Wages and Rents, part 2: The Minimum Wage Increase

Last night, the New York State Legislature voted on a budget for the 2013-2014 fiscal year, which included a compromised minimum wage increase. Tenants' wages are one of the factors that the RGB considers each year in determining the rent adjustment, under Section 26-510(b) of the Rent Stabilization Law's requirement that the board consider "relevant data from the current and projected cost of living indices." Every year, the RGB staff prepares a document called the Income and Affordability Study, which includes an analysis of wages and rent burdens. RGB staff reports have shown that rents have risen significantly faster than incomes, leaving tenants behind in the struggle to emerge from this recession.

This morning, the New York State Tenants & Neighbors Coalition released the following statement, putting wages in the context of housing costs and calling on lawmakers to enact meaningful pro-tenant reforms to the rent laws:

Tenants to legislators: Stop rents from rising faster than wages!

Tenants & Neighbors commends the New York State Legislature for taking action to raise the minimum wage. This much needed move will help many low income households stay afloat in a difficult economy. It is imperative, however, that as legislators act to raise wages for workers, they also take steps to protect these same individuals from unaffordable rent increases. We want to ensure that these wage increases help working people, and do not go straight into the pockets of landlords in the form of rent increases.

Increases in incomes have often failed to raise the standard of living for low-income New Yorkers because rents have risen faster than wages. For example, the incomes of low-income (less than 200 percent of poverty) tenants without housing subsidies rose by 11 percent during the boom years from 2005 to 2008, but rents rose by 13 percent during the same period. As a result, the median per-capita income left over after rent for those tenants fell by 6 percent.

Many minimum wage workers live in rent stabilized apartments, and are subject to expensive rent hikes as a result of persistent Rent Guidelines Board increases and permanent Major Capital Improvements. When low wage workers seek new housing, they often have a hard time finding affordable homes because of Vacancy Bonuses and Individual Apartment Improvements that allow rents to skyrocket between tenancies. We call on the Legislature to enact comprehensive rent law reform to protect tenants, and make sure that the mandated minimum wage increases aren't simply swallowed by rising rents. The State must act to prevent another regressive transfer of wealth from tenants to landlords.

For more information on wages and rents, check out the Community Service Society's excellent "Making the Rent" report from last June.

Rents are rising faster than wages.
Source: Community Service Society, Making The Rent, 2012.

Wages and Rents: Welcome to the 156 Hour Work Week!

The National Low Income Housing Coalition has released their 2013 Out of Reach report, an annual survey of wages and rents around the country. The NLIHC is a membership organization and advocacy group made up of nearly 1,000 organizations and individuals, and are a leading voice for the preservation and development of affordable housing. Each year, they look at every state and metropolitan area in the country, and determine how many hours the average renter would have to work for their home to be considered “affordable.” (According to the federal government’s definition, if you’re paying more than of 30% of your income toward rent, you’re living in unaffordable housing.)

What are the results? A renter making minimum wage would have to hold down about 4 simultaneous jobs to maintain affordability! To afford a two bedroom apartment, tenants in the NYC metropolitan area would have to make $28.35 an hour; that’s significantly higher than average incomes in every borough but Manhattan. On average renter’s wages, tenants in the Bronx would need to work 1.6 full time jobs; in Queens, it’s 1.7 jobs; in Brooklyn, it’s 1.9. These “housing wages” put the New York City area in the highest tier of unaffordability nationally.

Through this surreal portrait, the data points to the fact that most New York tenants must live in apartments beyond their means. Last year’s NYC RGB Price Index of Operating Costs reported that with an average rent burden of 35.2%, “a majority of rent stabilized tenants are not able to afford their apartments.” With rent burdens already at historic highs, another rent increase would send tenants even further into crisis.

Beginning to Assess Sandy’s Impact on Tenants

At last week’s RGB public meeting, one recurring question from board members was: how many rent stabilized apartments were damaged by Hurricane Sandy? HPD’s Assistant Commissioner for Government Affairs and Research Christopher Gonzalez posited that 16,000 subsidized housing units were affected by the storm, but, as we know, rent stabilization is not a subsidy program. It is likely these subsidized apartments were in Mitchell-Lama, tax-credit and supportive housing developments.

The Furman Center for Real Estate and Urban Policy has released an extremely helpful document that aims to quantify the impact of the storm on the city’s housing stock. The report, entitled Sandy’s Effects on Housing in New York City, examines the impact of the storm on the city’s various housing types, and concludes that low income New Yorkers were hit hardest by the storm’s physical and economic impact.

Rent stabilized housing:

The Furman Center estimates that 839 rent stabilized buildings, containing 41,102 apartments, are located in the storm surge area. (Rent stabilized buildings are defined as any building containing one or more rent stabilized apartment.)  Though they account for just 1.1% of buildings, they house 13.6% of residents in the area. This makes rent stabilized tenants the second largest group affected by the storm, behind residents of 2 to 4 family buildings.

Extent of damage:

The city’s evacuation zone encompasses over 270,000 residential buildings, which contain more than 1 million apartments. Of those, approximately 300,000 apartments in 76,000 buildings were directly impacted by the storm. This accounts for about 9% of the city’s housing stock.

While damage to single-family homes has dominated media coverage of the storm and its aftermath, the Furman Center reports that 70% of damaged apartments are in large buildings. The vast majority of residential buildings in the storm surge area were built before 1974, the current cut-off year for rent stabilization. (The plurality of buildings in the surge area- 21%- were built in the 1960s.)

Impact on tenants:

After the storm, over 150,000 households in New York City registered with FEMA for assistance. It is widely speculated that, due to a lack of information or fears over immigration status and other legal questions, many affected households did not sign up for assistance. The number of FEMA-registered households accounts for half of the households in the surge area, and four percent of the city as a whole. A majority of registered Sandy victims are tenants, with 45% representing home owners and landlords.

The Furman Center points out that FEMA’s assistance program is focused largely on single family homes. This makes little sense for New York City, where the vast majority of residents are tenants in multi-family buildings. Even in the storm surge area, only 10% of households live in single-family homes, and less than 20% live in 2 to 4 family homes.

The dearth of federal resources for multi-family housing will not impact tenants and landlords equally. Among those registered with FEMA, average income for landlords was $82,000; for tenants, it’s just $18,000. Two-thirds of tenants have household incomes under $30,000. (This represents a significantly lower average income than the city as a whole; city-wide, 41.6% of tenants make less than $30,000.) Sandy victims also tend to be older than the city as a whole, with seniors living alone accounting for 12.1% of all affected households. This storm severely hurt low income and senior tenants.

The takeaway:

The Furman Center’s research dispels the myth that single family homeowners were the group most affected by the storm, and refocuses attention on low income tenants, many of whom are rent stabilized. The hurricane dealt a devastating blow to renters, who were thrust into deep insecurity and had to pay enormous costs for replacement housing, damaged items, and lost income.

Tenants bore the brunt of the storm’s impact, and should not have to suffer another rent increase on top of all the additional costs they have incurred. Preserving housing affordability is of the utmost importance, with more tenants in search of replacement apartments and fewer low rent apartments available. The Furman Center writes:

“Given the extremely low incomes of the renters claiming damages, they are par­ticularly at-risk of being unable to locate new housing that is affordable to them. In normal times, the overall amount of hous­ing affordable to these households is lim­ited – indeed, just 22 percent of rental units in New York City are affordable to households whose annual income is below $30,000. Finding replacement housing for these families is likely to be a long-term challenge for New York City if they cannot stay in their homes.”

Bushwick Rents Rose 20% Last Month

Conservative economists and real estate partisans sometimes ask, “why do we need rent regulation?”

We need rent regulation because the housing market in New York City does not provide suitable homes at prices its residents can afford. This fact has once again been evidenced in Bushwick, Brooklyn, where a new report (highlighted on DNAinfo) finds that in just one winter month, rents rose by an astounding 20%. As the Williamsburg phenomenon creeps eastward, long term tenants are facing more and more pressure to leave in search of illusive opportunities in unfamiliar communities.

If stabilized rents keep rising, where are long term tenants in places like Bushwick going to go? Remaining in their neighborhoods- the places they have built up for years- is becoming a great challenge, given the rate of rent inflation. This is one of the most important questions facing the RGB as they deliberate over this year’s rent adjustment.

Average Bushwick rents, February 2013, MNS Brooklyn Rental Market Report

Analysis: Mortgage Survey Report

Yesterday the Rent Guidelines Board held their first public meeting of the year, starting the process to determine the rent adjustment for rent stabilized, SRO, loft and hotel stabilized tenants with leases expiring between October 1^st, 2013 and September 1^st, 2014.

It was a familiar scene. The RGB meets in a Landmarks Preservation Committee meeting room on the 9^th floor of the municipal building at 1 Centre Street. The public can observe the meetings, but we have no participatory role. Experts from the RGB staff and various city and state agencies present testimonies, and the Board reviews the data and questions the presenters.

The first presentation came from RGB Research Associate Brian Hoberman, who presented this year’s Mortgage Survey Report. This is the first of several research documents produced by board staff, each of which relates to different economic factors impacting rents. One of these factors, as defined in the Rent Stabilization Law, is the “costs and availability of financing (including effective rates of interest).” The RGB staff gathers the data from both a cross-sectional analysis of mortgage lenders, and a longitudinal analysis of select lenders over time.

The full report is online, but here are some highlights:

• Growth in landlord income outpaces growth in expenses:
• Rents rose at a much higher rate than operating expenses. While operating expenses for these lenders’ portfolios rose 8.4%, average rents went up 12.5%.



Operations to rent figures

• The cost-to-rent ratio therefore dropped about 2% from last year, falling to 51.52%. In short, rents paid amount to almost twice the actual cost of operating a rent stabilized building. (Capital costs are separate, but many of those are paid for by J-51 tax breaks and MCI rent increases.)
• A much more expansive (and, arguably, accurate) look at this phenomenon will be released later in the form of the RGB’s Income and Expense Study.

• Borrowing conditions remain favorable:
• Average interest rates for new multifamily mortgages dropped to 4.37%, following a four year downward trend. Rates today the lowest they have been since the RGB started tracking in 1981.
• Refinancing interest rates dropped to an average of 4.44%, a 5% decline from last year.
• Service fees- the costs charged by lenders to landlords- for both new and refinanced loans fell once again. This year, lenders charged just 0.59 points for new loans and 0.4 points for refinanced loans. Two more lenders than last year charged no points whatsoever.
• The proportion of non-performing loans and foreclosure has fallen as well. Just a third of lenders reported having non-performing loans in their portfolio; that’s a 45% decline from last year. The percentage reporting foreclosures dropped from 17% in 2011 to 15% in 2012.

Historically low interest rates for borrowers

• The market for rent stabilized buildings is growing, despite the ongoing national housing crisis.
• Rent Stabilized building sales rose, both in terms of volume and average sales prices. Last year, owners sold 1,135 rent stabilized buildings, more than 60% than last year.
• Sales volume rose in every borough:

• This is significant recovery from the 2009 low point, when only about 500 stabilized buildings were sold.

The report comes out of a survey with a relatively small sample size. But it is useful in gauging trends, and right now those trends are looking quite good for building owners and bankers. This once again begs the question: do they actually need another rent increase in 2013?

In Defense of Regulation

Last week, the New York Post published a confounding editorial, arguing that somehow rent regulation is what's holding back both feminism and affordable housing. Tenants & Neighbors replied immediately with the following tweets:

Tenants & Neighbors' Senior Organizer Katie Goldstein countered with this letter to the editor, which was subsequently published in the Post:

As a market-rate female tenant living in Brooklyn, I would like nothing more than for there to be more rent regulated apartments, not less. Rent-regulation is an important resource for the city and laid the foundation for economically and racially diverse city; we need more of this diversity, not less.   In order to ensure that young, creative, and non-profit workers come to NYC, there needs to be protected and affordable apartments. Rent regulation isn't the problem; it is the only system that can save NYC. 

Katie Goldstein

Brooklyn 

Former Manhattan Assemblyman, Stuyvesant Town/PeterCooper Village Tenants Association president emeritus, and long-time supporter of tenant protections Steven Sanders also contested the Post's assertions:

The Post is dead wrong in its conclusions (“Rent and the Single Girl,” Editorial, March 7).The vast number of elderly residents in rent-controlled or rent-stabilized apartments are not some Fifth Avenue heiresses, but retired men and women who worked all their lives and are now living on a limited and fixed income.

Furthermore, owners who set rents for their non-regulated tenants do so based almost entirely on what they can collect based on what the market will bear for a given apartment, not, as The Post suggests, based on the revenue from their other tenants.

Developers can already build as many non-regulated apartment buildings as they wish, so long as they do not accept any government tax abatements.

Deregulating existing apartment units will not lead to any savings for non-regulated tenants, but it will lead to serious hardship for hard-working middle-income tenants and their retired forebears.

Steven Sanders

President Emeritus, Stuyvesant Town/Peter Cooper Village Tenants Association

Manhattan 

Gentrification is a Hungry Monster

Photo: Dave Sanders for The New York Times

The New York Times reports what many of us have observed for years:

• Gentrification is proceeding at an alarming pace, and rents are skyrocketing in the city’s most populous borough.

• The old geographic boundaries of “affordable” and “unaffordable” are disappearing. Once working class neighborhoods have been gentrified; some areas are now undergoing “super-gentrification” and pushing old fashioned speculators outward in pursuit of new territory.

• It’s really hard to find an affordable rental apartment in this city.

Does this sound like a market in which landlords need another rent increase?

We need rent regulation because the real estate market will not provide the kind of stability we as a society desire. Persistent RGB rentincreases, along with vacancy bonuses, IAIs, MCIs and other loopholes in therent laws, have pushed many once-affordable apartments out of the regulation system. Tenants are looking to the RGB for relief.

Introducing the RGBlog

It’s been a tough year for tenants. Since the Rent Guidelines Board last met in June, 2012, we’ve seen: wages remaining persistently stagnant; New York City rents continuing to rise, with more and more apartments leaving rent stabilization; tax abatements for landlords passing through the State Assembly, including not only J-51 but also an expansion of 421-A to several luxury developments; sequestration slashing the federal budget, cutting programs many tenants rely on; and on top of all that, the worst storm New York has seen in decades, which turned life upside down for thousands of renters, as well as home owners. There have been some bright spots- thanks to the work of HCR’s Tenant Protection Unit, over 14,000 New York City apartments have been brought back into rent stabilization. But we still don’t know how rents will be set in those illegally deregulated apartments, and what the penalties will be for failing to register.

This is the context in which the Rent Guidelines Board gathers for its first meeting of the year on March 14^th.

RGB season is an exasperating part of life for many New Yorkers. Without a doubt, landlords and their representatives will argue for sky-high rent increases, as they do every year. Many in the media, who have observed the RGB for years, will dismiss the calls of testifiers and protesters as “squabbling.” But behind it all are countless rent stabilized tenants who are struggling each month just to pay the rent and remain in their homes and communities.

The purpose of the Rent Guidelines Blog is to help make the case for tenants. We will be posting recaps of RGB meetings, analysis of housing data, news on rising rents, tenant stories from this past year, tips for testimonies, and more.

Check back for more to come soon…