rental housing stock.

By acknowledging the pressures felt by tenants, the RGB under de Blasio presented a distinct contrast with the board under Mayor Bloomberg, when it was long chaired by Goldman Sachs executive Marvin Markus, known derisively to tenant advocates as "Marvin Markup."

Godsil in her academic work wrestles with questions of gentrification and racial justice. She spoke sympathetically after hearing tenant advocates testify about the impact of rent increases. Before the meeting—which was delayed nearly 50 minutes to allow people to get through metal detectors—she greeted several people in the audience.

Unlike in 2013, when the RGB held just one public hearing—during work hours and in Manhattan, provoking criticism from advocates and elected officials like de Blasio—this year it held an afternoon hearing in Manhattan and hearings that started at 5 p.m. in the Bronx, Brooklyn, and Queens. (Still, some believe the RGB could do much better at advertising the public hearings and offering translation.)

Despite such gestures, de Blasio was muted in recent weeks regarding a rent freeze—a reflection, some advocates suggested, of his need to maintain cordial relationships with the real estate industry, a needed partner to achieve his ambitious program of affordable housing construction and renovation.

Dueling perspectives

A rent freeze was backed by at least 21 (of 51) City Council Members, Public Advocate Letitia James, Comptroller Scott Stringer, Manhattan Borough President Gale Brewer and Brooklyn Borough President Eric Adams, among others.

Earlier this month, David Jones, president and CEO of the Community Service Society of New York (City Limits' parent organization), observed in a Daily News op-ed that, from 2007 to 2012, "the average rent went up by 14 percent after inflation —while income dropped by 4 percent." Meanwhile, net operating income for landlords went up 13 percent after inflation.

The RGB under Bloomberg, Jones observed, gave landlords increases sufficient to pay any increased costs, while relying on a price index that "grossly overestimat[ed] real changes in costs."

The RGB's 2014 Price Index of Operating Costs, or PIOC, cites a 5.7 percent increase in costs for rent-stabilized buildings. At the same time, the RGB reports that, from 2011-2012, net operating income grew by 9.6 percent, exceeding the 5 percent growth in rental income.

Ever since the prospect of a freeze emerged, landlords have been on the defensive. In testimony before the RGB in May, Jack Freund, Executive VP of the Rent Stabilization Association (RSA), called the board's deliberations "perhaps the most significant" in years. "We're looking for business as usual, so we can stay in business," he said. The RSA maintained that increases in taxes and other costs should directly translate into rent increases greater than those under consideration by the board.

The possibility of a rent freeze alarmed the RSA enough to launch a six-figure ad campaign. A 30-second TV commercial portrayed local landlords performing needed maintenance, then suggested a rent freeze would provoke blight. "Let's protect affordable housing so this doesn't happen to our neighborhoods," the narrator intoned. "A rent freeze hurts everyone."

The New York Post editorialized against a freeze and published an op-ed arguing that rents trail the rise in taxes, though with no mention of profits.

The Daily News published not one but also a second editorial opposing a freeze. (The New York Times editorial page sat out the debate, but did editorialize Monday about the labor dispute at the Metropolitan Opera.)

The Times-Ledger in Queens did back a rent freeze.

At Monday's hearing, landlords may have been outnumbered by the much louder tenants, many wearing 0 percent stickers, but they were by no means silenced. Some held signs saying, "no cost freeze, no rent freeze."

Different lenses

In a preliminary 8-1 vote May 5, the RGB agreed to consider increases of 0 percent to 3 percent for one-year leases, and 0.5 percent to 4.5 percent for two-year leases. Michael McKee of the Metropolitan Council on Housing suggested, "The entire evening was as scripted as any RGB meeting under Michael Bloomberg." While the range clearly represented more of a balance than the increase approved in 2013—4 percent for one year and 7.75 percent for two years—some tenant advocates had argued not only for a freeze but even a rollback.

Despite the recession from 2008 to 2012, attorney and former RGB executive director Timothy Collins told the board May 1, "rent-stabilized housing in New York City witnessed a significant increase in net operating income – rising from 35.7 percent of each rent dollar collected to 39.5 percent."

He quoted the 2011 commentary of RGB tenant representative Adriene Holder, who noted that, despite the recession, "rents were going up dramatically while operating costs were basically flat. This resulted in a huge and unwarranted windfall for owners."

"For the past five years the Board unconscionably and indefensibly inflated owner incomes while a homeless and affordability crisis mounted," Collins added, arguing that only a rollback would bring the ratio of O&M (operating and maintenance) costs to rent back to 2008 levels. "While this may seem like an extreme recommendation," he said, "it is made in the wake of an extreme abuse of the system."

Benjamin Dulchin, Executive Director of the Association for Neighborhood and Housing Development (ANHD), argued in a blog post that a common measure used by the RGB, the Price Index of Operating Costs (PIOC), had exceeded the RGB's reported Income and Expense Study by some 10 percent over 21 years, yet was still used to justify rising rents.

While it may seem logical that an increase in operating costs should lead to a rent increase, Dulchin noted that rents "in stabilized buildings remain constant during periods of market decline."

"This isn't a political favor. This isn't about a mayoral campaign promise," wrote Susanna Blankley of Community Action for Safe Apartments. "We are calling for a rent freeze because the data supports it, because New Yorkers need it."

Rents have also outpaced RGB increases. If a landlord had raised the rent by the full, allowable amount every year from 2002 to 2011, the increase would have been 36 percent, according to a report from NYU's Furman Center. However, average rent charged for stabilized units rose nearly 50 percent over that period, given that landlords can raise rents after vacancies and also collect costs incurred improving the building or individual apartments—as well as the presence of units that have voluntarily entered rent stabilization in exchange for tax incentives.

The Furman Center reported that the median income of those in rent-regulated units (including 38,374 rent controlled units, whose rents are set via a different mechanism) was $36,600 in 2011.

In testimony before the RGB in May, the RSA's Freund said the role of the RGB "is not to promote housing affordability" but "to preserve the housing stock."

The RSA often highlights the role of small landlords and that, of its approximately 25,000 members, some two-thirds own 20 units of housing or less. That, however, leaves a large majority of units owned by much larger landlords, some of them private equity funds that pay seemingly unrealistically high sums for buildings and move aggressively to decontrol apartments. (At the RGB hearing in Brooklyn last week, there were several reports of landlord harassment, according to the Indypendent.)

In response to what advocates term "predatory equity," Freund told the RGB that "you have a blunt instrument, which is one guideline. Your job is to help the majority of these buildings, not respond to these side issues."

Signals from the mayor

In March, de Blasio appointed four new members of the RGB, which has five public members, including the chair, plus two representing owners and two representing tenants. The new appointments, as well as the reappointment of tenant rep Epstein of the Urban Justice Center, buoyed advocates.

Epstein has noted that Westchester and Nassau counties—which have far fewer regulated units—have passed rent freezes. (As explained by McKee, the RGBs in Westchester and Nassau do not use the lagging price index employed by the New York City RGB, instead using fresher income and expense figures.)

In April, de Blasio appointed Seton Hall law professor Godsil, a former Assistant U.S. Attorney and associate counsel at the NAACP Legal Defense and Educational Fund.

She has proposed that cities like New York grant long-standing residents in gentrifying neighborhoods rental vouchers or low-interest loans so they might stay, considering it historic compensation for past governmental decisions that led to declines in property values and quality of life in those neighborhoods.

But on May 21, some two weeks after the board's preliminary vote, Deputy Mayor for Housing and Economic Development Alicia Glen seemed to nix a rent freeze. "I don't think that anybody's view is that putting a rent freeze is good for the rental stock," she said, according to Capital New York.

Glen did say that, based on the net operating income and margins for owners, a smaller increase would arguably "make some sense." A mayoral spokesman, trying to recover, claimed that Glen was only discussing a permanent rent freeze.

Last week, when asked if he backed a rent freeze, de Blasio demurred, saying he hoped the RGB would "think deeply" about the affordability crisis and the history of high rent increases. But hours before the meeting, his stance became more emphatic.

After the vote, a City Hall spokesperson said, "While Mayor de Blasio believed that a one-year freeze and a 3 percent raise on two-year leases was the best option for New Yorkers struggling in the affordability crisis, the administration is heartened that the RGB heeded calls to keep any increase at a historic low."