Last year the RGB completed its first comprehensive assessment of tax arrears in rent stabilized housing. Using a variety of data sources - including information on tax arrears, registered rents, and landlord income and expense data - the study presented a sobering picture. The magnitude of tax delinquency was increasing sharply and many owners had failed to take action to avoid foreclosure by the city.
Although the report documented serious problems in the low rent housing stock, it was unclear at that time whether conditions had stabilized or would continue to worsen. There were some positive signs. Landlord redemption of properties was not significantly lower than in previous years. There was hope the economy was beginning to strengthen. Finally, it appeared that bank foreclosure proceedings would restore the economic viability of many of the properties which had been part of the speculative fever of the eighties.
Our report Tax Arrears in Rent Stabilized Buildings, 1994 dashed all hope of an imminent recovery in the troubled low rent stock. The report found that tax arrears continued to worsen in the rent stabilized sector in 1993. Both the number of buildings in arrears and the mean level of arrears increased substantially. For buildings that were behind on tax payments in both 1992 and 1993, the average amount owed increased by ONE-THIRD. Most troubling of all, the report found a sharp reduction in the willingness of landlords to redeem their properties. As tax arrears have mounted, fewer landlords have the means or inclination to take back their properties from the city.
Last year's report on the New York City Housing and Vacancy Survey (The NYC Housing and Vacancy Survey: A Ten Year Retrospective (1981-1991)) was a rather positive assessment of the decade. Despite the litany of complaints the Rent Guidelines Board hears each year from both landlords and tenants, the HVS data showed that BOTH groups gained during the eighties. Tenant incomes rose faster than inflation and they had more income to spend on non-housing goods by the end of the decade. Owners' rents rose substantially faster than the rate of inflation and also outpaced the RGB's Price Index of Operating Costs.
But what a difference two years can make. Our report comparing data from the 1991 and 1993 Housing and Vacancy Surveys shows how a deep recession can undo the progress of a decade. In the 1993 Housing and Vacancy Survey Report, we found that the period 1991 to 1993 was kind to neither tenant nor landlord. The deepening recession made it impossible for many landlords to raise rents as fast as the guidelines for rent stabilized apartments allowed. On the tenant side of the equation, income plummeted 10% in real terms and the median rent-to-income ratio increased substantially, from 26% in 1991 to 28% in 1993. The report also found that income inequality, which increased greatly in the eighties, continued to grow from 1991 to 1993.
Apart from adjusting rents from year to year, the Rent Guidelines Board also bears some responsibility for ensuring that rents are "fair." A common criticism of rent regulation is that it increases rent inequities among tenants by promoting "rent skewing", in which identical apartments become differently priced over time due to variations in their turnover rates. Since the Board's policies (e.g. the vacancy allowance) often influence turnover rates, an understanding of the rent skewing issue is crucial.
Rent Skewing in Stabilized Housing examines the issue in detail. The report includes an examination of the theoretical literature as well as some new empirical work by RGB staff. Review of the existing literature uncovered theoretical and empirical evidence of skewing in both regulated and unregulated housing markets. Statistical analysis of 1993 data from two hundred and twenty rent stabilized buildings as well as the cross-sectional data set of the 1991 HVS revealed statistically significant skewing of rents for comparable apartments in both stabilized and unregulated rental buildings within the city.
The study also found similar average annual "length of occupancy" discounts (one measure of skewing) for sitting tenants in both the regulated and unregulated sectors, but generally higher average total discounts for tenants in stabilized units than for those in unregulated rentals. This was due to the tendency of tenants to occupy their stabilized dwellings for longer periods than unregulated units. Thus, New York's rent stabilization system encourages stabilized tenants to stay in their units longer than renters in the unregulated sector, leading to higher total levels of rent skewing in stabilized apartments than in unregulated ones.