Why the Poor Tax Is Wrong
by Kenny Schaeffer

To state the obvious, rents in New York City continue to run out of control. The federal Department of Housing and Urban Development found last year that New York City’s housing crisis is the worst of any city in the nation, and the New York Times reported that even the middle class cannot find housing here. The real-estate market may be unusually “healthy” from the perspective of owners and investors, but the housing situation for other New Yorkers remains in critical condition.

Major deregulation and substantial vacancy increases have pushed owners’ profits to record levels, while their operating costs are steady and financial costs are down. While rents and profits rise, incomes have not, and poverty remains endemic.

In this context, unwarranted rent increases enacted by the city Rent Guidelines Board, particularly those targeted at low-income tenants in low-rent apartments, have a devastating impact on the city’s housing-affordability crisis and contribute to homelessness.

Rent-to-income ratios

In New York City, more than half of all rent-stabilized households cannot afford their rents, according to the federal 1996 Housing and Vacancy Survey (HVS), which showed the median rent-to-income ratio to be above the federal hardship level, 30% of income. A quarter of a million families—26.9% of rent-stabilized households—pay more than half their monthly income in rent, another 6.9% pay 40-49%, and for another 5.1% rent consumes 35%-39% of their total income. In contrast, in 1960 renters paid an average of 19.5% of their income for rent, and in 1991 it was 28.5%.

Housing costs, particularly the “poor tax,” hit black and Latino families hardest.

As of 1993, 62% of apartments renting for less than $400 a month in New York City were occupied by African-American and Latino families, who were paying an average of 58% of their income in rent. In 1981, the poorest 20% of New York households spent about 60% of their income on rent. By 1993 they were spending 80%.

The surcharges on low-rent apartments imposed by the RGB from 1983-1989 and 1994-1998 have contributed to the virtual elimination of rent-stabilized apartments available for under $500 a month, even as poverty remains epidemic and the waiting list for public housing in New York City is now eight years long.

Between 1981 and 1993, the total number of apartments renting for under $450/month (in constant 1993 dollars) declined by over 400,000, from 1.17 million to 690,000. From 1993 to 1996, the number of rent-stabilized apartments renting for under $400 declined from 23% of the stock to just 13%. That number has continued to decline.

The number of rent-stabilized apartments renting for less than $500 declined by almost one-third between 1993 and 1996, from 396,000 to 274,000, a loss of 122,000 apartments affordable to households with annual incomes below $20,000.

Many people living in these apartments can’t even afford these low rents; 64% of families living in apartments renting for under $400 have annual incomes below $15,000. These families cannot afford any rent increase, let alone higher increases that the ones imposed on all other tenants. Rent increases imposed on the poorest tenants have resulted in deprivation of other necessities and in evictions, which accelerates the eradication of low-rent apartments via steep vacancy increases.

A “minimum rent” makes no sense in a city with endemic poverty The low-rent surcharge is rationalized by claiming that a “minimum rent” of $500 for all apartments would be ideal. This argument might hold water if all households had a minimum income of $20,000 a year, because $500 a month (or $6,000 a year) is exactly 30% of that. However, almost half of all rent-stabilized households have annual incomes below $20,000, and hundreds of thousands have incomes below the poverty level. In New York City, 1.8 million residents live in poverty (defined as 125% of the federal poverty guideline), including 38% of all children and 50% of all nonwhite children in the city.

Private food lines are unable to meet demand. The city has only recently agreed to stop denying food stamps and other benefits to eligible applicants.

Low-rent surcharges do not lead to increased investment in housing maintenance.

Ironically, despite its direct contribution to the elimination of units affordable to low-income New Yorkers, the low-rent surcharge is justified as helping to preserve affordable housing by providing more money for its upkeep. However, there is no support for the theory that providing higher rents to owners without specific and enforced maintenance standards results in increased maintenance.

One of the arguments advanced in favor of vacancy decontrol in 1971 was that increased rents would lead to increased investment in preservation, even without controls or regulation. On the contrary, as the Stein Commission reported, maintenance declined even as 400,000 units were deregulated between 1971 and 1974.

In 1999, housing maintenance standards continue to be unenforced. By 1998, there were 3,000,000 uncorrected housing-code violations, and the number of city housing inspectors was at an all-time low. The city Housing Litigation Bureau is so understaffed and overworked that tens of millions of dollars in fines go uncollected. HLB attorneys are limited to heat and hot-water cases and are unable to bring “comprehensive cases” even against buildings with hundreds of violations.

Welfare is not the answer.

Welfare programs do not adequately protect New York’s low-income tenants from the effects of unaffordable rent increases. While tens of thousands of families have been able to obtain interim relief under the Jiggetts lawsuit, countless others have been unable to, due to inadequate funding of civil legal services for the poor, and tens of thousands more have had benefits denied or terminated under “the cutting edge of welfare reform.” Further, Jiggetts is not available to all individuals, such as people receiving SSI or other disability benefits (typically $550/month). It also does nothing for low-income working people.

Even to the limited extent that public assistance does absorb the costs of rent increases for some low-income families, that is not a reason for the RGB to impose such increases when they are not statistically justifiable, simply to transfer public-assistance money to owners. The real-estate industry doesn’t need, or qualify, for welfare.