Rent-Guidelines Machinations
Research Finds Landlords’ Costs Way Down,
But New Vacancy-Increase Schemes Rumored
Giuliani Names Anti-Tenant Activist to Board
By William Rowen

With the city Rent Guidelines Board scheduled to vote May 7 on preliminary rent guidelines for 1998-99, the stage is being set for the annual battle over how much more tenants in the city's one million rent-stabilized apartments, hotel rooms, and lofts will have to pay.

Mayor Giuliani has filled three of the four empty seats on the nine-member board, two of the three vacant "public" seats and the vacant landlord seat. And despite three reports indicating that landlords' costs are down and profits up, board chair Edward S. Hochman has hinted that the RGB may allow vacancy increases above and beyond the 20 percent imposed by the Pataki-Bruno-Silver triad last year.

The final guidelines, which will be set on June 22, will go into effect Oct. 1, and cover all leases from then through Sept. 30, 1999.

Giuliani filled the landlord seat vacated by Joseph Forstadt with cable-TV show host Vincent Castellano. Castellano, who for a number of years has produced the virulently anti-tenant "Real Estate Nightmares," is known for his Reaganesque anecdotes about troublesome tenants and oppressed owners. He has also written articles for Real Estate News, the Queens Tribune, and the Small Property Owners of New York.

The new public members are Bartholomew Carmody, a certified public accountant in private practice and a native New Yorker living in Peter Cooper Village, and Edward A. Weinstein, also a CPA, who is a partner with the national accounting firm of Deloitte & Touche LLP. Weinstein also lives in Manhattan. The Mayor is reportedly considering Queens title-insurance attorney John Umland, who is awaiting clearance in a background check, for the remaining public seat.

Even if Umland is not appointed, Giuliani has significantly altered the composition of the board, which two years ago had three women and two African-Americans. The current eight members are all men, six white and two Latino. Umland is white.

The board did not actually meet until April 28, canceling two scheduled sessions at the last moment because Hochman could not attend. On April 7, the board members and public assembled, but Hochman never showed up or notified anyone he did not intend to come. Later, a source said that he had written down the wrong date in his datebook.

After the April 28 meeting, tenant advocates said that Carmody and Weinstein asked insightful questions of staff and a panel of tenant attorneys who gave a presentation on the Rent Regulation Reform Act of 1997.

Interest Rates Down

The RGB received three reports from staff researchers: the 1998 Mortgage Survey, the 1998 Income and Expense Study, and the 1998 Price Index of Operation Costs. The results of all three show that landlords' costs are down and profits up.

The Mortgage Survey showed that mortgage interest rates, at 8.6 percent, are the lowest in 16 years, falling from 10.1 percent in 1995, and mortgage terms and availability continue the trend of recent years in favor of the landlord borrowers. Lenders reported that 25 to 100 percent of their outstanding loans have been refinanced at lower rates. This survey also found that landlords' average monthly operating costs were only $301 per apartment, a mere 47 percent of the average monthly rent of $645, according to the Census Bureau's 1996 Housing and Vacancy Survey.

The 1998 Income and Expense Study, based on two-year old city Department of Finance data collected from landlords, showed that landlords' costs increased slightly more than their income, but still resulted in an increase in net operating income in stabilized buildings of 2.3 percent. However, this report stressed that its figures should not be interpreted to mean that landlords did poorly, noting that its data came from 1995-96, a year marked by an unusually cold winter and a spike in fuel costs.

Cost Increases Hit 30-Year Low

The 1998 Price Index of Operation Costs (PIOC), the most important index used in setting the rent guidelines, came in at 0.1 percent--the lowest increase in the 29-year history of the system. Fuel and taxes are the two main components of the index; fuel prices and consumption dropped 15 percent, owing to the mild 1997-98 winter, and taxes increased by a very small 1.2 percent. Insurance prices also declined.

Calculating the "commensurate rent increase" needed to compensate landlords for increased operating costs over the last year, the report said there should be no increase for one-year lease renewals and 1.1 percent for two-year renewals.

The board also uses two other ways to interpret the index. One, called "net revenue," adjusts the guidelines to balance that two-thirds of tenants renew their leases for two years--and concluded that no increase was warranted.

The other, Consumer Price Index Adjusted Net Operating Income (or "CPI Adjusted NOI"), factors in the effects of inflation on landlords' costs. Using that formula, the guidelines would be 0.5 and 1.5 percent for one- and two-year lease renewals, respectively.

Vacancy Increases: Son of Scam?

The RGB in the past 15 years has invariably allowed rent increases higher than could be justified by the price index. To justify this, the board has cited "qualitative" factors, some of which had some basis in reality, and at other times expressed its intent to phase out rent protections as its justification. The latter is a live factor in this year's deliberations, given that Mayor Giuliani--who has tightly controlled the RGB's decisions in the last three years--doesn't have to face city voters again, and has received significant contributions from the landlord lobby as he ponders running for higher office.

Last year, when the state set the surcharge on vacant apartments at 20 percent for two-year leases, the RGB, after consulting with city lawyers, decided to not set an additional vacancy allowance. This year, this issue has resurfaced with a vengeance. Chairman Ed Hochman has said publicly that the board has the authority to allow higher vacancy increases.

One possibility is that the city could follow the suburban boards which have adopted limited vacancy decontrol, allowing landlords to raise rents to match the most expensive comparable apartment in the building. The RGB approved a similar scheme in its 1995 preliminary guidelines, but a storm of tenant protests forced them to drop it.

The board has not yet released its Tenant Affordability Study, but many of the figures are already known and show that the affordability of rental housing in New York City is continuing to decline. One key statistic is the median rent-to-income ratio, measuring the percentage of tenants' income that goes to rent. In 1996, half of rent-stabilized tenants paid over 32 percent of their income in rent. The federal government considers more than 30 percent to be unaffordable.

A recently released study by the federal Department of Housing and Urban Development, reported in the Daily News on April 29, stated that "New York City has the most serious affordable-housing shortage in the country," and that the "city has a very high number of low-income renters paying extremely high rents."

No One Is Safe From Son of Scam

Former RGB director Tim Collins, now a tenant lawyer in private practice, said that all the landlord and tenant data indicate that "it's never been louder or clearer that this is the time for no rent increase in New York City." He explained that with the windfall that landlords are getting, they are not investing in their properties and improving them, except when they can pass renovation costs on to tenants with permanent rent increases.

"The only thing straining landlords is the weight of the cash they carry to their banks," he quipped. "While tenants continue to lose ground, landlords are getting record-high net operating income."

The end of the great 1997 rent-regulation battle may have lulled tenants into thinking that they are safe for now. But one lesson of 1997 is that landlords and the politicians they buy access to will undo tenants' rights in any way they can. The Rent Guidelines Board bears careful watching.

The Rent Guidelines Board meetings will hold its required hearings on June 16 and 18, and the final meeting to set the permanent guidelines on June 22. (See the schedule below.)