Despite intense pressure and advocacy from Mayor Bill de Blasio and other major New York City elected officials, the City Rent Guidelines Board (RGB) voted against a projected rent freeze and approved the lowest rent increases in City history at the RGB Final Vote in June.
The RGB adopted lease renewal guidelines for stabilized apartments and lofts of 1% or a one-year lease and 2.75% for a two-year lease for leases commencing between October 1, 2014 and September 30, 2015. The vacancy allowance prescribed by State law is 18.25% for a one-year lease and 20% for a two-year lease. There is a sublet allowance of 10%. Once again, there is also a 0% increases for all classes of hotels, rooming houses and SROs.
In the history of the RGB, there have never been guidelines adopted below 2% for a one-year lease. Although the rent increases are extremely low, the adoption of these guidelines can be considered a victory since the board was expected to vote in favor of the City’s first ever rent freeze. Mayor de Blasio, who supported a rent freeze when campaigning last summer, continued his advocacy for zero rent increases through the morning of the Final Vote.
As a result of a new transparency law passed by the City Council in December 2013, the members were required to submit individual proposals for the Rent Guidelines three days before the vote. Although Owner Member Magda Cruz submitted an individual proposal calling for a 5.5% hike for a one-year lease and a 9.5% hike for a two-year lease, the owner advocate placed a proposal of small increases from Public Member Steven Flax on the table for a vote in order to avoid a rent freeze. Flax, who was irate that his proposal was suggested by another board member, ultimately supported the proposal and was the deciding vote in the 5 to 4 decision. Although it seemed as if Flax was prepared to vote against his own proposal, the de Blasio appointee said he needed to vote with “his conscience” and pointed out that “it costs money to run buildings.”
Following the vote, the board members quickly left the stage as tenants, who were convinced that a rent freeze would be adopted, stormed the front of the auditorium to protest the decision. A statement released by Mayor de Blasio following the vote stated that although he was disappointed that a rent freeze for one-year leases was not adopted, the smallest rent hikes in City history was a step in the right direction for tenants of rent stabilized apartments. Just two days after the vote, however, media sources reported that the Mayor was in fact outraged with the RGB’s decision.
When the Rent Guidelines process began in March, the Rent Stabilization Association (RSA) and the entire housing industry were expecting the RGB, which consisted of six new members appointed by Mayor de Blasio, to begin a push for a rent freeze. It must be noted that although avoiding a rent freeze is in fact a victory, the Mayor and the RGB ignored the continuing rise in costs that owners face on a yearly basis. This year, the RGB calculated a 5.7% Price Index of Operating Costs (PIOC), with all components used to calculate the percentage increasing for owners, include property taxes and water and sewer rates. The difficulties of rising costs that owners struggle with were completely disregarded by most of the members of the RGB. If the Owner Members had not supported Steven Flax’s proposal, it is quite possible there would be no increases at all.
From the moment the Preliminary Rent Guidelines were voted on in early May, the RSA encouraged strong owner participation throughout the six weeks leading up to the Final Vote. After holding a special membership meeting to prepare owners on what they must do to avoid a rent freeze, dozens of RSA members made their voices heard by testifying at the four public hearings held by the RGB in Manhattan, Brooklyn, Queens and the Bronx. Without high owner participation and dedication in this year’s Rent Guidelines process, certain members of the RGB would not have been able to hear an owner’s side of the story and understand the importance that rent increases serve when maintaining buildings. The RSA worked tirelessly to convince the RGB that zero increases would be catastrophic to the City’s affordable housing stock, but because of action from our members, a rent freeze was prevented.
The role that Mayor de Blasio played in this year’s Rent Guidelines process is a strong indication that this is not the end of his advocacy for a rent freeze. Next year, all nine members f the RGB will be de Blasio appointees when Magda Cruz and the Public Members David Wenk and Carol Shine, who were holdover appointees from former Mayor Bloomberg’s administration, will be replaced by three new members. Because of this, the fight to earn reasonable rent increases for owners next year has already begun. The RSA will not take a back seat after this victory and neither should RSA members.
Message from RSA President Joe Strasburg
Going into this year’s Rent Guidelines process, a rent freeze seemed all but inevitable. Mayor de Balsio had appointed a majority of the members of the Rent Guidelines Board on the basis that “they understood the plight of tenants.” The Mayor himself, running as a candidate, had called for a rent freeze during last year’s guideline deliberations. This year, the Mayor seemed to back off that position asking the RGB members to “consider the facts and numbers,” only to call for a rent freeze just hours before the final vote.
So, the good news this year is that we managed to avoid a rent freeze. Much of the credit goes to the RSA members who attended and participated in the Public Hearing process that spanned all the Boroughs except Staten Island. Except for the Bronx, we had a very strong owner participation in Manhattan, Brooklyn and Queens. Owners set forth a strong case for why a rent freeze was not an appropriate response to a situation in which all the costs of operating rental properties had increases substantially. Not the lease of these increases were costs imposed directly by City government including real estate taxes and water and sewer charges, but also the many costs mandated by City government including façade improvements, back-flow prevention devices and the many nuisance fines and penalties imposed on property owners.
The bad news is that the rent increases were not much higher than zero this year – only 1% for a one-year lease and 2.75% for a two-year lease. These low increases may be an indicator of the broader direction this Administration is moving with regard to the real estate industry. For example, the New York Post recently reported that the Administration was seeking to cut back on the rental payments to property owners willing to lease their properties to homeless families. We have also heard that the City has already begun to squeeze the fees payable to developers of affordable housing in New York City.
If this Administration is simply going to squeeze the City’s real estate industry harder and harder, they may soon discover that they have killed the goose that lays the golden egg. The stabilized housing sector alone contributes $17 billion of economic activity and 160,000 jobs each year to the City’s economy. Squeezing this sector harder and harder will only diminish the ability of the City to provide jobs and opportunity to its residents.
Yet, this seems to be the direction the Mayor is headed. Next year, the Mayor will have appointed all the members of the Rent Guidelines Board and there will be little opportunity to accomplish the maneuvers that averted a rent freeze this year, [as mentioned in the above article]. We will need to work very hard indeed to convince this administration that rent freezes will only diminish housing opportunities in this City.
The squeeze that Mayor de Blasio is exerting on the real estate industry extends to Albany as well. As you know, a Republican-ledState Senate is the only that that has stood between property owners and total disaster. And by disaster, I mean such measures as giving the New York City Council total control of the rent laws which would lead to the elimination of the existing de-regulation provisions, the re-regulations of unregulated apartments and an all but permanent rent freeze. But these threats are now very real.
Mayor de Blasio helped engineer the support of the left-wing Working Families Party for Governor Cuomo’s re-election efforts and the Governor, in return, promised to campaign for a Democratic takeover of the State Senate. The Independent Democratic Conference (IDC) a small group of Democrats who had entered into a power sharing agreement with the Senate Republicans, promptly dissolved that agreement in favor of rejoining the Senate Democratic Majority.
Editor’s Note: Mr. Strausburg emphasized that unless the Republicans won enough seats to regain outright control of the Senate in the November elections, the State Senate would effectively be run by Mayor de Blasio and the squeeze on housing would continue. He also stated that the difference between a 0% and a 1% rent increase may have been more symbolic than anything else, but the difference between Republican and Democratic control of the State Senate would be more of a life or death difference for the City’s rental housing industry. And…yes…you read it right – good Democrats usually vote for more regulations on your private property!]