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Despite Lingering Pandemic, RGB Reports Justify Need for Rent Increases

Improved Tenant Conditions & Increased Owner Costs Prove RSA’s Arguments

Although the COVID-19 pandemic continues to have a major economic impact on New York City, this year’s reports issued by the City Rent Guidelines Board (RGB) show that tenant conditions have greatly improved while owner costs continue to rise.

Historically, RSA has always stressed the significance of the RGB Price Index of Operating Costs (PIOC). Increased owner operating expenses were always a good indication of how the Board would decide on rent guideline increases. However, as you have seen over the last seven years, that practice has gone out the window with pro-tenant appointees to the Board, as well as politically-motivated directives.

This year, we can argue that the most significant study issued by the RGB is the 2021 Income and Affordability (I&A) Study. This report highlights year-to-year changes in many major economic factors affecting the City’s rent-stabilized tenant population, including, but not limited to, wages and eviction data. Although we certainly expected this year’s I&A report to reflect negative unemployment numbers as a result of the pandemic, extensive and generous government financial assistance has put the vast majority of income-burdened tenants in a good position after one year of the pandemic.

For example, over the last 13 months, the federal government provided three economic impact payments (EIPs), commonly known as stimulus checks. For qualified households and individuals, the first EIP last April was for $1,200 for individuals and as much as $3,400 for a family of four (up to an additional $500 for each qualifying child). The second EIP, which was approved in late December 2020, was for up to $600 for individuals and up to $2,400 for a family of four (an additional $600 was provided for each qualifying child). The third EIP, which was authorized just over one month ago, provided qualified individuals with up to $1,400 and up to $5,600 for a family of four (an additional $1,400 was provided for each qualifying child). So, for example, over the last year, a qualified family of four received as much as $11,400 in stimulus payments regardless of employment status.

Additionally, extended unemployment assistance has been provided throughout the pandemic. From the onset, the first federal stimulus package provided an additional $600 per week in unemployment assistance. As a result, unemployed individuals began earning as much as $4,800 per month, or as little as $3,400 per month, through the end of July 2020. Beginning in August 2020 through August 2021, Presidential executive orders and additional stimulus packages provided unemployed individuals with an additional $300 per week in unemployment assistance.

On top of generous stimulus payments and extended unemployment assistance, New York State is preparing to unveil a $2.4 billion federally-funded rental relief program that will provide eligible tenants, regardless of their immigration status, with up to 12 months of rental arrear payments. Furthermore, New York State approved the Excluded Workers Fund in this year’s State budget, which will provide undocumented immigrants throughout the State with generous financial assistance (see page 13 for more information). This is significant because a major argument made by the Tenant Members of the RGB last year was that undocumented tenants who lost their jobs would be hurt the most by a rent increase because they were not entitled to the same government-funded financial benefits as legal citizens were.

Another major report issued by the RGB is the 2021 Income and Expense (I&E) Study. Under the de Blasio Administration over the last seven years, the Tenant Members have placed a major emphasis on owner Net Operating Income (NOI), which is the amount of income an owner has after all major building operating and maintenance expenses are paid. De Blasio’s appointees to the RGB have argued that despite yearly increases in the PIOC, the fact that NOI continued to rise year after year was the only indication that they needed to enact rent freezes or historically-low rent guidelines.

Over the last seven years, RSA argued that if the Board continued to adopt inadequate and politically-motivated guidelines, owner income and reserves would eventually begin to deplete. Last year, the I&E showed a 0.6% decline in NOI, the first time the report had shown a drop in owner income since 2002-2003 and a clear indication that inadequate rent guidelines were having a negative impact on the City’s rent-stabilized housing stock.

This year, the I&E showed a 2.9% increase in NOI. The Tenant Members of the Board are expected to once again use this data to argue that owners are in fact doing well despite past rent freezes. However, this modest increase does not paint a full picture of what building owners faced in 2018-2019, which is the time period of data that the 2021 I&E focuses on. During that period, the RGB enacted its first rent increase after two consecutive years of rent freezes. Furthermore, the Legislature enacted the Housing Stability and Tenant Protection Act (HSTPA) in June 2019, which imposed the most tenant-friendly laws in State history. The I&E even states that “…it is important to note that the Housing Stability & Tenant Protection Act of 2019 went into effect in June 2019, midway through the year of data used in this study. Therefore, this report only partially reflects the significant impact of the changes in the law.”

This is significant because the RGB staff acknowledges that despite an increase in NOI, this year’s report does not fully paint the picture of the impact of the HSTPA on building owners in 2019. With building owners expecting that the Legislature would enact the most anti-owner laws in history, the vast majority took necessary steps early in 2019 to ensure that they would be able to make much-needed repairs and improvements to their aging buildings ahead of the enactment of the laws. This includes, but not limited to, major capital improvements (MCIs) and individual apartment improvements (IAIs), which became severely limited once the new laws went into effect in mid-2019. Ultimately, these critical building improvement projects approved before the enactment of the HSPTA undoubtedly had an impact on increased NOI.

Last but not least, the 2021 Price Index of Operating Costs shows that building owner operating expenses increased once again, this year by 3.0%. This year’s PIOC is a direct result of increases in nearly all components calculated by the RGB. This once again includes increases in property taxes (+3.9%). Additionally, there were increases in labor costs (+2.8%), utility costs (+2.1%), insurance costs (+18.8%) and maintenance costs (+3.1%). The only operating expense components to decrease were the costs in fuel, which fell 3.3% and administrative costs, which fell 0.7%. In the PIOC report, the Board’s own recommended commensurate ranges for rent guidelines start no lower than 2.0% for a one-year lease and no lower than 2.4% for a two-year lease.

Although we anticipated that the PIOC would be higher this year, all of the 2021 RGB reports have painted a clear picture that another rent freeze is unwarranted. This year’s reports, coupled with last year’s reports that were blatantly ignored for political reasons, justify a return to rent increases. As previously mentioned, next month’s issue of the RSA Reporter will outline all of the important data that you will need to know when preparing your own testimony. 

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