Invited Testimony: Tom Waters and Vic Bach
Housing Policy Analysts, Community Service Society of New York
Thank you for the opportunity to present our concerns about the potential impact of rent guidelines on low-income New Yorkers.
In each of the last two years, this board has set guidelines that provided needed relief to tenants. In most years prior to that, the board seemed to focus exclusively on landlords’ expenses, so it is very encouraging that the 2014 and 2015 guidelines clearly reflected consideration of tenants’ economic situation as well as that of landlords. We applaud this and urge the board to continue this policy of considering both sides of this equation this year and every year.
The most recent survey evidence shows that conditions for tenants remain dire in the most recent rent and income figures from 2014, despite the fact that employment has finally recovered from the financial crisis of 2008 and the subsequent recession. The city’s unemployment rate dipped below 7 percent in 2014 and 6 percent in 2015 and stands at 5.5 percent as of March 2016. But even as unemployment finally declines, most income gains have gone to the highest earners. Low- and middle-income New Yorkers, including most rent-stabilized tenants, are still being left behind.
Rent-regulated tenants are concentrated in the lower 80 percent of the income distribution, and regulated apartments are still the largest source of housing for New York’s more than one million low-income households with incomes below twice the federal poverty threshold (about $38,150 for a family of three). Figure 1 shows the share of households in the city by housing type and income, using two approaches to categorizing incomes. On the left it shows the shares of various housing types for five equal-sized groups of households or quintiles, ranging from the 20 percent with the lowest income to the 20 percent with the highest income. On the right it shows the shares for five groups defined by multiples of the federal poverty threshold.
Figure 2 shows changes in inflation-adjusted income for the same five income quintiles. They show that as of 2014, incomes for the lower 60 percent of New York City households had not returned to their levels of 2008. Figure 3 shows that rents have continued to rise rapidly for households at all incomes.
These broad economic trends are the main drivers of rent burdens and other housing hardships for New York’s low-income tenants. They have caused rent burdens to remain at historically high levels for tenants in both rent-regulated and unregulated private market housing. They also provide the most likely explanation for a sharp increase in crowding among private market tenants who do not have a Section 8 voucher.
Incomes, rents, and rent burdens for regulated tenants
Because the New York City Housing and Vacancy Survey includes information on the regulatory status of the households in its sample, it enables us to focus directly on rent-regulated tenants and to compare their experience to that of unregulated tenants in the city’s private housing market. Figure 4 shows changes in rent and income for these groups from 2005 to 2014, demonstrating how rent has outstripped income for regulated tenants since the recent economic slowdown.
These changes are particularly acute for low-income tenants, defined as those with incomes below twice the federal poverty threshold. Their lower incomes provide less of a cushion against changes in either rent or income, and many of them are also more affected by economic swings because they are more likely to become or remain unemployed than those in higher-income, higher-skilled groups. They are also likely in the best of times to pay rents that are far above the generally recognized affordability standard of 30 percent of income. Figure 5 shows changes in rent and income for low-income private-market tenant households only.
Figure 6 shows the median rent burden, or share of income paid in rent, for poor and near-poor (incomes from 100 to 200 percent of poverty) private-market tenant households. Rent burdens for all low-income households worsened significantly during the boom prior to the 2008 economic crisis and have remained above their 2005 levels. Households that pay part of their rent through Section 8 vouchers are excluded from this analysis.
Rent pressures for low-ncome tenants can also be measured by examining residual income – the amount of money per household member that is left after paying rent, as shown in Figure 7. This measure tells much the same story as percent rent burden. Conditions worsened during the boom, and have since remained severe, this time with the puzzling exception of unregulated tenants in unregulated households.
Dramatic increase in crowding for unassisted low-income tenants
Last year we testified that the city Department of Housing Preservation and Development’s preliminary analysis of the 2014 Housing and Vacancy Survey showed a striking increase in crowding among renter households. HPD found that the proportion of tenant households with more than one household member per room rose from 11.5 percent in 2011 to 12.2 percent in 2014, a significant shift for such a short period of time. The rate of severe crowding (more than 1.5 household members per room) also increased from 4.3 percent to 4.7 percent.
A subsequent report from the New York City Comptroller’s Office confirmed this finding through analysis of the Census Bureau’s American Community Survey, showing that the rate of crowding among all households, including owners, increased from 7.6 percent in 2005 to 8.8 percent in 2013.
Now we can use the full HVS dataset to further explore this phenomenon. Our analysis shows that crowding has remained roughly constant for many groups of New Yorkers, but that it has worsened considerably for unassisted low-income renter households – those living in private market housing without a Section 8 voucher. Members of this group became sharply more crowded, regardless of whether their apartments were subject to rent regulation. And unlike the change in rent burdens, this shift clearly came after the economic crisis of 2008.
Figure 8 shows the crowding rate from 2002 to 2014 for three groups of renter households. One group consists of low-income households in the private market without vouchers; another consists of low-income households who either have a Section 8 voucher or live in public or subsidized housing; and the third consists of those with incomes above 200 percent of the poverty threshold. Figure 9 shows the severe crowding rate for the same groups.
The increases in crowding and severe crowding for low-income unassisted tenants are quite dramatic. Crowding went from 17 or 18 percent before the economic crisis to 21 or 22 percent after. The severe crowding rate went from 6 or 7 percent to 8 or 9 percent. The magnitude of the change is obscured when the experience of this most vulnerable group of tenants is averaged with those who have either higher incomes or subsidies to cushion them from the market.
The most likely reason for the shift is that vulnerable households doubled up with each other or took on additional household members in order to meet rising rents. It is interesting that this shift took place after rent burdens hit a plateau at around 65 percent of income. Perhaps doubling up is such an extreme step that households only undertake it when their rent burdens reach a high threshold. In any case, this increase in crowding represents a severe hardship which rent regulation has not been effective in preventing.
Research has shown several mechanisms by which crowded conditions harm tenants. For example, children’s school performance can suffer when their homes don’t provide quiet places to study and to sleep. Matthew Desmond’s recent book, Evicted, also demonstrates the kind of emotional stress that can result from doubled-up living arrangements. Even more alarmingly, such living arrangements are often a precursor to homelessness. We urge the Rent Guidelines Board to take this indicator of tenant hardship very seriously.
Decisions of the Rent Guidelines Board are extremely consequential for the well-being of low-income tenants. In recent years, the RGB has broken with its former pattern and voted for guidelines that took these consequences into account. The statistics presented in our testimony do not allow us to evaluate how much this has impacted tenant well-being, because most of them reflect the state of affairs just before the 2014 guidelines went into effect. Unfortunately, it is very unlikely that conditions for tenants have moderated enough even to return to their already very difficult state of 2005, because many factors outside of this board’s control have continued in the wrong direction.
Tenants remain in a dire situation, while this year’s Price Index of Operating Costs forecasts a decrease in operating costs, indicating that landlords are likely to see an increase in net operating income this year even without rent increases on lease renewals. This makes it easy to justify a rent freeze or rollback, even considering the good that the most recent guidelines have already done.