The 1994 "Letter From The Chair" painted a sobering picture of the state of New York City's privately-owned residential rental stock. Sadly, for 1995, the Rent Guidelines Board (the "RGB" or "Board") must detail perhaps an even grimmer report.
In addition to its usual duties, the RGB attempted to do its share to address these alarming problems by taking an aggressive interpretation of its statutory duties. To that end, the Board held dedicated hearings on the following matters:
Because a number of the Board's initial proposals were so bold and innovative, they are detailed below even though the final guidelines adopted by the RGB differed significantly in approach.
The first major hearing the RGB conducted in 1995 concerned the burgeoning problem of lead paint. Although lead-based paint was outlawed nationally in 1978, New York City foresaw this problem and outlawed such paint in 1960. Thus, buildings constructed in the city after 1960 are free of lead paint concerns. Unfortunately, older buildings are catastrophically afflicted with such problems.
Many landlords complained that as a result of a huge surge in lead paint-related litigation and the staggeringly high damage awards that often result, they are unable to afford the skyrocketing insurance premiums for lead paint coverage - assuming that such coverage is even available, at all. The RGB sought information regarding the general problems of lead paint, the degree to which city dwellings are afflicted with lead paint problems, and the various intricacies of lead paint abatement and litigation. The RGB thus greatly appreciated hearing from the following experts:
The testimony was comprehensive, compelling and generally discouraging. Dr. Forster detailed the devastating medical effects that lead paint poisoning can have, especially on younger children, and the huge costs involved in detection and abatement. Commissioner Shultz followed by noting that 1,000,000 to 2,000,000 residential units in this city may have lead paint problems.
Lucy Billings noted the disproportionate impact of lead paint on older buildings and poorer tenants. (The two often went hand-in-hand.) John McCarthy noted that even good faith landlords who wished to aggressively combat this problem were handicapped by a lack of (i) uniformly accepted abatement standards; and (ii) companies that were certified to offer abatement services.
Testimony suggested that abating even a small apartment might cost thousands upon thousands of dollars, and certainly more than many small landlords could afford. Dan Margulies noted that many such landlords prefer simply to go without any insurance, figuring that even one law suit will bankrupt their building in any event.
John Fitzgerald detailed many horror stories of his lead-damaged clients and why lead paint suits were sure to increase. Subsequent to this testimony, the New York Times reported that the financially-pressed city already has paid hundreds of millions to settle such claims, but that only the tip of the iceberg has been seen.
Nancy Sachs detailed a prudent, comprehensive course that both public and private landlords should take to prospectively abate lead paint, while insuring that they are adequately prepared in case of litigation. She noted that since the Center for Disease Control had changed its definition of "lead poisoning" to include a much lower level of lead in a child's blood, the number of lead paint suits was almost sure to explode.
Following this informative, but dismal, testimony, the RGB came to several realizations. The first is that no increase that the RGB reasonably could grant could reimburse landlords for the skyrocketing cost of lead paint insurance. To state it differently, given that the crisis in lead paint insurance costs had reached such staggering proportions (one large landlord's insurance costs went from $250,000 to $900,000 in just two years), the RGB was reduced to near-helplessness in addressing this issue and thus almost had to consider lead paint insurance costs to be a non-factor in its deliberations.
The second realization, following fast on the heels of the first, was that (i) if there were to be any relief granted to any parties regarding lead paint, it would have to be granted by other agencies of government, and (ii) no such relief - either to protect or compensate tenants or provide abatement assistance to landlords -seemed likely to be forthcoming in the near future.
As during the last two years, and far more so than in previous years, the RGB took to heart its general obligation to take measures that would best serve the long-term interests of the overall housing stock. To that end, the RGB devoted special attention to the plight of so-called "distressed" housing.
One again I must use the word "crisis" to describe a threat to the very survival of large segments of this city's housing stock. Many of the factors leading to "distressed" housing conditions were addressed in last year's "Letter From The Chair."
The "distressed" housing crisis dramatically was brought home to the public when the Mayor and HPD Commissioner Deborah C. Wright announced a moratorium on city in rem proceedings. Simply stated, the city simply no longer could continue to assume the possession and maintenance of any more "distressed" housing given:
To its enormous credit, the RGB research staff prepared a penetrating study comparing how twenty-six other cities addressed their "distressed" housing stock. Other than Washington, DC and Jersey City, only New York City actually took control of such housing. Only New York and Washington tried to maintain and operate it for prolonged periods, as opposed, for instance, to many cities which simply foreclosed and then quickly auctioned off such properties. The RGB's study not only is playing a critical part in New York City's review of its in rem housing policies, but has been warmly received by those other cities that participated in this study.
In attempting to do its part to combat the issue of "distressed" housing, the RGB confronted three irreconcilable factors:
As one might imagine, these factors are a recipe for disaster.
It would be too cumbersome to detail the many factors and options that the RGB debated, but at the May meeting to enact the proposed guidelines, RGB member Barbara Gordon-Espejo made a proposal that caught the imagination of a majority of the board. Ms. Espejo suggested a "bifurcated" guideline, whereby units that seemingly were economically viable would receive increases more in keeping with the RGB's Price Index of Operating Expenses ("PIOC"), while potentially distressed units would receive a greater increase. For reasons stated below, the cut-off point was pegged at those apartments which rent for $400.
Opponents of this bifurcated approach generally argued that:
In contrast, proponents generally argued that:
Given the novelty of this approach, both landlords and tenants reacted strongly, and the proposal was given near-unprecedented media scrutiny. Because of the guideline's novelty, the RGB obtained a number of legal opinions as to whether the RGB could bifurcate its increases. Corporation Counsel, HPD's staff attorneys, attorneys at the New York State Division of Housing & Community Renewal ("DHCR"), the RGB's current staff counsel, the RGB's former staff counsel, Timothy Collins, and the chair (who is an attorney) all independently concluded that there was no proscription preventing the RGB from enacting such a guideline.
As the vote on the final guidelines neared, RGB members continued debating the merits of the proposed guidelines while considering alternatives. One provocative alternative, also suggested by Ms. Espejo, would have directed the larger of the bifurcated guidelines not at $400 apartments, but rather at buildings of thirty units or less, regardless of the rents on those apartments. In an effort to assuage those who insisted that the RGB concern itself with profitable buildings, rather than individual units, Ms. Espejo sought to target the additional increase at those buildings which fit the RGB profile of likely "distressed" or "abandoned" buildings.
As the vote on the final guidelines approached, Commissioner Wright, with the Mayor's endorsement, wrote to the RGB members strongly supporting this bifurcated approach.
For various reasons, the RGB ultimately approved a unitary guideline, including a $20 "low rent supplement" for all apartments renting under $400. Nevertheless, future boards no doubt may wish to consider such bifurcated guidelines if such an approach would provide the RGB with flexibility in enacting what it believes to be fair and justifiable guidelines for varying segments of the housing market.
While it does not mandate that the RGB do so, the statute governing the RGB authorizes the Board to provide for an additional increase to landlords when an apartment becomes vacant. Traditionally, tenants have argued that:
In response, landlords traditionally have contended that:
Often, RGB-approved vacancy allowances differed so radically from year-to-year that there seemingly was no rhyme or reason. As one example, one year the vacancy allowance was 15%; the next year, it was 0%. Thus, pure chance determined whether incoming tenants and their landlords would be impacted by a vacancy allowance. It thus was one of the chair's priorities to have the Board examine the entire issue of the vacancy allowance, and determine whether a more consistent and equitable approach could be developed.
The options debated ranged from a "zero" increase (i.e. accepting in principle the tenants' position) to a "decontrol/recontrol" approach (i.e. accepting in principle the landlords' position).[4]
As with the yearly guidelines, the majority of the Board opted for a radically innovative proposal by RGB member Paul Atanasio. That proposal was a trifurcated approach intended to permit a landlord of a vacant apartment the option of:
All parts of this proposal generated strong feelings, but none more so than the "highest comparable" option. In brief, the Board's majority believed that:
The logic behind permitting a flat, $400 option was to enable landlords of vacant low-rent apartments to lift rents to a level which, as detailed above, was deemed to be the economically viable break-even point. An estimated 200,000 rent stabilized units then rented for $400 or less, including 100,000 units that rented for $300 or less. Often, units in those buildings had similarly low rents, so neither a 15% increase nor a "highest comparable" would bring that vacant unit to the economically viable $400 level.
The flat 15% option was intended, for instance, to enable landlords with vacant higher rent apartments to achieve an optimal raise. For instance, if the highest rent in a similar unit were $600, and an apartment renting for $550 became vacant, a 15% allowance would result in a rent for the incoming tenant of $632.50.
Regarding the "highest comparable" option, the RGB did not raise this concept de novo, but instead sought to model its approach after the "highest comparable" option already in force in Westchester County. It also was critical to the Board's deliberations to know whether the DHCR believed it could administer a "highest comparable" option for New York City. As detailed below, DHCR officials stated categorically that they could do so.
Critics of the "highest comparable" option claimed that among the concept's alleged drawbacks is that Westchester's housing stock and variations are relatively simplistic compared to the nightmarishly large, diverse and complicated New York City stock. Critics thus argued that regardless whether "highest comparable" was or was not feasible in Westchester, it would be all but impossible to fairly apply to this city's housing stock.
Among other problems, the "highest comparable" option was the most difficult to define. For instance, if units were identical in interior size, but one had a balcony, parking space or garden, would they be "comparable?" If one two-bedroom unit had 1,100 square feet, but a similar two-bedroom across the hall had 1,180 square feet, were they "comparable?"[5] If one unit were noisier than a similar one, or had a better aesthetic view, would that affect "comparability?"
One interesting issue raised by tenant advocates concerned the right of a tenant who was paying a "highest comparable" rent to a rent reduction if the unit on which his/her "highest comparable" rent was based received a rent reduction because of an illegal overcharge.
"Highest comparable" opponents also noted alleged distortions that potentially might result from existing "highest rents" that included a 1/40th increase to the base rent as a result of improvements made to that apartment.[6] Opponents argued that a landlord should be required to make same individual apartment improvements to the second vacant apartment that the landlord had made to the first vacant apartment if the landlord intended to raise the second apartment's rent to the same level as the first apartment whose base rent included the "1/40th" increase. Otherwise, opponents argued, a landlord need improve only one apartment, and thereafter all otherwise comparable apartments that became vacant would have their rents raised to the highest level even though those subsequently vacant apartments didn't benefit from any comparable improvements.
On determining these and other complex issues of "comparability" three senior DHCR officials testified that because of their agency's experience in administering the Westchester model, they were confident that the DHCR could administer any "highest comparable" guidelines that the New York City Rent Guidelines Board might enact.[7]
The "highest comparable" proposal also placed a limit of $1,000, which specifically was designed to (i) prevent untoward increases; and (ii) deflect charges that this proposal was "de facto rent decontrol." Thus, for example, while a vacant $500 apartment might have its rent raised to a maximum of $999 (assuming that there were such a "highest comparable" unit in the building), a vacant $800 apartment could only be raised to a maximum $999, even if there were comparable units renting for $1,300.
When the Board voted on the final guidelines, it chose to enact a much simpler vacancy allowance of a straight, across-the-board, 8.5%. The Board particularly was swayed by the written comments of Commissioner Wright, again endorsed by the Mayor, which expressed concerns about the ambitious nature of the proposed trifurcated approach. The Mayor and Commissioner strongly urged an 8.5% vacancy, and a majority of the Board found their arguments persuasive.
The RGB considered many other important matters, but space limitations prevent all but a brief listing.
Yet again, the Board heard vociferous complaints - by both landlords and tenants - about the gross shortcomings of the New York City Housing Court. These complaints largely echoed the widespread dissatisfaction voiced in prior years.
Although not within its purview, the Board also debated to some degree the merits of the so-called "deposit into court" proposal, whereby in cases of rent disputes, tenants would have to deposit all otherwise due rents into a Housing Court escrow account before they could press their claims or counterclaims. While individual RGB members had strong opinions on this proposal, the Board, as an entity, did not take a position.
As part of its mandate, the Board considered increases for lofts. Only one person, a tenant, testified on this issue, so it would be misleading to suggest there was a wealth of evidence and testimony from which the RGB could discern any patterns in that housing market.
As always, SROs presented a painful picture of a much-neglected and ill-regulated housing sector. Organized SRO tenant advocates presented strong evidence to support their contentions, but unfortunately no SRO landlord advocates appeared. It frankly is difficult to determine whether this was because, as SRO tenants suggest, such landlords largely are indifferent (for numerous alleged reasons) to the RGB's dictates or because SRO landlords simply are not organized. In any event, authorities with investigative resources and even subpoena power (neither of which the RGB possesses) hopefully will examine the tragic conditions that afflict much SRO housing.
Foremost, I thank all Board members for their extraordinary patience, dedication and professionalism. The RGB's tasks often are grueling, time-consuming, disputatious and intellectually agonizing.
The Board's gratitude and best wishes go to Hilda Blanco, a public member whose RGB term expired last year. Hilda's calming temperament, penetrating questions and advice was missed by all.
As Hilda's successor, the Board is fortunate to have Paul Atanasio, whose experience in banking, specialized finance and practical politics make him a welcomed addition. Perhaps because he has not yet been jaundiced by many years on the Board, Paul was refreshingly inquisitive and blunt during his participation in Board debates.
The chair's special thanks go to Augie Rivera, the Board's vice-chairman and senior public member. His sage counsel and support especially was continuous and always welcomed.
The RGB research staff completed yet another year of solid accomplishment. With the staff having completed its equipment, hiring and current training updates, the results shone through. Without exception, RGB members, public officials, and tenant and landlords representatives effusively praised the staff's work product. I personally wish to thank the staff for making my job easier (sometimes, at least), and especially RGB Research Director, Doug Hillstrom, whose efforts on short notice, including week-ends, enabled the Board to finalize its positions during those hectic days preceding the vote on the final guidelines.
I also wish to welcome aboard Mark Ahasic, who now serves in the dual capacity as the RGB's Administrative Director and Legal Counsel, and Sharon Kuhn, who joined the RGB's research staff in December.
Finally, on behalf of the Board, I'd like again to congratulate Leon Klein, the RGB's trusted office manager, who completed his first, but probably not last, decade of service with the Board.
Edward S. Hochman, Esq.
Chairman
New York City Rent Guidelines Board
15 September 1995