Why the Rent Guidelines Board Is Stacked Against Tenants—By Design
Why the Rent Guidelines Board Is Stacked Against Tenants — By Design
Tenants who have attended meetings, hearings and votes of the New York City Rent Guidelines Board understand that the process favors landlords. But they do not necessarily understand why. The history of rent stabilization explains it.
The city Rent Stabilization Law of 1969 (RSL) was a compromise, enacted by the City Council and Mayor John Lindsay after an intensive organizing campaign by tenants in apartments built after 1947, which were then not covered by the city’s rent-control law. These tenants were protesting rent increases of 50 to 100 percent that landlords had begun imposing in the mid-1960s.
In response to this campaign, two Councilmembers, Ted Weiss (D-Manhattan) and Arthur Katzman (D-Queens) introduced a bill in 1968. The Weiss-Katzman bill proposed to expand the city rent control law, enacted in 1962, to cover post-1947 buildings. (The Council had such power at the time, but the state Urstadt Law removed it in 1971.)
Lindsay responded to the Weiss-Katzman bill by appointing a task force to draft a compromise bill. This task force was made up of representatives of the Lindsay administration and representatives of the real-estate industry. No tenant advocates were on it.
The Lindsay task force came up with a weak system, called rent stabilization in order to contrast it with rent control. This system was to be administered by the real-estate industry itself through a “real-estate industry stabilization association”—the Rent Stabilization Association (RSA).
The Rent Stabilization Law applied to buildings with six or more apartments built between February 1, 1947 and May 31, 1968. It required their owners to become members of the Rent Stabilization Association and to abide by its code, known as the Rent Stabilization Code. Failure to pay dues to the RSA or to comply with the code could result in a landlord’s building being subjected to the more stringent rent-control law—a penalty which was virtually never imposed.
In 1974, in the Emergency Tenant Protection Act, the state Legislature and Governor Malcolm Wilson extended rent stabilization to buildings constructed or first occupied on or before December 31, 1973. The ETPA also expanded coverage to pre-1974 buildings with six or more units in the suburban counties of Nassau, Rockland, and Westchester.
Under the city law, landlords were required to offer to renew rent-stabilized tenants’ leases and could impose rent increases upon renewal according to annual votes of the Rent Guidelines Board (RGB). The ETPA established similar boards in the three suburban counties.
The Rent Stabilization Law refers to “maximum rate or rates of rent adjustment, if any”—but there has never been a year in its 43 years of existence when rent-stabilized tenants in New York City were not hit with a rent increase. The Westchester Rent Guidelines Board has frozen rents four times in its 38-year existence. The Nassau RGB has done so once. The city board? Fuhgeddaboutit.
How to design a rent board to favor landlords
The Rent Guidelines Board system was designed primarily to make sure that landlords would not have to open their books to prove they needed rent increases, which at the time was the norm under rent control. Thus, the Price Index of Operating Costs (PIOC) was created.
There are two things wrong with the Price Index’s methodology. It looks mostly at changes in the prices of items such as fuel oil that landlords typically purchase to run their buildings, rather than looking at their actual expenditures. More fundamentally, it is misleading—because it looks at only one side of the profit equation, expenses, instead of looking at income and expenses together.
Because of its one-sided nature, the Price Index can always be used to justify another round of rent increases. It has no data on the incomes landlords are collecting. No amount of methodological tinkering to make the index more accurate can correct this flaw. And according to Tim Collins, a tenant attorney who is the former executive director of the city board, in five out of the last six years, the PIOC has overstated increases in landlords’ operating costs by about 50 percent.
By contrast, the RGB’s annual Income and Expense Study looks at income and expenditures, and therefore is a better measure of the economic health of the rent-stabilized universe. The 2012 study, published on April 19, paints a picture of a robust, healthy rental real-estate industry. It shows that landlords of rent-stabilized properties have seen a steady increase in net operating income (NOI) over the last 20 years, and that the average owner now has a NOI of 38 percent, spending 62 percent of revenues on all costs of operation and maintenance, leaving 38 cents on the dollar for debt service and profit.
In addition, the criteria for selecting the five so-called public members of the RGB were written in a way that guaranteed that most of them would be bankers or other real-estate sympathizers. With two tenant representatives and two landlord representatives on the nine-member board, the public members form a majority.
Thus the annual charade: The five public members come up with a “compromise” rent increase, the two tenant representatives oppose it as too high, the two landlord representatives oppose it as too low, and the “guidelines” pass by a 5-4 vote. But, because the public members tend to be sympathetic to real-estate interests, the landlords benefit despite their crocodile tears.
In some years this charade has failed to jell, and a majority of public members have voted with the landlord representatives, while one or two members vote with the tenants in the minority. There seems little danger of this with the current crop of public members, who have been instructed by the mayor’s office that they must vote as a bloc. Indeed, in 2006, Mayor Michael Bloomberg removed the only independent public member and replaced him with another sheep.
The RSL provides for the mayor to appoint all nine members of the RGB, without the need for the City Council to confirm them. Thus, there is no way to counter the actions of mayors such as Bloomberg and Rudolph Giuliani who have a virtually religious belief in the curative powers of the so-called free market. This is how we end up with public members who are investment bankers or think like them.
A reform bill now in Albany would expand the qualifications for public members and require the mayor to submit appointments to the Council for approval, as happens with other city boards. (Because of the Urstadt Law, the Council no longer has the power to enact such legislation, so tenants are stuck dealing with the Legislature.)
How rent stabilization has evolved
The 1969 Rent Stabilization Law was introduced by then-Councilmember Ed Koch and was signed into law by Mayor Lindsay. The designers of this experiment in “industry self-regulation” provided for the law to expire after five years, in 1974.
One of the Lindsay administration drafters told me in 1977 that they believed that the pressure for rent protections would have abated by 1974, and the law would be allowed to expire. In actual fact, of course, the RSL was extended, as it has been again and again since then.
(The city rent laws—rent control and rent stabilization—come up for renewal every three years in the Council, next in March 2015. The state rent laws—state rent control, which applies only outside the city, and the Emergency Tenant Protection Act, which applies to the city and the three suburban counties—next come up for renewal in June 2015.)
The RSL has been widely criticized by many academics and researchers as the weakest form of rent control in the United States. The city’s rent-control law gives renters “statutory tenancy,” the right to remain as long as the tenant wants, without a lease. Rent stabilization relies on lease renewals as a form of tenure protection. This gives landlords a huge advantage, as it makes tenants uncertain of their rights. To this day, thousands of rent-stabilized tenants mistakenly believe that if the landlord does not renew their lease they can be evicted.
Another of the law’s designers told me in 1978, “We wanted to make sure it was a lease system, because we did not want tenants to think they could stay forever.”
The Legislature, in drafting the ETPA in 1974, largely duplicated the RSL for the suburbs. Interestingly, the ETPA never uses the word “stabilization.”
Initially, rent stabilization applied only to postwar buildings, while rent control was administered by the city’s housing agency. But with the enactment of the ETPA, we experienced a sea change: Formerly rent-controlled apartments that had been deregulated during the three years of full vacancy decontrol (1971-1974), along with rent-controlled apartments that became vacant after 1974, were put under rent stabilization. Pre-1947 units now make up the vast majority of the rent-stabilized stock. In 1970, there were some 1.2 million rent-controlled apartments in the city; in 2011 there were 38,000. The ETPA was designed to phase out rent control, and it has achieved that goal.
Some of the worst features of the original RSL and the ETPA were corrected by the Omnibus Housing Act of 1983 and another law in 1985. These ended the Rent Stabilization Association’s role in running the rent-stabilization system, transferring administration to the state Division of Housing and Community Renewal. The 1983 law also set up a rent-registration system, whereby landlords must register rents and services annually with the DHCR.
Rent overcharging was rampant throughout the first 15 years of rent stabilization in New York City (1969-1984) and the first decade (1974-1984) in the suburbs. The city’s enforcement agency, the Conciliation and Appeals Board (CAB), was utterly ineffectual; its very name explains why it was toothless. It was effectively under the control of the RSA, which kept its budget too low to enforce the law adequately.
Because landlords were not required to register rents with the CAB, they were required to produce all prior leases, back to the base date (1968 in some cases, 1974 in others), when a tenant filed an overcharge complaint. There were an amazing number of fires and floods in the offices where landlords kept these leases, making it impossible to produce them when tenants challenged the rent.
State Attorney General Robert Abrams stepped into the breach. In the late 1970s and early 1980s, he sued many landlords for overcharging tenants, including the then-president of the RSA. All of these lawsuits resulted in settlements under which the landlords agreed to refund overcharges and roll rents back to their legal levels. Some of these owners had to pay hundreds of thousands of dollars.
In 1981 Abrams sued the RSA itself, seeking to recoup more than a million dollars it had spent on unauthorized activities, and to suspend its registration, thus putting it out of business. The law directed the RSA to spend the dues it collected solely on administering and enforcing the rent-stabilization system. Instead, it spent millions of dollars on lobbying against the very law it was charged to enforce, on research designed to show that rent regulation had a negative effect on the rental housing stock, and on lawsuits against the Rent Guidelines Board and the city itself.
That lawsuit was rendered moot by the 1983 and 1985 housing laws, which severed the RSA from any enforcement or administrative role in the rent-stabilization system. This converted the RSA into a private trade association representing landlords—albeit one with a counterintuitive name.
The language of the 1985 law is worth repeating verbatim: “The real-estate industry association registered with the Department of Housing Preservation and Development is hereby divested of all its powers and authority under this law.” Thus New York City’s miserable experiment with real-estate industry self-regulation came to an end.
The state’s rent-registration system was gutted by the Legislature and Governor Mario Cuomo in 1993, and by the Legislature and Governor George Pataki in 1997.
It is high time for a redesign of the rent and eviction regulation system in New York State. The method of setting rent adjustments must be altered to even the playing field, and to simplify the system so that it is easier to enforce and easier for everyone—tenants, landlords, elected officials, the media, the public at large—to understand.
Major surgery must be performed on the dysfunctional Rent Guidelines Board system.
For more information or to discuss this, contact Michael McKee, Treasurer, Tenants Political Action Committee, 277 Broadway, Suite 608, New York, NY 10007; (212) 577-7001; email@example.com.