Tax Arrears in Rent Stabilized Buildings, 1995


Summary

The number of rent stabilized buildings in arrears levelled off in 1994 after five years of steady growth. However, while the number of buildings at least three quarters in tax arrears remained virtually constant over the past year, the average level of arrears per apartment grew by 19.3%. Most of this growth came from buildings reaching three or more quarters of arrears for the first time in 1994, indicating that a core of buildings continues to fall into arrears despite improvement in the City's economy.

1994 was also the first year in which the size of buildings in tax arrears declined. From 1989 to 1993, the average size of a building in arrears rose from 13.4 units to 17.6 units. In 1994 this average dropped to 16.2 units for buildings three or more quarters in arrears.

Overall, current tax arrears data indicates that falling interest rates, decreasing unemployment and general improvement in New York's economy during 1994 allowed many larger, less distraught buildings to lift themselves out of substantial arrearage. However, a substantial number of smaller, more marginalized properties continue to fall deeper into debt to the City.

See Buildings with Arrears are Concentrated in Poor Neighborhoods

The following "bullets" briefly summarize the findings of this report:

Buildings in Arrears

Level of Arrears

Foreclosure Actions

Methodology

This study is primarily based on data from the tax arrears file maintained by the Department of City Planning. This database includes information from several sources, including the Department of Finance (e.g. tax arrears) and the Department of General Services (e.g. vestings). The information cited in this report reflects conditions as of January, 1995.

The City Planning arrears file was matched with the RGB's list of rent-stabilized properties, to yield a database of stabilized buildings with tax arrears in one or more years from 1988 to 1994. All of these buildings were registered with the State Division of Housing and Community Renewal. In this study, "arrears" refers to buildings three or more quarters in arrears, since the amount owed by buildings less than three quarters in arrears is generally insignificant.

Change in Arrears, 1988-94

Number of Buildings

In a reversal of recent trends, 1994 witnessed no significant growth in the number of buildings burdened by arrears. Roughly 11% (4293) of the 38,000 rent stabilized buildings registered with DHCR were three or more quarters in arrears during 1994, as opposed to 4291 properties in 1993. By contrast, between 1988 and 1994, the number of stabilized buildings in arrears grew 53%.

Level of Arrears

While the number of buildings in arrears remained stable in 1994, the level of arrearage continued to increase. The latest figures show that buildings three or more quarters in arrears owe $1821 per dwelling on average, an increase of 19.3% over last year. Such growth far outpaced the 8% rise witnessed between 1992 and 1993. Since 1988, the average level of arrears per apartment has increased 127%.

See In 1994, the Average Level of Arrears Continued to Rise...

The fact that the average level of arrearage accelerated in 1994 while the number of buildings with arrears remained constant highlights a recurring problem - small buildings continue to fall into substantial arrears despite the city's revived economy. More than three-fourths of the buildings in arrears in 1994 faced substantial arrears in both 1993 and 1994. Arrearage in these properties averaged $2072 per apartment in 1994, somewhat higher than the overall average($1821). However, the average level of arrears in these buildings has risen only by 3% since last year.

At the same time, about 500 buildings fell three or more quarters into arrears for the first time in 1994, with a mean arrearage of $998 per apartment. In 1993, arrears averaged $680 among comparable buildings. Thus, growth in average arrears seems to be driven by the influx of smaller buildings that fell into arrears for the first time in 1994 in relatively worse condition than their predecessors.

Number of Units

While the number of buildings at least three quarters in arrears was the same in 1993 and 1994, the number of dwellings in such buildings dropped for the first time since 1988, from 76,000 to 70,000. Between 1989 and 1993, the average size of buildings at least three quarters in arrears gradually increased from 13.4 units to 17.6 units. In 1994, this average dropped to 16.2 units. New additions to the arrears group in 1994 were also smaller than their counterparts in 1993, averaging 18 apartments in size as opposed to 26 dwellings. Likewise, buildings that "dropped out" of substantial arrearage between 1993 and 1994 averaged 21 dwellings in size. It seems that improved economic conditions have allowed larger, less distraught buildings to lift themselves out of arrears, leaving behind a "core" of smaller, more marginalized buildings which are falling deeper into arrearage.

See The Number of Apartments in Arrears Dropped for the First Time Since 1989

Foreclosure Actions

Traditionally, New York City has seized (vested) buildings that failed to pay taxes for a number of years. Property owners could prevent seizure by paying back taxes to the city ("redemption"). Last year, the pace of vestings declined even as tax delinquency among stabilized buildings worsened. Current figures imply that vestings continued to remain low throughout 1994, while the redemption rate appears to have rebounded from an all time low of 29% in 1992 to 52% in 1993, although this is still far less than the rates observed in the late 1980's. The fate of delinquent buildings is uncertain since the announcement of a temporary moratorium of vestings by the city's Department of Housing Preservation and Development (HPD) early in 1995.