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Rent Freeze May Change How Tenants Decide on Lease Duration

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Rent Freeze May Change How Tenants Decide on Lease Duration

Postby TenantNet » Thu Jul 02, 2015 5:29 am

New York’s Rent Freeze May Change How Tenants Decide on Lease Duration
New York Times
JULY 1, 2015

A one-year lease or a two-year lease?

That is the question rent-stabilized tenants in New York City have been pondering this week, after the Rent Guidelines Board, which sets rent adjustments annually, voted on Monday to freeze rents on one-year leases for the first time.

Citing the many tenants struggling with rising housing costs, the board also voted for a historically low increase for two-year leases: 2 percent.

The decisions outraged landlords but thrilled tenants. And now those tenants have to decide whether to take advantage of that tempting zero increase for a year or lock in the 2 percent for two years.

“Tenants are asking, ‘I usually do two years, should I sign for one year?’ ” said Marcela Mitaynes, a tenant organizer with the housing group Neighbors Helping Neighbors in Sunset Park, Brooklyn.

“We want them to take advantage of the zero percent,” she said. “Our area is working class, and we hope this will help them alleviate some of the financial burden that they’re having.”

The rent changes apply to leases starting Oct. 1 and are in effect until Sept. 30 of the following year. About 60 percent of the city’s one million rent-stabilized units are affected by each year’s vote because not all tenants renew their leases every year, largely because they are on the second year of a two-year lease.

The mayor’s office estimated that 630,000 homes housing more than 1.2 million tenants are affected.

Many renters commit to two-year leases, even if rent increases for these are higher. The reasons range from stability to gambling that by the end of that period, they would have gotten a better deal.

For instance, if the rent increase for a one-year lease is 3 percent, and for a two-year lease 5.75 percent, a tenant may go for the lower increase and hope that the next year’s increase would not make his rent pricier than if he had taken the 5.75 percent to begin with. The tenant who took the two-year option hopes to be the one who comes out ahead.

“Over the long term, in the past, it worked out that tenants did better by always taking the two-year lease, because the two-year was usually less than twice the one-year adjustment,” said Jack Freund, executive vice president of the Rent Stabilization Association, a landlord group.

But tenants have been switching preferences in recent years. Federal census data show that while 53 percent of rent-stabilized households signed a two-year lease in 2008, that number had dropped to 47 percent in 2011 and to 44 percent last year.

One reason, officials with the rent board said, may be that the rent increases for two-year leases have become steeper. Another, some tenant advocates said, is that tenants have been devoting more of their income to rent and utilities. Lower-income tenants in particular struggle with higher rent increases, they said.

Last year, a rent board filling up with appointees by Mayor Bill de Blasio, who favors relief for tenants, voted for its lowest rent increases at the time: 1 percent for one-year leases and 2.75 percent for leases of two years. By then, more tenants had been choosing the shorter-term leases.

Now, with the rent freeze for a one-year lease, Ronnie Wheeler, 48, a musician in Bushwick, Brooklyn, said he reconsidered his plan to sign up for two years when he renews his lease this year. Mr. Wheeler, who lives with his girlfriend and two cats, said his $1,050 monthly rent for his three-bedroom apartment eats up more than a third of his income.

"It takes me like two paychecks to pay my rent, and that’s not cool," he said.

A rent freeze “is not that much,” he said, “but it’s about saving money any way you can."

But Chap James Day, 33, a tenant in Astoria, Queens, said the freeze was no small respite after an increase of 7 percent when he last renewed his two-year lease in 2013. Mr. Day said he always opted for two years because “I figure two years is a good medium place because I don’t know how it’s going to go” the following year.

But when he renews this August, he plans to switch to one-year leases to take advantage of last year’s 1 percent increase, which will still be in effect. Then when he renews in 2016, he will opt for another year to take advantage of the zero increase.

For the next two years, that means a 1 percent increase on his $1,267 monthly rent.

“That’s unheard-of,” said Mr. Day, a fund-raiser for a nonprofit organization. “It translates into being able to get some savings.”

Some landlords said they generally preferred tenants to sign one-year leases because that helped match rent levels to actual expenses from year to year.

“It makes it more economically feasible to run a building if you’re compensated on a yearly basis,” said Jimmy Silber, a Manhattan landlord and co-president of the Small Property Owners of New York.

But this premise went out the window with the rent board’s recent decisions, he said. Mr. Silber and other landlords said very low or no increases fail to compensate for the higher taxes — and water and sewer rates — that the city charged owners, or the fact that rents were how they made a living.

“We have to take it out of savings,” he said.

Some tenants are clinging to their two-year leases as a security blanket.

“At least with a two-year, you know whatever you’re getting,” said Washica Lambert, 59, a home health aide who lives in Harlem.

She said she had always signed two-year leases for her one-bedroom apartment, which she has rented for 21 years. While she was happy for those who would find a reprieve in the zero increase, she said, “you don’t know how long it’s going to stay the way it is. It’s all confusing, really.”

Kate Pastor and Rebecca White contributed reporting.
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