Wednesday, May 1, 2013

The Preliminary Vote

Last night, the RGB conducted their preliminary vote, and set a range of percentages for the board to consider at the final vote in June. For the most part, the proceedings went according to schedule: the owner representatives proposed a high guideline (7% for 1-year leases and 11% for 2-year leases); the tenant representatives proposed a rent freeze; both were rejected by the public members, who instead voted as a block for the Chair’s proposal (3.25% - 6.25% for 1- year leases and 5% - 9.5% for 2-year leases). A similar dynamic was at play for the SRO vote: landlords proposed a 3% increase, and were rejected; tenants proposed 0%, and were rejected (with one abstention); the Chair proposed a range of 0% - 3% increases, effecting only buildings with 85% or more occupied SROs, and it was passed unanimously. This is what was reported in the press, which tends to focus on the familiar “ horse race” element of the RGB. With landlords and tenants unhappy, this trope implies, the RGB must be doing the right thing.

This narrative, however, glosses over some interesting moments in the margins. It fails, for example, to look historically at these rates. Since the RGB began using a range for their preliminary vote in 2004, the average range has been 2.89% – 5.14% for 1-year leases, and 5.1% – 7.69% for 2-year leases. Last night’s vote resulted in an uncommonly high range.

The public narrative also fails to interrogate the source of these approved preliminary guidelines. As the Chair stated during the vote, they come straight out of the Price Index of Operating Costs (PIOC) report, which closes with a sample set of guidelines that would keep landlords profits steady. Readers of the Rent Guidelines Blog know that we are critical of the PIOC’s centrality in Board decisions- it is just one report produced by RGB staff, and it is not in and of itself an accurate measure of landlord costs. As discussed earlier, it is simply a measure of prices, not costs.

The PIOC names a “‘Net Revenue’ Commensurate Adjustment with Vacancy Increase”, which is an estimate of how much rents would have to rise to keep landlords’ Net Operating Incomes steady, with the assumption that some percentage of tenants will leave and the landlords will receive vacancy bonuses. What would that increase be? 3.25% for1-year leases, and 6.25% for 2-year leases, exactly the low-end of the increase proposed by the Board Chair and approved by all of the public members. The PIOC also names a “‘Net Revenue’ Commensurate Adjustment”, assuming no vacancy bonuses will be taken by the landlord. This figure is listed as 5% for 1-year leases, and 9% for 2-year leases. The high end of the range voted on last night comes directly from these figures: 5% for 1-year leases, and 9.5% for 2-years. (It is not at all clear, however, why the Board voted to grant the landlords an extra half percent on the high end of the 2-year lease range.)

After months of public meetings, pouring over scores of data and debating their merits, the board settled on the figures provided for them in the PIOC to keep landlords whole. What about the Income and Affordability study, which outlined the woeful economic circumstances for tenants? What about the Income and Expense study, which showed rising revenues for landlords in an otherwise stagnant economy? What about the Mortgage Survey, which showed a healthy market for buying and selling rent stabilized properties? What about the report from the Furman Center, which spoke to the crises facing thousands of tenants after Hurricane Sandy? What about the testimonies from Bobby Sackman, Tom Waters, Gregory Lobo Jost and Barika Williams, which spoke both to tenant hardships and opportunities for landlords to reduce costs at no expense to tenants? For that matter, what about the landlord’s testimony, which confirmed that the vast majority of rent stabilized apartments are owned by very large real estate companies, often controlled by private equity? All of these factors should have pointed to a lower preliminary guideline. The fact that the Board voted on the numbers straight out of the PIOC, and even inflated them slightly, is discouraging to tenants and their advocates.

It is also interesting that this year’s range starts at a rate higher than last year’s final guideline, all but assuring a rise in the rate of rent increases for 2013. Even if they disagree on the merits of a rent freeze, it is disappointing that the board seems to have foreclosed on the possibility of a lower rent increase this year.

Finally, the Board Chair rejected amendments from both owner and tenant representatives to carve out more specific guidelines. The owner representatives, as usual, proposed a “supplemental rent increase,” imposing a disproportionate rent increase on lower rent apartments. As CSS’ testimony shows, this increase falls primarily on low income tenants, and can therefore be characterized as a poor tax. We commend the Chair for rejecting this supplemental increase, and urge the Board to reject it at its final vote in June.

The Board also rejected provisos from the tenant members, which would have limited rent increases to buildings with a solid majority of rent stabilized apartments. Buildings that are 60% or more market rate, they argued, do not need RGB rent increases to meet expenses. This proviso was also rejected as a matter of procedure- the Chair decided that provisos will only be heard at the final vote, after tenants and owners have had a chance to testify before the board. We therefore encourage tenants to talk about how much of their building they believe has been decontrolled, and we encourage board members to ask landlords what percent of their stock is subject to rent regulation.

This year's preliminary vote established a historically high range of rates. We urge the board, in its internal deliberations and its final vote, to consider establishing the lowest possible guideline.

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