Tom Waters and Victor Bach
Housing Policy Analysts, Community Service Society of New York
At Public Meeting
New York City Rent Guidelines Board
April 23, 2015
Thank you for the opportunity to present our concerns about the potential impact of rent guidelines on low-income New Yorkers. Last year, this board took an important step in the right direction by passing relatively low guidelines for rent-stabilized renewal leases. Unfortunately, this step was not sufficient to repair the harm done by excessively high guidelines in the past. This year, the board should go further in correcting course and provide needed relief to tenants who have not yet truly recovered from the financial crisis and recession.
Rent-regulated apartments are still the largest source of housing for New York’s more than one million low-income households. (“Low-income” describes households with incomes below twice the federal poverty threshold or about $38,100 for a family of three.) Table 1 shows the number of households in the city by income and housing type. Note that rent-regulated tenants with Section 8 vouchers are counted with the public and subsidized tenants in this table.
Since the 2008 economic crisis and recession, these tenants have been hard hit by excessive rent increases and stagnating incomes, resulting in damaging increases in rent burdens. Figure 1 shows how rents, incomes, and rent burdens have changed since 2007, using the most recent available data, which does not distinguish rent-stabilized from other renters. Table 2 shows the underlying figures for the percent changes shown in the graph.
These numbers make it clear that rents are far outstripping incomes, resulting in rapidly rising rent burdens, and they also show that the increases authorized by the Rent Guidelines Board are a significant part of the problem. This analysis is based on the U.S. Census Bureau’s American Community Survey for 2007 through 2013.
Another survey, the New York City Housing and Vacancy Survey, enables us to focus directly on rent-stabilized tenants, but it is only conducted once in three years, and the 2014 data has not yet been fully released. The New York City Department of Housing Preservation and Development has published some preliminary findings from the 2014 HVS. These findings do not include figures focusing on low-income rent-stabilized tenants, but they do clearly show a worsening picture for the city’s rent-stabilized tenants as a whole.
From 2011 to 2014, the median rent for rent-stabilized apartments rose by 11.9 percent, or 6.3 percent above inflation. Incomes rose by 5.0 percent, or 0.3 percent below inflation. This squeeze is also evident in the increased rent burden on the median stabilized tenant, who went from paying 31.9 percent of income as rent in 2011 to 33.1 percent in 2014. There was also in a sharp increase in overcrowding, possibly as a result of households doubling up or taking on additional members in order to meet the rising rents. The share of apartments with more than one person per room rose from 11.5 percent in 2011 to 12.2 percent in 2014.
We have presented analysis of the state of low-income renters in the previous HVS, from 2011, in past testimony to the Rent Guidelines Board and in our Community Service Society Policy Brief, Making the Rent: Before and After the Recession, published in 2012. Although rent stabilized tenants fared better than unregulated ones during and after the economic downturn, the guidelines enacted by this board failed to adequately protect them, even as they enabled landlords to enjoy increases in net operating income every year except 2008, as shown in the RGB staff’s research.
Our analysis of the HVS showed that from 2005 to 2011, unassisted low-income tenants in rent-regulated housing saw their standard of living decline by 7 percent after rent changes are taken into account. In other words, inflation adjusted income minus inflation adjusted rent per household member decreased from $402 per month in 2005 to $379 per month in 2011 (in 2011 dollars). This was better than the 15 percent decline experienced by unregulated renters but cannot be considered a fair outcome, given that landlords’ net operating income increased substantially over the same period. Net operating income rose from $324 to $396 over the same period (also in 2011 dollars), an increase of 22 percent. Landlords’ incomes continued to grow rapidly after that. By 2013, net operating income rose to $454 (in 2013 dollars), representing an additional increase of 11 percent above inflation. (This is calculated from the 2007, 2013, and 2015 editions of the RGB’s Income and Expense Study.)
A similar pattern can be seen in the American Community Survey data, which includes tenants in all types of housing. Figure 2 shows the decrease in inflation-adjusted residual income per capita since 2007.
Rent-regulated tenants with incomes above twice the poverty threshold have also seen worsening rent burdens. Another 255,000 rent-regulated tenants have incomes between two and four times the poverty threshold – this group includes the median rent-regulated tenant. Figure 3 shows how rents, incomes, and rent burdens have changed for this middle-income group (including both regulated and unregulated tenants), and Figure 4 shows the same information for renters of all incomes.
In light of these trends in rents and incomes, it would appear that the private rental industry has not suffered a decline as a result of the economic crisis, certainly not a decline comparable to the losses in income that continue to beset New York renters, particularly low-income tenants.
Decisions of the Rent Guidelines Board prior to last year contributed to the growing rental affordability crisis since the recession. After the financial crisis, the Price Index of Operating Costs sharply diverged for several years from the actual expenses of landlords, and this significantly exacerbated this problem, but the main problem has been the RGB’s apparent policy during the Bloomberg years of authorizing increases that would be sufficient to hold Net Operating Income constant, without regard for the state of tenant incomes, and without considering that landlords also receive numerous non-RGB rent increases. This was no more a proper policy than it would be if the RGB made a practice of setting guidelines that hold tenant residual incomes constant without regard to the effect on landlords’ bottom line.
Last year, the RGB broke that pattern and voted for guidelines that began correct for its previous tilt toward landlords. This was an encouraging development, but it was not sufficient to restore the financial health of tenants harmed by the previous increases. This year, fuel prices dropped sharply while other prices measured in the Price Index of Operating Costs rose modestly, justifying a rent freeze even without the need to correct for past errors. The board should therefore continue to correct course by approving guidelines that roll back rents modestly.