Last week, the RGB heard testimony from advocates for apartment tenants, apartment owners, and SRO tenants. (SRO owners, for whatever reason, declined to testify.) Tom Waters, Housing Policy Analyst for the Community Service Society, spoke expertly about the increasing hardships facing tenants, the pressures rising rent burdens put on households, and the regressive nature of the "supplemental increases" that the board has passed in recent years. Below is a transcript of Mr. Waters' testimony, with accompanying charts. For more analysis, check out CSS' new housing report, "
Good Place to Live Hard Place to Work", written by Tom Waters and Victor Bach.
Invited
Testimony
Tom Waters and Victor Bach
Housing
Policy Analysts
Community Service Society of New York
At Public
Meeting
New York City Rent Guidelines Board
April
25, 2013
Thank you for the
opportunity to present our concerns about the potential impact of this year’s
RGB decisions on low-income New Yorkers. Rent-regulated
apartments are still the primary source of housing for the city’s 1.1 million low-income[1] households—about
two out of five of these families will be affected by the rent guideline
increases set by this body. Only 18 percent of the city’s low-income rent
stabilized tenants have a Section 8 voucher, leaving more than 336,000 poor and
near-poor households without one. The slow recovery of the city’s economy is
still not producing enough jobs, with dire consequences for these low-income
renters. The unemployment rate remains at 8.9 percent,[2] almost
double its level before the financial crisis of 2007.
Tenant
Experience in the Private Rental Market, Pre- and Post-Recession
The 2011 New York City Housing and Vacancy Survey and
the 2011 American Community Survey, both conducted by the U.S. Bureau of the
Census, are still the most recent sources of statistical information on New York City’s rents and
incomes. These surveys allow us to draw a picture of New York tenant experience before and after
the recession. The city’s continued high unemployment rate suggests that this
picture remains largely accurate in 2013.
Chart 2 describes rent and income shifts
experienced by tenants in private unassisted rentals over the three most recent
HVS studies conducted in 2005, 2008, and 2011. Net increases in median rents
over the six-year period vastly outpaced net gains in median incomes for the
typical renter. Overall, rents soared to a net gain of 31 percent over the six
years, compared to an income gain of only 12 percent. The disparity between the
two is a clear indication of rapidly rising rent burdens, the portion of
household income that is paid for rent.
The disparity between rent and income trends is
evident in both rent-regulated and unregulated apartments. Even under regulated
rents, the median contract rent escalated by 26 percent over the six years,
more than twice the 12 percent net increase in median renter income. In
unregulated units, rents increased by 36 percent against an increase in tenant
incomes of 25 percent. Belts tightened for all tenants, regulated and
unregulated, as rent escalation took a larger and larger bite out of household
income, leaving families with less residual income to cover other non-housing
living costs.
The triennial HVS surveys also
confirm the dramatic impact of the recession on renter incomes and their
ability to keep up with rising rents. Median income increases roughly
paralleled rent increases through 2008, a growth period in the local economy,
after which there is post-recession fall-off in household incomes while median
rents continue to escalate.
ALL PRIVATE RENTALS
|
2005
|
2008
|
2011
|
Median Contract Rent
|
$900
|
$1,000
|
$1,176
|
Median Household Income
|
$38,000
|
$44,000
|
$45,000
|
REGULATED RENTALS
|
|
|
|
Median Contract Rent
|
$832
|
$909
|
$1,050
|
Median Household Income
|
$33,700
|
$38,000
|
$38,132
|
UNREGULATED RENTALS
|
|
|
|
Median Contract Rent
|
$1,000
|
$1,200
|
$1,369
|
Median Household Income
|
$44,000
|
$50,200
|
$55,000
|
The ACS data provide a clearer
annual picture of rent and renter income trends from 2005 through 2010, which
we compare to city unemployment[3]
in Chart 3. Again, the picture is one of persistently rising median rents
through the six years against median renter incomes that rose through 2008 and
fell off dramatically while the unemployment rate was high from 2009 to 2011.
Unemployment declined from 2005 to 2008 during the
city’s upward economic cycle, then spiked in 2009 and 2010 following the
recession.[4] Per
capita household residual income—the income remaining per member once rent is
paid—is arguably the best proxy for rent-income stresses, because it takes into
account household size. As a whole New York tenants across the rental sectors
experienced a net loss of over 2 percent in residual per capita income
(constant 2010 dollars), largely occurring after 2008. Once the recession
struck, New York
renters, regardless of income, had to tighten their belts to make ends meet and
keep up with market rents that persistently increased while rising unemployment
and an unfavorable labor market were taking a toll on tenant incomes.
It can be assumed that the picture for renters in
unassisted private apartments, particularly lower-income renters, is bleaker
than the ACS data indicate. ACS data do not distinguish among the range of housing
types that renters occupy, from public housing to private government-subsidized
housing, to private unassisted rentals, both regulated and unregulated. As a
result the ACS renter population includes over 300,000 households who live in
government-assisted housing, where rents are affordable and based on income.
Even so, the ACS data point to a rapid rise in the incidence of high gross rent
burdens (rent plus utilities at 50 percent or more of income) to new highs over
the 5-year period, with a net 3.7 point post-recession increase between 2008
and 2011. (See Chart 4.)
Low-Income Tenants in the Private Rental Market, Pre- and
Post-Recession
The experience of low-income
tenants in the private rental market mirrors that of renters throughout the
city. But because their unemployment rates are roughly double those of renters
as a whole[5],
the impacts on rent-income stresses and residual incomes is much more severe. Chart
5 confirms the extent to which net rent increases over the 6-year period
outpaced income gains. Surprisingly, based on the 2005 starting points, the net
rent increases in regulated units (29 percent) exceeded those in unregulated
apartments (25 percent). By comparison, household incomes increased by from 14
percent.
Residual
per capita incomes declined sharply by 11 percent for low-income renters, but
the impact was far more severe in the unregulated market (21 percent decrease)
than in the regulated market (7 percent decrease). In short, the dynamics of an
escalating local rental market, combined with the post-recession effects on
employment and income, have left low-income renters in far worse economic
circumstances than they were in before the recession.
ALL PRIVATE RENTALS
|
2005
|
2008
|
2011
|
Med. Contract Rent
|
$800
|
$900
|
$1,000
|
Med. Household Income
|
$15,000
|
$16,000
|
$17,160
|
Med. PC Res Inc Mo ($2011)[6]
|
$388
|
$371
|
$346
|
REGULATED RENTALS
|
|
|
|
Med. Contract Rent
|
$750
|
$830
|
$966
|
Med. Household Income
|
$14,000
|
$15,000
|
$16,220
|
Med. PC Res Inc Mo ($2011)
|
$395
|
$377
|
$367
|
UNREGULATED RENTALS
|
|
|
|
Med. Contract Rent
|
$920
|
$1,050
|
$1,150
|
Med. Household Income
|
$16,000
|
$18,000
|
$18,590
|
Med. PC Res Inc Mo ($2011)
|
$408
|
$368
|
$323
|
As a
result, median rent burdens and the incidence of high rent burdens (rent at 50
percent or more – this time not including utilities) among low-income renters
reached a 6-year high as of 2011. (See Chart 6.) Estimates based on the CSS
subsample[7]
indicate a 4-point increase in median rent burdens in both regulated and
unregulated apartments—a rise from 45 to 49 percent in regulated units by 2011,
and from 48 to 51 percent in unregulated units. The growing incidence of high
rent burdens was even more dramatic. By 2011, a majority (51 percent) of
low-income renters in the market were carrying burdens of at least half their
incomes, up from 43 percent in 2005. In the regulated stock, high rent burdens
rose from 45 to 49 percent of low-income families.
Supplemental rent increases
The New York City Rent Guidelines
Board sometimes considers adding extra rent increases for apartments renting
for under $1,000. They added such a supplemental increase last year.
This supplemental increase would
seem to be based on the assumption that a $1,000 rent is excessively low. But
from the point of view of affordability, this is simply not true. In 2010, the
median income for rent-stabilized tenants was $38,000. That means that for half
of the tenants affected by the RGB’s actions, an affordable rent (30 percent of
income) is no more than $950.
The tenants living in the city’s
under-$1,000 rent-stabilized apartments are primarily people who cannot afford
more. Their median income is $28,000, and half of them have incomes below twice
the poverty line (23 percent poor and 29 percent near-poor). More than half of
these tenants (54 percent) live in lower-rent areas of the Bronx, Brooklyn,
Queens, and Staten Island. Just 10 percent
live in Manhattan below Harlem, 13 percent in Upper Manhattan, 8 percent in the
gentrifying areas of Brooklyn and Queens adjacent to Manhattan, and 15 percent
in higher-rent outer-ring neighborhoods such as Flushing or Bay Ridge. Three
quarters of these tenants are people of color: 30 percent black, 38 percent
Latino, and 6 percent Asian. Almost half (47 percent) are in households headed
by an immigrant.
Conclusions
In light of rent escalation trends that persisted
before and since the recession struck the city, it would appear that the
private rental industry has not suffered a decline as a result of the economic
crisis, certainly not a decline comparable to the losses in income and
employment that continue to beset New York renters, particularly low-income
tenants.
Certainly the impacts of a global recession and
financial crisis on the income and employment of New Yorkers, and their ability
to pay for their apartments, are hardly within the control of the city or of
the RGB. However, RGB decisions over recent years have contributed
significantly to the growing rental affordability crisis at this stage of the
presumed recovery. At a time when the RGB should have exercised restraint to
ease the impacts of the recession on its struggling resident constituency, it
has tended to err on the side of owners by granting larger guideline increases
than were necessary.
In recent years, the RGB has overestimated
projected operating costs compared to the actual cost increases later reported
in owner surveys, resulting in excessively high guidelines. The 2009 Price
Index of Operating Costs projected a 4 percent increase, and the RGB adopted a
guideline of 3 percent – a little more than enough to cover the projected
increase in expenses, given that operating costs consume less than 75 percent of
rent. But the actual increase in costs
as measured by Real Property Income and expense statements was only 0.1 percent.
In 2010 and 2011, the Price Index again greatly overestimated cost increases.
Chart 7 shows the evolution of the Price Index, rent guidelines, and RPIE costs
since 1990, clearly showing the great divergence in recent years. This divergence has resulted in higher,
unaffordable rent increases for tenants.
This is an important time for the RGB to reflect on
and revise the methodology it uses to determine what it considers reasonable
rent guideline increases. Before and since the recession struck the city, it
has tended to over-compensate owners to the expense of rent-stabilized tenants.
This is certainly a time for the RGB to exercise greater restraint by keeping
guideline increases to a minimum, for an industry that appears to be prospering
in the wake of recession. RGB should consider its unique potential contribution
to stabilizing the rental market and easing the rent-income stresses that New
Yorkers continue to experience.
Recommendations
1)
CSS urges the
New York City Rent Guidelines Board to take into account the disastrous effects
of the recession on many New Yorkers, regardless of income, and exercise overdue
restraint in setting new, minimal rent guideline increases. In past years CSS
has recommended a rent freeze; we continue to do so in light of the persistent
rent escalation that has benefited the industry in the face of a major economic
set-back for many tenants.
2)
CSS urges the
RGB to refrain from further supplemental increases at lower rent levels—what
tenant advocates refer to as the “poor tax.” RGB should do its best to minimize
increases at the low-rent levels where the poorest tenants tend to live.
APPENDIX: CSS Renter Sub-Sample
Because
of unavoidable inconsistencies and inaccuracies, in respondent reporting of
household income and contract rent, this analysis of rent burdens is based on a
sub-sample of renter households within each of the HVS samples used. The CSS
renter sub-sample for each HVS year was selected on the following basis:
1) Rent-paying households only
(exclude rent-free and owned housing)
2) Head of household age at least
25 and less than 65.
3) Households with a positive HVS
contract rent burden
4) Households within the middle
90 percent of the income distribution for renters
(excludes 5-percent outliers at either extreme) . The
resulting household income intervals used for each HVS year are as follows:
2011 $7,896 to $175,000
2008 $6,912 to $160,000
2005 $6,006 to $133,000
2002 $6,000 to $130,000
1999 $5,700 to $131,000
1996 $5,000 to $119,950
5) Households within the middle 90 percent of the contract
rent distribution for renters (excludes 5-percent outliers at either extreme.)
The resulting contract rent distributions used for each HVS year are as
follows:
2011 $342 to $2,800 monthly
2008 $252 to $2,500 monthly
2005 $208 to $2,100 monthly
2002 $200 to $1,900 monthly
1999 $177 to $1,550 monthly
1996 $163 to $1,300 monthly
6) Residual (after-rent) household income of at least $100
monthly, in 2002 dollars. For each HVS year, the residual income threshold, in
2002 dollars, was:
2011 $129
2008 $123
2005 $111
2002 $100
1999 $93
1996 $87
The
resulting CSS sub-sample can be considered a more "mainstream" sample
of New York City
renters than the HVS renter sample as a whole. The comparison below of some of
the key parameters for each of the two samples suggests that the CSS results
are more likely to underestimate rent burdens and related measures of
rent-income pressures for the city as a whole.
Comparison: HVS and CSS Renter Samples
1996 1999 2002 2005 2008 2011
Median Income
HVS: $24,680 $27,600 $32,000 $33,904
$40,000 $40,000
CSS: $31,000 $35,000 $39,000 $40,050
$46,400 $50,000
Median Contract Rent
HVS: $ 600 $ 648 $
706 $ 850 $ 950 $1,100
CSS: $ 600 $ 650 $ 730 $
850 $ 996 $1,100
Median Contract Rent Burden
HVS: 28
% 27 % 27 % 28 %
29 % 31 %
CSS: 24
% 23 % 23 % 25 %
25 % 27 %
Percent Households with High
Burdens (50% or more)
HVS: 26
% 26 % 23 % 26 %
26 % 29 %
CSS:
12
% 12 % 12 % 14 %
15 % 18 %
1 Preliminary estimate from the U.S. Department of Labor’s Bureau of Labor Statistics.
2 We use the term “low-income” to refer to
households with incomes no greater than twice the federal poverty threshold, in
2010 about $34,114 for a family of three persons. Household incomes recorded in
each HVS are for the previous calendar year. Low-income households include the
poor, as well as the “near-poor” with incomes above poverty but no greater than
twice the poverty threshold.
3 Unemployment rates are
calculated by the Bureau of Labor Statistics from the Census Bureau’s Current
Population Survey.
4 Unemployment
figures are for individuals at least 18 years old and below 65.
5 ACS
2005-2010 data estimate renter unemployment rates of 9, 8, and 12% for 2005,
2008, and 2010 respectively, against unemployment rates of 19, 15, and 22 % for
low-income renters.
6 Median
monthly per capita residual income figures were calculated only for the CSS
renter subsample (See Appendix)
7 For
description of the CSS subsample, see Appendix.
