The Rent Is Too Damn High (But Also Too Low)

Many people look at rent-stabilized housing and see the embodiment of their particular fears — either landlords squeezing cash-strapped tenants or wealthy renters scoring a bargain by mooching off regulated rents. Both these problems do exist, to varying degrees, but the biggest issue policymakers need to confront today is that recent changes to rent stabilization and the economy are threatening one of the most important sources of housing for low-income New Yorkers.

Some people say that sky-high rents are enabling New York City landlords to rake in profits on rent-stabilized buildings, while others say that it’s becoming impossible for landlords to operate rent-stabilized housing because rising expenses are outpacing revenues.

Both statements are true — but they’re referring to different buildings. Unfortunately, the way rent laws are administered has blurred distinctions among the heterogenous set of rent-stabilized buildings in New York. As a result, some buildings are doing fine financially while many are in severe distress. If we fail to heed the increasingly clear warning signals, we can expect dire consequences for the city’s ability to house lower-income residents stably and affordably.

The threshold of disinvestment

It is now widely understood that New York City’s high housing costs are fueled by a persistent shortage of housing, which drives up rents. Yet in the roughly half of the city’s rental housing units that are rent-stabilized, rents are subject to a ceiling on annual increases, enhancing stability for the tenants who live there.

But as stabilization sets a ceiling on rents, we also have to pay attention to the floor — the cost of paying utility bills, taxes and insurance; making repairs and filing required paperwork; repaying lenders; and paying the workers who do everything from processing leases to taking out the trash. If the rent — plus any other revenues, like charges for using laundry machines — doesn’t cover all these costs, something must be cut back. The first casualty of belt-tightening is almost always nonemergency repairs. This doesn’t bring about immediate disaster, but tenants feel it, and the longer it keeps up, the more serious its consequences are, and the more expensive it is to fix later.

The Community Preservation Corporation’s Rent-Regulated Portfolio Data Brief shows that, as insurance, compliance and other operating costs grew from 2020 to 2024 — insurance and administrative costs each rose by more than 50% during this period — the amount spent on actual repairs and maintenance decreased. This is what it looks like when disinvestment creeps across the threshold. When the quality of resident services declines, residents with the means to find a different apartment may do so. But those who can’t afford housing elsewhere become trapped in deteriorating conditions.

New York City has a long and dark record of allowing affordable housing to degenerate into what my colleague Sarah Watson and I have called “antisocial housing” — where rents are required to stay low, but no one has provided enough revenue to maintain decent conditions. This degrades residents’ quality of life and drags down their economic prospects, hurting the very people that housing policy otherwise aims to help.

Distress hiding in plain sight

Wait, you might say — didn’t I read that rent-stabilized buildings were showing increased profitability?

Yes and no. When rent stabilization was established in New York City, it mostly applied to entire buildings. But in the past several decades, many units within these buildings were removed from rent stabilization under since-repealed provisions that allowed decontrol of high-rent units, and tax incentive programs such as 421-a required rent-stabilized units in new, mixed-income buildings with predominantly market-rate rents. As a result, the phrase “rent-stabilized building” lumps together highly dissimilar buildings — ranging from old, 100% rent-stabilized buildings with low rent rolls to recently built buildings at mostly market rents — and produces a misunderstanding with grave implications.

Data published by the Rent Guidelines Board shows that, on average, from 2022 to 2023, revenues increased faster than costs in buildings that contained at least one rent-stabilized unit. But looking beyond averages, it quickly becomes evident that the balance between costs and revenues depends heavily on the mix of market-rate and rent-stabilized units.

In core Manhattan — south of 110th Street on the West Side and 96th Street on the East Side — two-thirds of buildings containing at least one rent-stabilized unit are actually made up primarily of market-rate units. Only 16% of core Manhattan buildings are 100% rent-stabilized. Outside of core Manhattan, 61% of rent-stabilized units are in 100% stabilized buildings, and in the Bronx, it’s as high as 75%.

Why does this matter? The income of a fully rent-stabilized building is limited entirely by the ceiling for annual rent stabilization increases. But in a building with market-rate units, income can be (and is) driven mostly by rising market-rate rents.

As a result, Rent Guidelines Board decisions — which impose the same cap on rent increases on every rent-stabilized apartment in the city — have a modest overall effect on building revenues in those majority market-rate buildings in core Manhattan, and a much larger effect in the rest of the city, where buildings lack revenue sources other than rent-stabilized units.

In other words, rent-stabilized buildings are doing well financially, as long as you’re talking about buildings that mostly aren’t rent-stabilized. Much as overall crime rates might mask chronic problems in many neighborhoods, the relative financial success of buildings with market-rate units masks pervasive financial trouble in rent-stabilized housing.

In core Manhattan, median building income for buildings with at least one rent-stabilized unit increased 12.2% from 2022 to 2023, while costs increased just 3.4% — hardly the picture of distress. In the Bronx, however, where 100% rent-stabilized buildings predominate, the median building’s costs increased faster (4.6%) than income (3.8%). The same pattern holds true for the entirety of the city outside core Manhattan: Median costs increased faster than income. In other words, costs outpaced revenues for most rent-stabilized buildings.

One year of data like this isn’t a serious concern. But this is a sustained trend. Rent Guidelines Board data running from 2013 to 2023 show that, over this decade, expenses for the median building outside core Manhattan have increased 26% faster than income. This predictably shows up as deferred maintenance, physical distress and owners unable to access lending for capital improvements.

The financial failure of organizations operating affordable housing would pose dire risks for their tenants and the communities they serve. Flirting with mortgage defaults threatens community-based organizations that provide not only housing but a range of important services in their neighborhoods.

Solving the problem

Multiple factors have conspired to create distress in lower-priced, rent-stabilized housing, and no single action is going to fix the problem or avoid replicating it in the future. We must explore a range of solutions that address both renters’ needs and the business challenges of maintaining and operating housing, either by reducing the costs of providing housing or by finding a way to pay for them. We can begin with these three strategies:

1. Pay the cost of freezing rents for the people who can least afford a hike. Low-income New Yorkers are already overburdened by rents, but their housing problems aren’t solved if we allow their homes to crumble.

Tenant- and project-based vouchers provided by the federal government are an irreplaceable resource for enabling people with very low incomes to afford housing while also ensuring the upkeep of their buildings. An obvious step would be to expand these programs — but this simply isn’t on the menu in today’s federal government. The State and City have taken steps to expand rental assistance, but their limited fiscal capacity constrains the scale of these efforts.

We can also look to expand existing programs that freeze rents without stiffing the building. The housing community knows these as the SCRIE (Senior Citizen Rent Increase Exemption) and DRIE (Disability Rent Increase Exemption) programs, but they have also been branded “The NYC Rent Freeze Program.” Low-income seniors and people with disabilities living in rent-stabilized apartments can have their rents held flat while the building owner receives a tax abatement credit to backfill the missing rent increase. These programs have a more limited benefit but also a lower budget impact than rental voucher programs, because they offset only the rent increase rather than the full gap between the tenant’s share of rent and market rent.

Expanding the NYC Rent Freeze Program to cover other rent-burdened, low-income residents would essentially be a way to means-test a rent freeze and to pay for it, rather than pretend that revenues can be frozen without adverse effects on buildings and their occupants. With the most vulnerable renters insulated from rent increases, the Rent Guidelines Board’s decisions could better address the financial circumstances of fully rent-stabilized buildings. This might even enable legislation to, as some have proposed, support the long-term viability of housing by pegging rent increases to the Consumer Price Index.

2. Give subsidized housing some flexibility for the sake of preserving affordability. Roughly 300,000 units of the rent-stabilized stock are subsidized affordable housing — buildings for which the City or State has provided capital or operating subsidies specifically to provide quality, long-term affordable homes for low-income New Yorkers. These buildings are governed by regulatory agreements that require landlords to, among other things, keep rents below specified levels. They are financed on terms that don’t generate surplus revenues, which means properties — already running on thin margins — can be thrown into financial crisis when costs or income deviate from expectations, such as when rent collections plunged during the pandemic.

Prior to 2019, when a tenant moved out of a subsidized, rent-stabilized apartment, that unit’s rent could be increased if necessary as long as it remained affordable at the income level specified under the building’s regulatory agreement. This ensured long-term affordability while allowing affordable housing operators to recoup some of the expense of renovations and other costs.

In 2019, though, as part of a package to prevent owners from hiking rents to unaffordable levels, State legislation prohibited these rent increases at vacancy — even for subsidized buildings with regulatory agreements guaranteeing that units would remain affordable! There was never a risk of massive rent increases for these apartments. This policy change has compounded the financial squeeze on subsidized low-income housing, constraining the resources available for maintaining these homes for low-income New Yorkers.

If the State legislature were to amend rent laws to allow subsidized affordable housing operators additional latitude to adjust rents at vacancy — under the oversight of housing agencies and consistent with their regulatory agreements — this would enable these buildings to better meet the needs of the low-income residents they were created to serve, and for longer, without further increasing any existing tenant’s rent.

3. Get serious about costs. Households that are just scraping by can’t afford unnecessary expenses. Neither can public policy turn a blind eye to the costs of operating their housing.

As rent stabilization has further limited rent increases, the costs of operating housing in New York have ballooned. The well-documented upheaval in insurance markets is one driver of recent cost escalation. The Community Preservation Corporation’s rent-stabilization portfolio report shows that, in 2023, these buildings spent more on insurance than on actual maintenance and repairs. A steady drip-drip of regulatory mandates, from façade maintenance to carbon reduction, has also increased administrative costs and capital demands. Even something as seemingly simple as requiring trash to go to the curb after 8 p.m. increased staffing costs. These cost increases affect co-ops, condos and market-rate rentals, but the most serious effects are felt in the buildings that have neither a financial cushion nor an ability to generate additional revenue. If we are going to be able to ensure the adequacy of rental revenues while limiting rent increases, further reforms will be necessary to bring these and other costs under control.

We need to actively pursue policies that bring down unnecessarily high costs and require disclosure and transparency when regulations would increase the cost of building or operating housing. We can no longer afford to treat other policy objectives as if they’re freeloading guests at a resort who can sign their bar tab and charge it to housing.

Sadly, this is not the first time New York City has seen the maintenance of affordable housing underfunded to the point of crisis. Today, the government is in the midst of a long-term project to reinvest in other types of housing that have been victims of deferred maintenance — over 150,000 units of public housing and roughly 50,000 Mitchell-Lama apartments in affordable complexes built with City and State support from the 1950s through the 1970s. There is no public funding source waiting out there to tackle the new mountain of outstanding capital needs for rent-stabilized apartments.

We need to find ways to help people pay rent that sustains our housing stock. We cannot afford to pretend any longer that this is unnecessary.