DHCR Releases Preliminary Standard Adjustment Factor for 2016–17 MBR Cycle

The rents in rent-controlled apartments in New York City are governed by the Maximum Base Rent (MBR) system. This system is based on a mathematical formula for computing the maximum rent levels for each controlled apartment in the city. This theoretical MBR represents an approximation of the actual income required to operate the housing unit under current costs, including an 8.5 percent return on the equalized assessed value. The MBR is adjusted every two years to reflect changes in economic conditions.

The DHCR recently released the preliminary standard adjustment factor (SAF), also referred to as the standardized increase factor, for the 2016–2017 maximum base rent (MBR) cycle. The SAF is the percentage by which owners can increase the MBR of each rent-controlled apartment for the cycle. The preliminary SAF for the 2016-2017 MBR Cycle is 9.6 percent. The SAF for the 2014–2015 MBR Cycle was 8.3 percent. Prior to establishing the SAF for the 2016–2017 MBR Cycle, a public hearing will be held for the purpose of collecting information from interested parties. The DHCR’s Office of Rent Administration (ORA) will consider all of the information received from the public hearing before establishing the SAF for the 2016–2017 MBR Cycle.

How SAFs Are Determined

The original MBR for most rent-controlled units was computed for 1972 in accordance with Amendment No. 33 to the Rent and Eviction Regulations, which was adopted on Dec. 22, 1971. From 1973 to 1983, New York City’s Department of Housing Preservation and Development (HPD) computed the MBR’s SAF. The New York State Omnibus Housing Act of 1983 transferred the responsibility for administering rent control from HPD to the NYS Division of Housing and Community Renewal (DHCR) beginning April 1, 1984. The 2016–2017 SAF will be the 16th to be issued by the DHCR.

The 2016–2017 SAF reflects changes in the assumed MBRs of a sample of 1,782 buildings with rent-controlled apartments from 2013 to 2015. The factor was determined by calculating the median of the percentage change in each of the sample’s building-wide MBRs. The mathematical formula that determines the MBR is derived from four cost components (operation and maintenance expenses; real estate taxes; water and sewer charges; and an allowance for vacancy and collection losses), as well as a return on capital value allowance and commercial income. The relative importance of each component varies, with operation and maintenance costs accounting for 46.65 percent of the 2016-2017 MBR and the allowance for losses pegged at 1 percent of the MBR.

The 9.62 percent median increase in the MBR reflects a similar rise in its various expense components, ranging from the low of 6.42 percent for water and sewer charges to the high of 13.09 percent for the return on capital value allowance. It should be noted that the 7.96 percent increase in commercial income has an inverse effect on the SAF. Specifically, a percentage increase in the commercial income component results in a lower total SAF. Likewise, a percentage decrease results in a higher total SAF.

MEDIAN MBR COMPONENT CHANGES FROM 2014-15 TO 2016–17

MBR Component                                                             Median Change

Operation and Maintenance Allowance                           + 7.81%

Return on Capital Value Allowance                                  + 13.09%

Real Estate Taxes                                                               + 10.37%

Water and Sewer Charges                                                 + 6.42%

Commercial Income                                                             + 7.96%

Maximum Base Rent                                                            + 9.62%