The state of the housing stock

The Housing Stability and Tenant Protection Act, passed by the state Legislature and signed into law by then-Gov. Andrew Cuomo in 2019, dramatically altered the finances of the rent-stabilized housing stock. Proponents of the law wanted to limit ways that landlords could raise rents and, in particular, curb incentives to exit the program through high-rent/high-income deregulation. They succeeded in doing that, but rents flattened and buildings dropped in value as a result. Many buildings in the program are now showing financial distress as expenses have continued to increase each year.

A recent Furman Center report shows that there is reason to worry that the current regulatory environment has set up a dynamic where around two-thirds of the rent-regulated housing stock is on a trajectory of financial distress — potentially including mortgage default and bankruptcy — that will result in deteriorating quality in housing for tenants. This would mean more heat and hot water outages, more pest infestations and more lead paint hazards, among other health and safety concerns.

That picture of the current stock brings us back to how the Board makes its decisions. As we noted, many people think that the mayor simply tells the Board how to vote. That has not been our experience. Nor has it been our sense of the experience of other chairs we have spoken with.

It is true that mayors often appoint members who are broadly sympathetic to either tenants or owners. Now, even with some members whose terms straddle previous administrations, Mayor Mamdani has tapped a majority of the incoming Board.

The mayor does not — and should not — “control” them. With a process designed to provide broad technical and public input, chairs and other Board members formulate proposed rent guidelines that reflect the data that the RGB’s research staff provides them. The Board staff and members take their work seriously. They must consider the data before them, and the Rent Stabilization Law requires the Board to make challenging calls to balance increasing costs for building owners with affordability concerns for tenants. If the record does not support a finding that the Board’s decision was based upon their statutory mandate, it is open to challenge.

Some have asked why a rent increase or freeze needs to be boiled down to a single number when so many buildings and building owners face different pressures and conditions. It’s a fair question, but right now, the law doesn’t allow for fine-grained distinctions. Each year’s rent guidelines are a blunt instrument that applies to every building with rent-stabilized units. This means that the same figure applies to a building in the Bronx composed entirely of 99 rent-stabilized units and to the one remaining rent-stabilized unit in a 99-unit luxury building in midtown Manhattan where the owner has no limitation on how much it can charge for those ”market rate” units.

The Mamdani administration will need to grapple with this blunt instrument, just as every previous administration has had to. Ultimately, the Board must pay close attention to the data to determine how rents should be adjusted — understanding that a freeze will likely harm buildings in deep financial distress even as it would aim to help tenants in buildings whose landlords are doing just fine.

The Board does not act alone

Whatever the Board decides, many stabilized buildings will continue to face financial distress. But the fate of the rent-stabilized housing stock does not solely rest with the Board. The governor, the Legislature, the mayor and the City Council can all act to ensure that the rent-stabilized housing stock has sufficient funding for maintenance and needed capital repairs. While the City and State have many tools at their disposal to address financial gaps, the three main avenues for helping distressed buildings are bigger rent increases, new subsidies or reduced costs for buildings in financial distress.

After the passage of the 2019 HSTPA, rent increases for rent-stabilized units can only be authorized by the Board (or, subject to stricter limits under the HSTPA and subsequent amendments, through temporary Major Capital Improvement (MCI) increases and permanent Individual Apartment Improvement (IAI) increases). And because previous amendments to the RSL have limited the Board’s discretion to target certain subsets of the housing stock, rent increases cannot be targeted to the buildings that need them most (not to mention the fact that tenants in the most distressed buildings tend to have lower incomes and are less likely to be able to afford those targeted increases). RGB rent increases will not be enough on their own to resolve the financial distress of many of these buildings.

Direct subsidies to preserve this stock will be very expensive, easily measured in the hundreds of millions of dollars, and soon into the billions of dollars each year — at a time when the City is already struggling to close significant budget gaps. Nonetheless, the City and state may need to subsidize a large portion of rent-stabilized housing to keep it from failing, and that will redirect resources from other priorities.

Broader changes to the regulatory and property tax regime that govern revenues and expenses for this housing stock might help, but none of those changes will be easy, and indirect subsidies come with measurable costs as well, even if they are not showing up in State and City budgets. It will be difficult otherwise to reduce costs, such as insurance and interest on mortgages, as these are set by third parties over whom government actors have relatively little control.

There are no easy answers to this growing problem. But as the politics heat up, it is important that the public understand the basic nature, power and obligations of the Rent Guidelines Board. All New Yorkers should be concerned about the long-term viability of the rent-regulated housing stock, and we are all on notice that it is at risk. This part of the housing stock is a precious resource for a city rightly committed to socio-economic diversity, and we should all look for a path forward to preserve it.

We assume that the mayor will work hard to make good on his promise to freeze the rent. If he doesn’t, many of those who voted for him will see it as a betrayal. If the Board, following its mandate, agrees, preserving the stabilized stock will require partnering with the governor, the Legislature and the City Council to address the impending financial crisis facing a large swath of this vital source of housing.