Mayor and Tenant Members Recognize Need for Rent Increases but Undercompensate
Despite owner operating costs at the highest level it’s been under Mayor Bill de Blasio’s Administration, the City Rent Guidelines Board (RGB) voted in favor of the second-lowest rent guidelines in RGB history with a 1.25% increase for one-year leases and a 2% increase for two-year leases commencing October 1, 2017 and ending on September 30, 2018 (see page 4 for more information).
The majority of the Board, excluding Owner Members Scott Walsh and Mary Serafy, strongly believe that owners have been overcompensated by past rent guideline increases, particularly under former Mayor Michael Bloomberg’s Administration, and that, despite a 6.2% increase in the Price Index of Operating Costs (PIOC), owners are continuing to make large profits on their buildings.
In front of one of the rowdiest crowds of tenants and tenant advocates in recent years, the motion for these inadequate rent increases, which was the only motion put on the table, was made by Tenant Members Harvey Epstein and Sheila Garcia. The motion was approved with 7 votes in favor and 2 against by the Owner Members. The Owner Representatives on the RGB never had the opportunity to make a motion or even comment on the motion under consideration.
Although Mr. Epstein strongly believed that a rent rollback was necessary, or at least another rent freeze, he also stated that over the last few years, the City and this Board have been moving in the right direction by setting the lowest guidelines in history over this period of time. With other proposals submitted by the Board calling for higher increases, Mr. Epstein seized the opportunity to ensure that the lowest possible increases were adopted by the Board this year.
With data clearly in favor of higher rent guidelines, as well as the Board blatantly ignoring their own commensurate ranges when setting a preliminary range, we know that Mayor de Blasio was once again controlling the outcome of this year’s RGB deliberations. Although the Mayor did not publicly endorse any particular rent guideline for this year as he had done in the past, these historically low increases indicate that the Mayor and his RGB appointees believe that owners should not be properly compensated for their rising operating expenses.
Furthermore, a spokesperson for the Mayor was quoted in the New York Post after the Final Vote, saying “We will never go back to the days when the landlord lobby got big rent hikes.” Regardless of how high operating expenses will be in the future, it is safe to say that if Mayor de Blasio is re-elected, we could expect similar outcomes over the next four years.
In addition to Mayor Bill de Blasio continuing to have influence over the Board, owner participation at the RGB public hearings throughout the month of June were at an all-time low with only 17 property owners testifying at the five public hearings throughout four boroughs. This number is a far cry from the dozens of speakers that used to come out annually to testify.
Every year, RSA prepares our members during the RGB deliberations with a special membership meeting and materials that help owners prepare testimony for these hearings. In addition, RSA staff is at the forefront advocating on your behalf at all of the RGB meetings and hearings, but a lack of owner participation further convinced many Members on the Board that property owners are not struggling despite record-low guidelines.
Mr. Epstein harped on this during his motion, stating that a poor showing by owners is an indication that owners are continuing to make substantial profits on their buildings and that zero-to-minimal rent increases are appropriate for struggling tenants.
While it is understandable that owner turnout at RGB public hearings was low in light of the influence that this Administration has had on this Board over the last four years, it is important to realize that although they are undercompensating, the Tenants Members and the Administration have finally recognized the need for some form of rent increases. This is undoubtedly a step in the right direction.
In the months leading up to next year’s RGB deliberations, RSA will further educate the Members of Board to show them why the RGB does not have the needed data available to properly gauge owner profitability and that the Net Operating Income (NOI) component of the RGB Income and Expense Study is incomplete at best. The Board cannot accurately determine that all stabilized properties are sufficiently profitable and RSA will work tirelessly to get make sure that these facts resonate.
RSA’s educational efforts, along with owner participation, could be the difference between lower and higher rent guidelines moving forward.