NEW YORKERS ARE RENT POOR;
RGB's LOW RENT SURCHARGE TARGETS BLACK AND LATINO FAMILIES
May 13, 1999
submitted by Kenny SchaefferIntroduction
To state the obvious, rents in New York City continue to run out of control. The federal department of Housing and Urban Development (HUD) found last year that New York City's housing crisis is the worst of any city in the nation, and the New York Times reported that even the middle class cannot find housing in the city. The real estate market may be unusually "healthy" from the perspective of owners and investors, but the housing situation for other New Yorkers remains in critical condition[1]. Major deregulation and substantial vacancy increases have pushed owners' profits to record levels, while operating costs are steady and financial costs are down[2]. While rents and profits rise, incomes have not, and poverty remains endemic.
In this context, unwarranted rent increases enacted by the New York City Rent Guidelines Board (RGB), particularly those targeted at low income tenants in low rent apartments, have a devastating impact on the city's housing affordability crisis and contribute to homelessness.
Rent to Income Ratios
In New York City, more than half of all stabilized households cannot afford their rents, according to the 1996 Housing and Vacancy Survey (HVS), which showed the median rent to income ratio to be above the federal hardship level. 26.9% of all households - a quarter of a million families - pay rents of over 50% of their monthly income in rent, another 6.9% pay 40-49%, and for another 5.1% rent consumes 35%-39%.of their total income[3]. By contrast, in 1960 renters paid an average of 19.5% of their income for rent, and by 1991 it was 28.5%[4].
Housing unaffordability, particularly the "Poor Tax", hits Black and Latino families hardest
As of 1993, 62% of apartments renting for less than $400/month in New York City were occupied by African American and Latino families paying an average of 58% of their income in rent[5]. In 1981, the poorest 20% of New York households spent about 60% of income on rent, while by 1993 they were spending 80%[6]. The surcharge on low rent apartments imposed by the RGB from 1983-1989 and 1994-1998[7] has contributed to the virtual elimination of rent stabilized apartments renting for under $500/month, even as poverty remains epidemic and the waiting list for public housing in New York City is now eight years long.
Between 1981 and 1993, the total number of apartments renting for under $450/month (in constant 1993 dollars) declined by over 400,000, from 1.17 million to 691,285[8]. From 1993 to 1996, the number of stabilized apartments renting for under $400 declined from 23% of the stock to just 13%[9]. By 1999, the number has continued to decline[10]. 64% of families living in apartments renting for under $400/month have annual incomes below $15,000[11] - rent poor according to the federal definition. These families cannot afford any rent increase, let alone higher increases that the ones imposed on all other tenants. Rent increases imposed on the poorest tenants have resulted in deprivation of other necessities and in evictions[12], which accelerates the eradication of the supply of low rent apartments via steep vacancy increases.
A "minimum rent" makes no sense in a city with endemic poverty The low rent surcharge is rationalized by claiming that a "minimum rent" of $500/month for all apartments would be ideal. This argument might hold water if all households had a minimum income of $20,000/year, because $500/month (or $6,000/year) is exactly 30% of a $20,000 annual income. However, almost half of all stabilized households have annual incomes below $20,000, and hundreds of thousands of stabilized households have incomes below the poverty level[13]. In New York city,. 1.8 million residents live in poverty (defined as 125% of the federal poverty guideline) and 38% of all children - 50% of all nonwhite children - live in poverty[14]. Private food lines are unable to meet demand. The city has only recently agreed to stop denying foodstamps and other benefits to eligible applicants[15].
Low rent surcharges do not lead to increased investment in housing maintenance Ironically, despite itsdirect contribution to the elimination of units affordable to low income New Yorkers, the low rent surcharge is justified as helping to preserve affordable housing by providing more money for its upkeep. However, there is no support for the theory that providing higher rents to owners without specific and enforced maintenance standards results in increased maintenance[16]. One of the arguments advanced in favor of vacancy decontrol in 1971 was that increased rents would lead to increased investment in preservation, even without controls or regulation. On the contrary, as the Stein Commission reported, maintenance declined even as 400,000 units were deregulated between 1971 and 1974[17]. In 1999, housing maintenance standards continue to be unenforced. By 1998, there were 3,000,000 uncorrected housing maintenance code violations and the number of city housing inspectors was at an all time low. HPD's Housing Litigation Bureau (HLB) is so understaffed and overworked that tens of millions of dollars in fines go uncollected. HLB attorneys are limited to heat and hot water cases and are unable to bring "comprehensive cases" even against buildings with hundreds of code violations[18].
Welfare Is Not the Answer Welfare programs do not adequately protect New York's low income tenants from the effects of unaffordable rent increases. While tens of thousands of families have been able to obtain interim relief under the Jiggetts lawsuit[19], countless thousands of other eligible families have been unable to obtain assistance in getting Jiggetts relief due to inadequate funding of civil legal services, and hundreds of thousands of others families have had benefits wrongfully denied or terminated under "the cutting edge of welfare reform[20]". Further, Jiggetts is not available to all individuals, such as people receiving SSI or other disability benefits (typically $550/month). Even to the limited extent that public assistance does absorb the costs of unaffordable rent increases for some low income families, that is not a reason for the RGB to impose such increases when they are not statistically justifiable, simply to transfer public assistance money to owners. The real estate industry doesn't need, or qualify, for welfare.
ADDENDUM
1/3 of under-$500 stock lost between 1993-1996;
63.2% of families in under-$500 apartments are African American or Latino
(1996 HVS data for stablized apartments renting for under $500/month)
* The number of stabilized apartments renting for less than $500/month declined by almost 1/3 between 1993 and 1996, from 396,357 to 273,812. This represents a loss of 122,545 apartments affordable to households with annual incomes below $20,000.
* African American and Latino families make up 48.6% of all stabilized households, but 63.2% of families in under-$500 apartments.
* Almost half of all households** in under-$500 apartments (45.3%) pay more than 30% of their income in rent, 34.4% pay more than 40%, and 26.9% pay more than 50%.
[Source: US Census Bureau] ** These percentages are based on deleting the number of apartments for which rent to income ratio was not available (10,733)
NOTES
1.In 1974, the state legislature, in ending the three year experience with vacancy deregulation by placing all vacated rent controlled and stabilized apartments under the protection of the rent stabilization law, declared:
[A] serious public emergency continues to exist in the housing of a considerable number of persons in the state of New York.... preventive action by the legislature continues to be imperative in order to prevent the exaction of unjust, unreasonable and oppressive rents and rental agreements and to forestall profiteering, speculation and other disruptive practices tending to produce threats to the public health, safety and general welfare.... [1974 ETPA, §2, Legislative Findings].This provision of state law has repeatedly been renewed by the legislature, most recently in 1997 {Laws 1997, Ch. 116, §2), and "to prevent the exaction of unjust, unreasonable and oppressive rents" continues to be the mandate of the Rent Guidelines Board [ETPA §4], although it can be argued that in past years the Board has departed from this mandate. For example, in 1998 the Board imposed 2% and 4% increases for 1- and 2-year renewals even though owners' costs had only gone up 0.1%, and tenants with rents below $450.00 were required to pay an additional $15/month on top of the guidelines increase
2. In 1997, owners' gross profit (income minus expenses) averaged approximately $250.00/unit/month on an industry wide basis. Multiplied by twelve months and more than one million stabilized units, owners' total profit from rent stabilized apartments (excluding commercial leases) was more than $3 billion. This year, net operating income per stabilized apartment rose about 10%. Owners' costs rose 0.1% last year [1998 RGB Price Index of Operating Costs (PIOC)] and only 0.03% this year [1999 PIOC]. 1999 mortgage rates are the lowest since 1982, borrowing qualifications are looser, and many owners are refinancing at more favorable rates [1999 RGB Mortage Survey (RGBMS) at pp 2, 4]. Twenty six lending institutions responded to the Survey, including 25 characterized as commercial mortgage firms, savings banks, savings and loan associations, or commercial banks, as well as one nonprofit development corporation. The Survey respondents, while not a statistically dispositive sample, reported that the average operating and maintenance cost per unit was $331, and the average rent per unit was $635.00 [RGBMS at p 11], and 47% of those answering the Survey said that 75%-100% of their loans had been refinanced in the last year [RGBMS p 4].
3. U.S. Census Dept., 1996 Housing & Vacancy Survey.
4. Cited in P. Marcuse, "Mind the Gap", City Limits, March 1998 p. 23. (Peter Marcuse is professor of Urban Planning at Columbia University's Graduate School of Architecture and Planning.)
5. U.S. Census Dept., 1993 HVS. Complete income and ethnicity breakdowns in low rent apartments from the 1996 HVS have not been released but are presumably comparable. This information is available directly to Board members through the RGB's excellent resources and research staff.
6. Marcuse, op. cit.
7. The definition of "low rent" has changed from apartments renting under $200/month in 1983 (RGB Order No. 15) to $450 in 1998 (RGB Order No. 30) (Scherer & Brandveen, Residential Landlord Tenant Law in New York §4:110) as the supply of low rent apartments has dried up - due in no small part to the RGB's own orders.
8. Marcuse, op. cit.
9. U.S. Census Dept. 1996 HVS.
10. The 1999 HVS is being conducted presently.
11. U.S. Census Dept., 1993 HVS.
12. While the number of evictions for 1998 has not yet been released, it does not appear that it will be substantially lower than the 1997 figures, when just under 25,000 families were dispossessed by City Marshals (1999 RGB Income & Affordability Study at p. 11, Appendix F). The decrease in the absolute number of apartments affordable to low income New Yorkers, and the increase in the number of families unable to afford their rent, is expected to negate the thousands of evictions averted last year by Jiggetts relief, see n. 9.
13. U.S.Census Dept., 1996 HVS.
14. Community Food Resource Center, "Poverty Statistics", May 5, 1999.
15. Reynolds v Giuliani (SDNY 1998).
16. Owners' maintenance expenditures have risen more slowly than income, resulting in an increase in Net Operating Income (NOI) in ever year since 1992. NOI now surpasses levels seem in the late 1980s. In 1997, NOI rose 11% over 1996. (1999 RGB Income & Expense Study, p.7).
17. Stein Commission Report (Andrew Stein, Chairman), 1974.
18. City Limits Magazine, April 1999.
19. Jiggetts v Grinker, 75 NY2d 411 (1990); __ A.D.2d __ (1st Dept., May 6, 1999) provisionally requires the state to provide families on public assistance a reasonable shelter allowance to obtain housing in today's market. The standard shelter allowance is $215/month for a family of one, $250/month for two, $286 for three and $312 for four. While the shelter allowance is expected to rise (for the first time in more than 15 years), the continuing policy to reduce welfare rolls via "the cutting edge of welfare reform" without a commensurate reduction in poverty continues to make the elimination of low rent apartments despite record industry profits unwise. Further, even a 50% increase in the shelter allowance will only afford a family of three $419/month.
20. New York Times, 9/22/98 p. B6.