Invited Testimony by CSS housing policy analysts Oksana Mironova and Tom Waters at the New York City Rent Guidelines Board Public Meeting
April 25, 2019
Thank you for the opportunity to present our concerns about the potential impact of rent guidelines on low-income New Yorkers.
Figure 1: Low-income households, by housing type (2017)
Source: CSS Analysis of 2017 New York City Housing Vacancy Survey (HVS).
The decisions of the Rent Guidelines Board (RGB) are among the most important factors influencing the well-being of low-income New Yorkers.i As illustrated in figure one, 365,000 low-income households live in rent regulated apartments in New York City, twice the number who live in public and subsidized housing combined.
Figure 2: Asking rents 2011-2014 & 2014-2017, all housing types
Source: 2017 New York City Housing Vacancy Survey summary.
According to recent data released by the U.S. Census, New York City’s population has been declining since mid-2016, even as the city continues to add jobs.ii Housing affordability is likely contributing to this decline. As illustrated in figure two, median asking rents increased by 29.9 percent above inflation between 2014 and 2017. For comparison, asking rents between 2011 and 2014 went up by just 2.1 percent above inflation.
Figure 3: Median rents in stabilized and unregulated apartments since 2002 (2017 Dollars)
Source: CSS analysis of 2002-2017 HVS data.
Looking back further and focusing in on stabilized units, median rents have grown by 30 percent above inflation since 2002. It is important to note that tenant turnover in rent stabilized units influences this comparison. However, stabilized tenants are, overall, fairly stable: The average stabilized tenant has lived in their apartment for 14 years.
The dual culprits for the rapid rise of stabilized rents were high RGB guidelines during the administration and the impact of rent law loopholes, which allow landlords to raise rents well above the annual guidelines.
Median unregulated rents also rose substantially since 2002, increasing by 43 percent above inflation. This widened the gap between the typical regulated and unregulated apartment to $430.
Figure 4: Median incomes in stabilized and unregulated apartments since 2001 (2016 Dollars)
Source: CSS analysis of 2002-2017 HVS data.
Rents have far outpaced incomes in stabilized apartments. Even though median rents climbed by 30 percent above inflation, the typical stabilized household was earning the same inflation-adjusted amount in 2016 as in 2001.
For the better part of the 2000s, median incomes for tenants living in rent stabilized apartments were in a long period of stagnation, declining from $45,000 in 2001 to $40,500 in 2010 (in 2016 dollars). Incomes began rising in 2010, recovering to their inflation-adjusted 2001 level by 2016.iii
Inflation-adjusted median incomes for tenants living in unregulated apartments have been on an upward trajectory, even though they also experienced dips in 2004 and in 2008, as a result of the economic impact of 9/11 and the recession.
The income gap between regulated and unregulated units has doubled from $11,300 in 2001 to $22,000 in 2016, a result of new luxury development and vacancy deregulation (threshold currently set at $2,775) of stabilized apartments in Manhattan below 96th Street.
Figure 5: Median rents in stabilized and unregulated apartments since 2002: low-income tenants only (2017 Dollars)
Source: CSS analysis of 2002-2017 HVS data.
Rent stabilized apartments are not income-tested or subsidized. However, controlled rent growth makes them more accessible and affordable to low-income New Yorkers than unregulated apartments. As illustrated in the chart above, in 2017, the median rent payed by a low-income household living in a rent stabilized apartment was around 240 dollars lower than the rent paid by an unregulated household, accounting for borough, building age, and apartment size.
However, rents paid by both stabilized and unregulated tenants have increased substantially since 2002. Among low-income stabilized tenants, the rent increased by 26 percent above inflation. Among unregulated tenants, the rent went up by 21 percent.
A crucial part of rent stabilization–the right to a lease renewal–may explain the slightly greater increase in stabilized rents among low-income tenants. Unregulated tenants have weaker tenure rights and are more vulnerable to displacement. Landlords in gentrifying neighborhoods have the option of refusing to renew low-income tenants’ leases, even if a household wants to stay. Stabilized tenants have greater security of tenure, and are more likely to stay in the apartment (and, in the low-income sample), even as a unit becomes more expensive.
Figure 6: Operating costs vs. rents in stabilized buildings
Source: RGB Income and Expense and PIOC studies, 2003-2019.
According to the latest Real Property Income and Expense (RPIE) analysis, landlords of stabilized buildings spent about 59 cents out of every revenue dollar on operations, thus generating 41 cents in income.ivHistorically, operational expenditures have fluctuated from 59 to 65 cents.
As illustrated by the dark blue and pink lines in the graph above, RGB’s annual rent guidelines have, over the years, tracked closely to about 65 percent of the Price Index of Operating Costs (PIOC) cost projections. These escalations provide landlords with enough revenue to operate a rent stabilized building while generating a profit.
After the rent freezes in 2015 and 2016, rent growth that can be attributed to RGB’s one year rent guidelines fell below the PIOC cost projections. But, at that point, it began to track with the average cost of operating expenditures.
As illustrated by the red line in the graph above, collected rent growth, which accounts for both one and two year leases and increases above RGB’s annual guidelines, has far outpaced both cost projections and operating expenditures. Collected rent growth has risen more quickly than RGB’s annual rent guidelines, partially because of rent law loopholes. Low rent guidelines over the past few years seem to have mitigated the negative impact of these loopholes, stabilizing the growth of collected rents.
Figure 7: Median rent to income ratio among low-income New Yorkers since 2002
Source: CSS analysis of 2002-2017 HVS data, using a CSS subsample.v
As demonstrated earlier, rent stabilized tenants’ incomes have not kept up with rising rents. Among low-income renters in particular, inflation-adjusted rents increased by 26 percent since 2002. As a result, the median rent to income ratio –the share of income a household spends on rent –among low-income stabilized households increased from 40 percent in 2002 to 52 percent in 2017.
Typically, renters who spend more than 30 percent of their income on rent are considered rent burdened; those who spend 50 percent of their income on rent are considered severely rent burdened.
While rent stabilization is not a housing subsidy program, it has helped to indirectly lower rent burdens among low-income tenants in the past. By 2017, the gap between stabilized and unregulated low-income tenant rent burdens essentially disappeared.
Figure 8: Share of low-income tenants unable to afford a $25 increase in monthly rent (2018)
Source: 2018 Unheard Third survey.
With high-rent burdens and limited choice within the market (low-rent apartment vacancy was about 2 percent in 2017),vi many low-income New Yorkers find themselves in extremely difficult housing situations.
Among low-income stabilized renters, nearly half reported being unable to afford a $25 increase in rent in 2018. For those households, even a small monthly rent increase can exacerbate housing insecurity, leading to doubling up, eviction, or homelessness. According to homeless advocacy groups like Picture the Homeless and Coalition for the Homeless, as well as the city’s own research, the city’s homelessness crisis is directly tied to the growing housing affordability gap, driven in no small part by increasing rents. The number of people sleeping in a shelter each night rose from 31,000 in year 2002 to 64,000 in 2019.vii
RGB’s decisions have a real impact on the well-being of low-income tenants. Over the past few years, the New York City Rent Guidelines Board (RGB) has begun to pay more attention to tenants’ economic conditions while setting rent guidelines. This has provided a dose of much needed relief to tenants. The RGB should institutionalize this practice and make its decision-making process more transparent.
With skyrocketing rents, diminishing low-rent housing stock that leaves tenants with minimal choices if they are priced out of their rent regulated apartments, and evidence that landlords are generating 41 cents in income on each dollar, we recommend that the RGB issues low rent guidelines for another year.
i CSS defines low-income as incomes below twice the federal poverty threshold, or about $40,400 for a family of three.
ii Justin Fox, New York is creating jobs but losing people, , April 22, 2019.
iii Likely as a result of both rising incomes among existing tenants and tenant turnover.
v Because of unavoidable inconsistencies and inaccuracies in respondent reporting of household income and contract rent, this analysis of rent burdens is based on a sub-sample of renter households. CSS subsample parameters include: rent-paying households only, excluding rent-free and owned housing; households with a positive HVS contract rent burden; households within the middle 90 percent of the income and rent distributions.
viSelected Initial Findings of the 2017 New York City Housing and Vacancy Survey, Table 7. Low-rent = under $999.
vii Coalition for the Homeless analysis of NYC Department of Homeless Services and Human Resources Administration and NYCStat shelter census reports.