The Real Estate Board of New York to The New York City Rent Guidelines Board Regarding Rent Guidelines for 2024-2025

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An important part of the housing ecosystem we represent are the owners and managers of tens of thousands of rent stabilized units. Thank you to the members of the New York City Rent Guidelines Board (RGB) for the opportunity to provide our perspective regarding rent adjustments for the city’s rent-regulated apartments.

The annual rent guidelines established by the RGB are the only meaningful, system wide path for financial solvency, and therefore housing quality, for stabilized apartments. As we have noted annually since the passage of the Housing Stability and Tenant Protection Act (HSTPA) in 2019 and the elimination of vacancy allowances, these adjustments are also the principal way to change rents at turnover as well. These rent adjustments are critically necessary for owners to keep up with routine costs such as property taxes and insurance and keep their buildings in a state of good repair.

Therefore, given the importance of the board’s decision, and to help the RGB make such decisions based on the most recent data available on the owner side, REBNY, RSA, and SPONY commissioned a study led by HR&A Advisors to study more current revenue and expense data and change over the last four years. Conducted in April, the study includes data for 2023 that was submitted to the City of New York in March of 2024.

This study utilized 1850 owner-provided TC201 tax forms from 2019-2023, representing over 780 buildings, to examine increases to owner expenses and the impact on income on a longitudinal basis. This is the third year we have undertaken this exercise, and in the RGB staff reports last year and this year our expense information from each of the prior years was affirmed.

Presently, the TC 201 data shows, yet again, that property taxes, fuel, and insurance are driving expense growth, and expenses have increased 10.8% over the last year.

To keep buildings in good physical condition for the people who live in them, we encourage this Board to consider holistically the decreasing net operating income (NOI), decreasing income, and increasing expenses and distressed building stock in its deliberations for the 2024 guidelines.

In that holistic lens, let’s place the Manhattan NOI numbers in context. Manhattan has some of the most expensive real estate and land prices in the country. This means that any new construction is going to cost more, and its debt numbers will be more, than elsewhere, and that existing apartment buildings are going to be assessed at a higher value as well. It has a significant number of larger buildings due to the permitted zoning and development history of New York City, and along with portions of the Brooklyn and Queens waterfront, an outsized share of newer construction. That newer construction was more expensive to build and by the board’s own reports, that new construction was built under the 421a tax incentive program and provided nearly all of the newly stabilized units in the last decade. These properties have higher rents because of those higher costs, and while they are required to pay a mini tax and generate tens of millions of dollars per project in mortgage recording and construction sales taxes, they are not presently paying the 27% or higher share of their residential revenue in City taxes.

The stabilized system should not be judged by the outlier. The Signature Bank stabilized pool sold at a nearly 40% discount to the value of the stabilized properties. The number of distressed buildings increased again per the RGB staff reports for the sixth year in a row, with 27.1% of distressed buildings in the Bronx. In pre-1974 Bronx stabilized properties (which are predominately stabilized properties), NOI is down 18.5%. The average citywide monthly rent is $1574, below the average citywide monthly expenses of $1664. The RGB’s responsibility is to this system of stabilized properties citywide.

Unfortunately for the City’s fiscal health, decreases in NOI do result in an adverse fiscal impact on property taxes. For every 1% drop in NOI across the rent-stabilized stock, rent-stabilized apartments will generate $67.3 million less in property taxes. Potential NOI reduction is estimated between 40-60% across the rent-stabilized stock by early 2030s if current expense and income patterns persist. This means that the property tax revenue generated by the City’s rent-stabilized stock could fall $1.3 - $2 billion on an annual basis.

RGB increases over the last decade have averaged at 1.3 percent annually, while RGB reported expense growth was 4.0 percent annually. In the last five years, expense growth has been 4.9 percent annually and rent increases have still averaged at 1.3 percent annually. This imbalance must be corrected. And with the passage of Good Cause, it is disingenuous for tenant advocates to claim in these proceedings that market-rate units and their rents, including in Manhattan, will be in a position to in perpetuity carry the expenses of the rent-stabilized units. It is the RGB now more than ever that carries the responsibility to ensure rent growth does not fall behind expense growth.

Thank you for the opportunity to present the 2023 TC201 survey and considering our testimony for the 2024 guidelines.