RGB Kicks Off Annual Rent Increase Decision Process

The Rent Guidelines Board (RGB) recently started its annual process for examining and considering lease renewal guidelines in the coming year. This is the one decision of the RGB that has the greatest impact on owners since the board’s decision with regard to rent renewal increases affects roughly one million rent-stabilized apartments across the city.

The RGB rent guidelines traditionally include a percentage increase in the monthly contract rent. Last June, amid high-stakes scrutiny, the board decided to keep rents flat for one-year leases and include a 1 percent increase during the second year of two-year leases that started last October. Last year’s vote happened during the coronavirus pandemic with New York City as the nation’s epicenter. Before the pandemic, owners were counting on the board to help offset the effects of the newly passed Housing Stability and Tenant Protection Act (HSTPA). The law eliminated luxury decontrol and the 20 percent rent increases for vacancy, while also drastically limiting increases allowed for individual apartment improvements and major capital improvements.

On April 15, the RGB held its first of a series of public hearings and meetings to determine renewal lease adjustments for rent-stabilized apartments in New York City. Due to ongoing COVID precautions, all of the meetings are virtual again this year.

To give you a better understanding of the process in which the RGB makes its decision, we’ll go over the composition of the board, the economic factors the board considers as mandated by the Rent Stabilization Law, and the timeline by which the board determines the rent guidelines.

Who’s on the Board?

The RGB consists of nine members, all of whom are appointed by the mayor. Two members are appointed to represent tenant interests. One of these serves a two-year term, and the other a three-year term. Two members are appointed to represent owner interests. Like the tenant members, one serves a two-year term, and the other a three-year term.

Five members (including the chairperson) are appointed to represent the general public. One of these serves a two-year term, another a three-year term, and two serve four-year terms. The chairperson serves at the pleasure of the mayor.

All RGB members are required to be residents of New York City and must remain residents during their period of service. Each public member must have had at least five years’ experience in either finance, economics, or housing. No member may be an employee or officer in any state or municipal rent regulation agency. Nor can any member own or manage rental property affected by the board’s orders or be an officer in any owner or tenant organization. The chairperson may hold no other public office. All members take an oath of office.

The current chairperson, David Reiss, is a Brooklyn Law School professor specializing in real estate finance and community development. And, as of the April 15 meeting, owner representative Patti Stone, a real-estate attorney representing owners' interests, had left the board and her seat had remained unfilled. Chairperson Reiss said the de Blasio administration was aware of the vacancy and hoped to have a new owner-member in place by the next meeting.

Economic Factors Considered

Though other cities have rent boards, New York’s is unique in that it oversees so many rent-stabilized apartments and relies on a state agency, the Division of Homes and Community Renewal, to enforce its rules. The DHCR, through rent overcharge proceedings that are initiated by individual tenants, will determine if an owner has exceeded the board’s orders. Its authority to make rent adjustments after reviewing certain mandated considerations is very broad. But it has no power to enforce its orders or to penalize violators on its own.

The RGB can’t act outside of its rent-setting jurisdiction, nor can it adopt rent orders that are unreasonable, arbitrary, or capricious. The board’s orders must be justified in terms of the economic criteria set forth in the Rent Stabilization Law. The law sets forth the following factors that must be considered by the board before adopting new rent guidelines:

(1)          the economic condition of the residential real estate industry in N.Y.C. including such factors as the prevailing and projected (i) real estate taxes and sewer and water rates, (ii) gross operating maintenance costs (including insurance rates, governmental fees, cost of fuel and labor costs), (iii) costs and availability of financing (including effective rates of interest), (iv) overall supply of housing accommodations and overall vacancy rates,

(2)          relevant data from the current and projected cost of living indices for the affected area, and

            (3)          such other data as may be made available to it.

To help the RGB stay on top of relevant data, its research staff provides year-round research efforts regarding the economic condition of the stabilized residential real estate industry. The RGB annually publishes six research studies that it uses to determine the rent guidelines:

• Price Index of Operating Costs;
• Income and Expense Study;
• Housing Supply Report;
• Income and Affordability Study;
• Mortgage Survey Report; and
• Changes to the Rent Stabilized Housing Stock.

Price Index of Operating Costs Survey (PIOC). Each year since 1969 the RGB has been provided with a Price Index of Operating Costs that approximates the actual changes in gross operating costs for apartment buildings. The PIOC also provides information on actual changes in real estate taxes and sewer and water rates. These price changes are incorporated into a single figure that often becomes a point of departure for consideration of other economic and policy issues relating to the guidelines.

Although not controlling, the PIOC is perhaps the most influential figure affecting the final guidelines. Objectively showing cost increases for owners is the best argument for reasonable rent guideline increases.

Income and Expense Study. In 1990, the RGB acquired a new data source that enabled researchers to compare PIOC-measured prices and costs with those reported by owners: Real Property Income and Expense (RPIE) statements from rent-stabilized buildings collected by the NYC Department of Finance. These statements, filed annually by property owners, provide detailed information on the revenues and costs of income-producing properties. They not only describe conditions in rent-stabilized housing in a given year, but also depict changes in conditions over a two-year period.

Housing Supply Report. The local emergency housing rent control act mandates the production of a housing survey every three years specifically to determine if the declared housing emergency continues to exist justifying a continuation of the rent control law. This survey, known as the Triennial Housing and Vacancy Survey (HVS), has evolved over the years into a highly detailed picture of the city’s rental housing stock along with demographics on the tenant population.

Although originally concerned only with rent control, the survey now provides a wealth of data on all housing sectors. Consequently, the RGB is provided with a comprehensive base of information regarding the overall supply of housing and vacancy rates every three years.

In addition to the HVS data, the board updates its information on the city’s housing supply by reviewing new construction levels and rehabilitation efforts through information provided by the DOB and HPD. This data is summarized annually for the board in the Housing Supply Report.

Income and Affordability Study. This report is being heavily scrutinized by the RGB this year as it provides cost-of-living data for tenants. This study highlights year-to-year changes in many of the major economic factors affecting NYC’s tenant population and takes into consideration a broad range of market forces and public policies affecting housing affordability. Such factors include NYC’s overall economic condition—unemployment rate, wages, Consumer Price Index, and Gross City Product—as well as the number of eviction proceedings and the impact of welfare reform and federal housing policies on rents and incomes.

Last year the 2020 Income and Affordability Study showed positive tenant conditions in 2019, but this data was set aside by the 2020 Income and Affordability Supplemental Report that reflected pandemic-caused unemployment numbers.

Mortgage Survey Report. This report discusses the cost and availability of financing for owners. The RGB research staff surveys lending institutions that underwrite mortgages for multifamily rent-stabilized properties in NYC. The survey provides details about the city’s multifamily lending market. It includes questions on financing terms, financial characteristics of “typical mortgages,” factors influencing mortgage decisions, and the number and dollar value of loans made to owners of stabilized buildings.

Changes to the Rent Stabilized Housing Stock. In 2003, the RGB started to track the units entering and leaving the rent regulatory system. The data is gathered from various city and state agencies. Over the years, events that have led to the removal of stabilized units include high-rent/high-income deregulation (repealed by HSTPA); high-rent vacancy deregulation (repealed by HSTPA); cooperative/condominium conversions; expiration of 421-a benefits; expiration of J-51 benefits; substantial rehabilitation; conversion to commercial or professional status; and other losses to the housing stock such as demolitions, condemnations, and mergers.

RGB’s Decision-Making Timeline

The RGB typically votes on the guidelines each June, and those guidelines then apply to leases with effective dates between Oct. 1 of that year and Sept. 30 of the following year. A preliminary vote is expected on May 5.

Meetings. Before the preliminary vote is held, the RGB typically holds six to eight meetings per year to discuss its research agenda, review staff reports, and hear testimony from invited guests including public officials, housing experts, and industry and tenant representatives. In accordance with the Open Meetings Law, every meeting of the board must be open to the public, except when circumstances warrant executive sessions. While the public may attend any public meetings, they aren’t allowed to address the board unless invited.

Hearings. The Rent Stabilization Law and City Charter mandate at least one annual hearing before the adoption of rent guidelines. Notice of the hearings is provided in the City Record for eight days and at least once in a newspaper of general circulation at least eight days before the hearing. The hearings are usually held in mid-June just before the board’s July 1 deadline for issuing new guidelines.

Any person who wishes to testify has a legal right to do so, and the board has traditionally allowed two minutes for each speaker, alternating between owner and tenant representatives. Speakers have also been permitted to register in advance of the hearing and pre-registered speakers are given priority in the order of speakers.

Voting meetings. Two meetings are held each year for a vote on rent adjustments: the meeting to adopt proposed guidelines, and the meeting to adopt the final guidelines.

At voting meetings, the public may attend and listen to proceedings, but may not address the board. At a typical voting meeting, board members’ attention will be called to drafts of the apartment (and loft) orders in their folders. At the meeting on the proposed guidelines, these drafts will consist of the prior year’s order with blank spaces where rent adjustments will be entered. Approving this “boilerplate” language will usually be the first order of business.

At the meeting to consider the “final” guidelines, members will have copies of the proposed orders. The first order of business will typically be to adopt the language of the proposed orders except insofar as they are amended at that meeting.

The floor will be opened to proposals on apartment (and loft) guidelines for one- and two-year leases. Other elements of rent adjustments, such as supplemental increases for low rent apartments or a vacancy factor for sublets, may be “packaged” with the apartment guidelines. Votes are taken on each proposal in accordance with Roberts Rules, until at least five votes can be mustered for an apartment order.

Once all business has concluded at the final meeting, the chair will ask the board to approve staff preparation of explanatory statements reflecting the information presented to the board and the major findings of the year such as the price index, income and expense data, and witness testimony. These will be circulated to board members prior to publication. And a motion to adjourn will be taken.

Final orders and explanatory statements. Usually about one week after the final vote, the board’s orders and related Explanatory Statements are filed with the City Clerk and published in the City Record. The Rent Stabilization Law directs that the filing of the board’s orders and its findings, and the explanatory statements, must be completed not later than July 1 of each year.

Once the language of the orders is reviewed and approved by Corporation Counsel, the orders and explanatory statements should be published in the City Record. The final orders and explanatory statements are forwarded to the City Council for its information and published at least 30 days (by Aug. 31) before the first effective date of the orders (Oct. 1).

The guidelines themselves go into effect for leases being renewed and vacancies occurring on or after Oct. 1 of the same year, and on or before Sept. 30 of the following year. The orders of the board are final unless found to be unlawful by a court of competent jurisdiction. A 1991 court ruling indicates that any legal challenge to the board’s orders must be initiated within four months.

Highlights of 2021 Income and Affordability Study

On April 15, the RGB released its annual Income and Affordability Study, which reports on housing affordability and tenant income in the NYC rental market. This study highlights year-to-year changes in many of the major economic factors affecting NYC’s tenant population and takes into consideration a broad range of market forces and public policies affecting housing affordability. The report focuses on data from 2020, which includes the first two to three months of 2020 (pre-pandemic). As such, particular focus was given in the report to highlight quarterly 2020 data to provide a more accurate picture of the current economic conditions.

Here are the report’s highlights:

• Results from the 2019 American Community Survey show that median renter income is $54,759, median gross rent is $1,483, and the median gross rent-to-income ratio is 30.1%.
• NYC’s economy contracted by an inflation-adjusted 6.3% in 2020.
• Average inflation-adjusted wages were up 6.0% in the most recent time period studied (the fourth quarter of 2019 through the third quarter of 2020). Total wages decreased by 1.8% during this same period.
• The city lost an average of 516,600 jobs in 2020, an 11.1% decrease from 2019 total job levels.
• The unemployment rate rose in 2020, to an average of 12.3%, up from 3.9% in 2019.
• Concurrent with a pandemic eviction moratorium, fewer people were staying in NYC Department of Homeless Services shelters each night of 2020, down 5.9 percent from 2019.
• Concurrent with a pandemic eviction moratorium, nonpayment filings in housing court decreased 56.4% in 2020, while cases actually heard decreased 62.7%. The number of tenant evictions fell 82%.
• Cash assistance caseloads rose 8.6% in 2020, while the number of SNAP (food stamp) recipients rose 5.2%, and Medicaid enrollees fell by 3.3%.

2021 Income & Expense Study Doesn’t Reflect Pandemic’s Impact

On April 15, the RGB released its study based on data derived from the Real Property Income and Expense (RPIE) statements from rent-stabilized buildings filed with the DOF. The data used in this year’s study, covering 2019 and earlier, does not yet illustrate any of the COVID-19 pandemic’s impact on the NYC economy, as the pandemic didn’t begin to have an economic impact on New York until March 2020. This report examines the conditions that existed in New York’s rent-stabilized housing market in 2019, the year for which the most recent data set is available, and the extent to which these conditions changed from the prior year, 2018. Next year’s edition of the Income and Expense Study is expected to demonstrate the pandemic’s impact on the NYC housing market.

Also, it’s important to note that the Housing Stability & Tenant Protection Act of 2019 went into effect in June 2019, midway through the year of data used in this study. Therefore, this report only partially reflects the significant impact of the changes in the law. With these caveats, here’s what the study reported:

• From 2018 to 2019, Net Operating Income (revenue remaining after operating expenses are paid) grew 2.9%, the 14th increase in the past 15 years.
• Rental income increased an average of 3.3% from 2018–2019.
• Total income increased an average of 3.2% from 2018–2019.
• Operating costs increased an average of 3.3% from 2018–2019.