Battle Over Rent Hikes Turns to Who’s Suffered More: Tenants or Landlords?

By Greg David, THE CITY. This article was originally published by THE CITY

While Aaron Weber waits for the city Rent Guidelines Board to decide whether he will be forced to freeze rents for the tenants in the 40 buildings he runs at Weber-Farhat Realty Management, he ticks off the higher costs absorbed in the past year.

Among them: rising water and electric bills as residents work from home during the pandemic, along with insurance premiums and property tax hikes. Then there’s intensified cleaning procedures required due to COVID-19.

The overall jump in expenses: 15%.

“And all of these cost increases have been paired with lower income because of unpaid rent, vacancies and lower rents for market-rate apartments,” Weber added.

The Rent Guidelines Board is slated this month to announce its final decision on rent increases for leases beginning in October or later after establishing a range of 0% to 2% for one-year leases. A vote is expected June 23, after two virtual public meetings.

Landlords are making a last-ditch argument that helping tenants in need is the job of the government, especially now that Albany’s federally funded $2.4 billion rent relief plan is accepting applications. The cost increases suffered by building owners have been ignored for too long, they say, and will lead over time to a deterioration of the city’s housing stock.

“We are tremendously sympathetic to tenants in trouble and that’s why we advocated for aid,” said Basha Gerhards, senior vice president at the Real Estate Board of New York. “We know owners are in trouble too.”

Tenant advocates agree that landlords have faced steep challenges but contend renters are in a worse situation.

“The scale of the hardships facing tenants and landlords are in no way equivalent,” said Sam Stein, a housing researcher at the Community Service Society, in testimony to the Rent Guidelines Board.

Last Year’s Pandemic Freeze

A combination of low rates of inflation and the appointment of more pro-tenant members of the rent guidelines board by Mayor Bill de Blasio has led to much smaller increases in rents over the past seven years than in times past.

Three times since 2015 the board has frozen rents for one year-leases — including last year. In the other years, the board granted increases of 1.5%.

For the first part of the de Blasio administration and reaching well back into the Bloomberg era, landlords generated income by both converting higher-rent apartments into market-rate units when they became vacant and by increasing rents after renovating units.

But the 2019 renewal of rent regulations ended so-called vacancy decontrol and sharply curtailed the ability of landlords to recover money spent on renovations by raising rents.

A REBNY study found a 48% drop in the number of filings for renovation filings in rent stabilized buildings from 2018 to 2020. REBNY expects data on the number of apartments deregulated in 2020, to be released later this year, to show a precipitous decline.

“Rent laws impact our ability to keep up with expense growth,” said Marc Pollack, director of asset management for Greenthal Management Corp., which manages 2,000 apartments in Manhattan, half of them rent-stabilized.

Landlords argue the Rent Guidelines Board has for years ignored the cost increases.  Property taxes have gone up more than 3% each year as the city increases the assessment on buildings as have water rates and labor costs since his buildings are unionized, said Pollack.

The key this year is that the Rent Guidelines Board, following tradition, is using 2019 data for making its decision, although members could take into account the extraordinary circumstances of the coronavirus pandemic.

“We ramped up our cleaning services, contracted with new companies to professionally sanitize on a weekly basis and increased pay because the cleaners were essential workers,” said Weber, citing one pandemic-caused increase.

‘Sort of Injustice’

The finances of his owners have gone south, he said.

In one case, the restaurant on the ground floor of a building Weber manages in Tribeca closed early last year. A problem with the façade forced expensive repairs. With minimal rent increases for six rent-regulated units, the owner lost $200,000 in 2020, Weber said.

Stein of the Community Service Society pointed out in an interview with THE CITY that the board’s key measure of how landlords are doing, called net operating income, increased in 14 of the last 15 years, and 2.9% in 2019. He believes that the $2.4 billion in rent relief that became available starting June 1 will bolster owners’ finances substantially.

He also notes that any landlord who accepts the rent relief will be obligated to freeze rents for that tenant for the next year.

“A rent increase will only apply to those who don’t get relief money and that’s sort of injustice,” he said.

Real estate groups disagree. They note that any increase will apply to tenants 12 months after the rent relief is received.

“The state’s rent relief program will provide aid to eligible tenants and begin to address the crushing debt facing struggling property owners as a result of the pandemic,” REBNY, the Community Housing Improvement Program and the Rest Stabilization Association said in a joint statement to THE CITY.

“This is an entirely separate issue and has no bearing on the [Rent Guidelines Board’s] obligation to provide fair rent increases to keep pace with rising operating expenses and allow for maintenance of quality housing for millions of New Yorkers.”

Meanwhile, landlords have their fingers crossed that the board will at least authorize a 2% increase.

“But it doesn’t help me to provide safe housing with a certain level of safety and service,” Pollack said.

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