Last year, our report Tax Arrears in Rent Stabilized Buildings, 1994 found little evidence of a recovery in the troubled low rent housing sector. The report discovered that tax arrears continued to worsen in rent stabilized housing. Both the number of buildings in arrears and the amount of arrears owed increased substantially. Most troubling of all, the study found a sharp reduction in the willingness of landlords to redeem their properties from the City.
This year's report, Tax Arrears in Rent Stabilized Buildings, 1995 presents a a somewhat less grim picture. On the positive side, the number of buildings in arrears has stabilized, if not declined. Unfortunately, while a substantial number of larger buildings have managed to repay their back taxes, many small buildings continue to accumulate arrears. It appears that buildings with newly accumulated arrears are in worse financial condition than comparable buildings in prior years.
Steadily increasing tax arrears has presented the City with a vexing problem. Failure to "vest" these buildings may lead to their physical deterioration or outright abandonment. However, taking title to hundreds of additional apartment buildings would be extremely costly, and the City can hardly afford the expense.
The search for solutions to this problem led the staff of the RGB to devise a survey of other cities' residential tax foreclosure policies. Our report, the Residential Tax Foreclosure Survey, found that few cities own or manage residential properties taken through tax foreclosure proceedings. Most cities attempt to maximize the amount of taxes recovered from properties in arrears through foreclosure/auction of the properties or sale of tax liens. New York City's policies (i.e. foreclosure and city management of thirty thousand apartment units) are fundamentally different. No other city we surveyed owned or managed more than a few hundred dwelling units.
The study examines the tax foreclosure policies of Grand Rapids, Michigan and Jersey City in detail. Both have particularly comprehensive strategies for dealing with tax delinquent properties. Jersey City is the only city that combines sales of tax liens for delinquent buildings with foreclosure of buildings whose liens remain unsold. The city's policy resembles a triage process in which the most marketable delinquent buildings are initially transferred to private investors, forcing the city to foreclose on only the worst buildings with tax arrears. Grand Rapids encourages homesteading and also utilizes tax lien sales.
The problem of the "distressed" housing stock has preoccupied members of the Rent Guidelines Board for some time. Last year, for the first time in its history, the Board voted a special guideline for small buildings in an attempt to boost their bottom line. While it was too early to evaluate the impact of the Board's actions, staff did wish to dig deeper into an important question: Do small buildings deserve fundamentally different treatment than large buildings?
The Overview of Small Rent Stabilized Buildings found that small buildings tend to be worse off than larger buildings in nearly every respect. Small buildings have lower income but higher expenses. Small buildings are typically older and managed by owners with relatively little capital and managerial expertise. Finally, tenants in small buildings tend to be less affluent than tenants in larger buildings. Thus, while small buildings may not be vastly different from their larger counterparts, the cumulative impact of these myriad deficiencies must have an impact. It is certainly not a coincidence that the typical size of an in rem building is only 10 units.