- REAL ESTATE EDUCATION
- GIVING BACK
Rent freeze hurts quality of affordable housing stock
July 6, 2016
For the second year in a row, the Rent Guidelines Board (RGB) voted for a zero percent increase in rent on one-year leases and a 2 percent increase on two-year leases.
While a rent freeze might sound like welcome news for tenants and make for good newspaper headlines or sound bites – the economic reality is that freezing rent increases makes it more difficult for owners to finance improvements and secure lending for new rental and affordable housing development. Operating expenses, such as taxes, water and sewer rates continue to rise at unsustainable levels.
Likewise, the cost for normal repairs and maintenance-for both material and labor- are also rising. Preserving the quality of New York City’s housing stock requires a reliable and growing income stream to meet ordinary operating expenses as well as to prepare for capital improvements which are vital for our old housing stock.
The most glaring increase in costs has been property taxes. Over the past three years, property tax assessments have gone up by 33 percent. According to the RGB’s own report, there has been a 7.5 percent rise in taxes in the past year alone, as well as a 3.2 percent increase in labor costs. Our real property tax system already places an inequitable burden on rental apartment buildings, and RGB’s research indicates that these taxes are the single largest expense for residential buildings.
Over the past 15 years, the tax burden for these residential properties (Class 2 properties) has averaged double digit increases. Class 2 properties now account for 23.8 percent of the City’s market value but 36.2 percent of the tax levy, while single-family homes (Class 1 properties) account for 45.8 percent of the City’s market value but only 15.1 percent of the tax levy. More in-depth data regarding New York City’s tax policy of imposing unsustainably high property taxes on rental apartments can be found on www.rebny.com.
In addition to the unrelenting increase in property taxes, the City requires mandatory maintenance, additions, and renovations to residential buildings – requirements which are not always affordable or easy for owners to meet.
These modifications range from the installation of geothermal systems and solar rooftop installations to new requirements for awnings and asbestos testing. Some of these local laws – including those with effective dates that have long since passed – have compliance deadlines spanning the next few years. With new maintenance requirements to keep track of and labor costs on the rise, property owners frequently find themselves investing far more capital into residential apartment buildings than what ever before.
At a time when preserving affordable housing is paramount, this pattern of freezing rents is jeopardizing the quality of our affordable housing. Rising expenses, including property taxes, will eventually lead to disinvestment in the very properties we are trying to preserve. While popular with tenants, the Rent Guidelines Board vote, when combined with other City policies and practices, is further undermining the public policy goal to preserve more affordable housing.