June 18, 2013

A New Rent Stabilization Deal is Reached. More Welfare for the Wealthy?

 

A New Rent Stabilization Deal is Reached. More Welfare for the Wealthy?  

June 18, 2011

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Greg Harden    

  This past week the New York State legislature reached a deal on a new rent stabilization law. The major provisions are as follows:

• The destabilization threshold was raised from $2000 to $2500.
• The income limit for luxury decontrol was raised from $175,000 to $200,000.
• The allowable pass through for renovations was lowered from 2.5% to 1.7% of renovation costs.

The law will make it only marginally more difficult for landlords to destabilize, or at least bring to market rate, below market apartments. The $2,000 threshold was set in the mid 1990s, and the amendment does little more than index this amount for inflation.

The majority of stabilized apartments are located outside of Manhattan. The market rent for most of these apartments is less than the destabilization threshold and often less than the legal rent. Even in Manhattan, a non-doorman studio or small one bedroom will rent for less than $2000 per month. The changes in the law will have little effect on these apartments, except perhaps to make the fixtures for some newly destabilized apartments a little nicer.

The major problem I have with rent stabilization – on both a philosophical and economic level - relates to luxury apartments. The hike in the destabilization threshold provides a stay to wealthy renters who are holding onto to multi-room apartments into which they moved decades ago. 

In my own Upper East Side doorman building, I know of one high income, empty nest couple who were planning on buying an apartment because the rent on their 3 bedroom / 3 bath /1500+ SF apartment was about to reach $2,000 per month. The market rate for their apartment would be at least $6,500 per month. The increase in the threshold translates into a housing subsidy of over $50,000 per year for at least another seven years. If they choose to retire by the time the rent hits $2,500, and their annual income dips below $200,000, they will be able to live out their days in the apartment so long as they spend at least 180 days per year there. This subsidy is far more generous than a Section 8 voucher!

Meanwhile, indebted college graduates making $50,000 per year pay an equivalent rent to cram into railroad or converted apartments. An established couple raising a family also will not be able to avail themselves to the apartment (which just happens to be located in the P.S. 6 school district). With one less multi-room apartment on the market, the rent for others in the neighborhood will increase.

I do not see why an apartment should have to reach $2,000 or $2,500 per month to become eligible for luxury decontrol. If someone makes $250K+ per year, they can pay market rent, buy an apartment or move to a smaller apartment or less expensive neighborhood.

Not all landlords oppose rent stabilization. Developers and owners of free market buildings (essentially any building built after 1974) love rent stabilization because it creates shortages that increase the value of their free market apartments. Meanwhile, many small landlords are stuck with static rent rolls while property taxes and other operating costs continue to rise.

Considering some of the proposals offered by the Democratic assembly, such as a $3,000 destabilization threshold and $300,000 per year income threshold for luxury decontrol, the legislation could have been much worse. Let’s be thankful for divided government!  

 

   

       

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