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Testimony Of State Senator Liz Krueger Before The New York City Rent
Guidelines Board Regarding Proposed Rent Increases June 15, 2004
My name is Liz Krueger and I
represent the 26th Senate District, which includes the Upper East
Side, East Midtown and Midtown areas of Manhattan. I want to thank you for providing me with this opportunity to
testify on the range of proposed rent increases for rent stabilized tenants-
anywhere from 3 to 5.5% for one-year leases and 5.5 to 7.5% for two year
leases. Even if the rent increases
ultimately approved are at the low end of the proposed ranges, I have many
serious concerns about what this decision would mean for the more than two
million low, moderate and middle-income rent stabilized residents of New York
City who are already facing nearly unprecedented levels of unemployment and
cost of living increases. During these extraordinarily
difficult economic times, I fear that rent increases of 3% and 5.5% will lead
to further hardships, and even evictions, for tens of thousands of New York
City’s families. The effects of these
increases on seniors, the disabled and other vulnerable New Yorkers on fixed
incomes would be especially grave. I strongly encourage the board to reconsider
its preliminary vote and to enact significantly lower guidelines. Such a decision would be entirely
consistent with the legislative mandate and jurisdiction of the Rent
Guidelines Board, which was established in 1969 to set rent guidelines that
counteract the effects of an acute housing shortage. Free market conditions
and the rules of supply and demand do not apply to the NYC rental market.
This shortage still exists—according to the 2002 Housing and Vacancy Survey,
the vacancy rate is 2.94%. A vacancy
rate of less than 5% creates abnormal market conditions. The RGB’s mission is to construct or
stimulate “normal” or “fair” rent levels in a market driven by chronic
scarcity and instability. Below are the key justifications for my position,
as well as suggestions about how the RGB can expand its role in preserving
affordable housing in New York City. Why Are Lower Guidelines Appropriate This
Year? · While
it is reasonable to expect tenants and landlords to share the burden of
increased operating expenses, this burden must be shared equitably. It is unconscionable for building owners
in one of the most profitable economic sectors of our economy to pass all of
their expenses onto tenants who have a median household income under $32,000
and are facing numerous other regressive taxes and fees. · Building
owners legitimately claim that their operating expenses have risen during the
last year due to the rising property tax rates and the cost of
insurance. However, the rent
regulated real estate market continues to be one of the most consistently
profitable investments in New York City.
This sector of the NYC’s real estate market remains so strong that
even after the recent rise in operating expenses, Crain’s New York Business described it on May 5th,
2003 as “one of the hottest segments of the New York real estate market…..The
stock market is volatile, and the commercial real estate is too risky for
many investors. Refinancing is
cheap. Rent regulated buildings offer
a consistent return.” · Owners
of rent regulated buildings have done extremely well during the past decade –
they have seen both their profits and the value of their properties rise
exponentially. According to the RGB’s
2004 Income and Expense Study, owners’ Net Operating Income (the amount of
income remaining after all operating and maintenance expenses have been paid)
has risen almost every year since 1989.
This same study reveals that owners’ average net operating income
increased by 18% from 1989 to 2002 after
adjusting for inflation. · This
year’s Price Index of Operating Costs (PIOC) must be understood in a larger
historical context. The dramatic
increase in Net Operating Income since 1989 suggests that the RGB has
historically overestimated owners’
operating and maintenance costs, and instituted guidelines higher than those
which were required to enable owners to properly maintain their buildings and
profit margins. Tenants received
increases of 2% and 4% in 2002 despite the fact that all research revealed
that owners’ costs actually decreased.
· The
RGB’s 2004 Mortgage Survey reveals that interest rates for new and refinanced
multifamily mortgages are at historic lows.
Low interest rates, combined with high levels of competition between
lenders, have created extremely favorable conditions for owners of regulated
buildings, and decreased the amount of revenue owners must allocate to debt
service on their properties. This
fact is not considered in the PIOC. · One
of the most important factors the RGB must consider is whether owners of
regulated properties have the necessary income to maintain their
buildings. The overall condition of
the city’s rent regulated housing stock is healthy and continues to improve;
the RGB’s 2004 Income and Expense Study reveals that only 7% of all
properties are distressed, down from 14% in 1990. · Landlords
have many additional methods to increase rents to account for costs and be
reimbursed for necessary repairs—such as MCIs, vacancy increases, luxury
decontrol and individual apartment improvements. · Furthermore,
owners of rent regulated units have the right to receive hardship increases
if they do not receive a certain rate of return on their investments. The fact that so few hardship applications
are filed each year reveals the overall health of the sector, as well as the
reticence of owners to open their books to inspection as is required during
the hardship application process. Larger Implications and Economic
Context of RGB’s Decision
· Section
26-510(b) of the Rent Stabilization Law requires the RGB to consider
“relevant data from the current and projected cost of living indices” in its
deliberations; the RGB members are also permitted to consider the effects of
their decisions on the availability of affordable housing throughout the
city. NYC is clearly in the midst of
an economic recession that began before September 11th, 2001. Inflation-adjusted wages decreased 5% in
2003. NY State has the highest number
of unemployed people of any state in the country—with the highest rate of
unemployment in New York City.
Unemployment rates increased in 2003 for the third year in a row,
climbing .5% to 8.4%. · There is a
direct correlation between RGB increases, the loss of affordable housing as
more units become subject to vacancy decontrol, and increased levels of
homelessness. Approximately 12,692
rent-stabilized units were deregulated last year, more than 8,200 of these
due to vacancy decontrol. In 2003, an
average of 38,310 people stayed in city homeless shelters each night; the
number of families staying in shelters was 50% higher than in 2001. The RGB’s proposed guidelines would
exacerbate the already dire circumstances of New York’s low and moderate-income
families. · The proposed guidelines
would also have significantly deleterious effects on middle-income
families. The preservation of
affordable rent regulated units is essential to efforts to keep middle-class
families in NYC and to the maintenance of healthy stable communities. If we truly want the city to maintain its
vitality and diversity, we must do all we can to ensure an effective rent
protection system. Other Important Roles for the RGB
in Protecting Affordable Housing
· The
RGB has made significant contributions to the public understanding of housing
issues by producing a wide range of empirical studies. This research role has made the RGB a key
participant in the ongoing public conversation about the fairness and effectiveness
of the rent stabilized system, and I encourage the Board to utilize this
resource to the fullest extent possible. · The
PIOC is an extremely imprecise and controversial measurement of owners’
income and expenses. The NYC RGB
should have the ability to make decisions based on owners’ actual yearly
data. The rent guidelines boards of
Nassau, Westchester and Rockland counties, which have the power to subpoena
owners’ revenue and income data, consistently pass significantly lower
increases than the NYC board. Tenants
in NYC should have the same right as tenants in Nassau, Westchester and
Rockland counties to know that the increases on their apartments are based
upon their landlords’ income and costs. · The
RGB has the power to adopt resolutions with respect to the legislative design
and administration of the rent stabilization laws. I strongly urge the RGB to pass a resolution calling upon the
State Legislature to require NYC landlords to provide data directly to the
RGB each year. · The
RGB should also pass resolutions asking DHCR to keep more comprehensive data,
to provide complete data to the Board and the public and to proactively
investigate complaints of illegal deregulation of apartments, questionable
MCI increases, and harassment charges.
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