Housing New York sheds light on the politics and the public policy shaping the future of New York City housing.
This week, Gov. Kathy Hochul congratulates herself and fellow lawmakers on reaching the “parameters of a conceptual housing agreement” in the FY2025 state budget… But we still haven’t seen details. Jay explains why a proposal to bring the glut of permanently vacant rent-stabilized apartments back onto the market just doesn’t add up. And he laments the political shenanigans that obstruct the past to good housing policy.
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Housing New York sheds light on the politics and the public policy shaping the future of New York City housing.
This week, Gov. Kathy Hochul congratulates herself and fellow lawmakers on reaching the “parameters of a conceptual housing agreement” in the FY2025 state budget… But we still haven’t seen details. Jay explains why a proposal to bring the glut of permanently vacant rent-stabilized apartments back onto the market just doesn’t add up. And he laments the political shenanigans that obstruct the past to good housing policy.
Visit our website for more information.
Follow Us:
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This week we were introduced to a new term in Albany: “parameters of a conceptual agreement.” What does that mean for housing policy? We have no idea, but we will discuss what's in the works as negotiations drag on. We'll also review what the New York city rent guidelines board is up to and preview the important release of the price index of operating cost study. Let's start housing New York.
[Theme music]
Welcome to Housing New York, I'm your host Jay Martin. Each week we provide analysis of all the news you need to know about New York's ongoing housing crisis from the politics to the policy to the absurdity. All the opinions in this show are my own and do not necessarily reflect the views of CHIP or its members.
We're taping this on Wednesday, April the 17th. Here's this week's top housing stories and stick around because after the news I'll have some thoughts about the budget process.
Our first story is a New York One story about the Rent Guidelines Board releasing their annual Income and Affordability Study. So the Rent Guidelines Board every year – they do an analysis based off some census data that basically highlights where they believe the overall economic health of renters is throughout New York City.
What's interesting though is at this point of the proceedings, the CPC, the Community Preservation Corporation, also testified and they highlighted that expenses for apartment buildings are far outpacing money. Robert Riggs from CPC testified that a growing number of buildings have deficiencies in finances or the quality of the units.
And out of more than 800 apartment buildings with loans that they deal with, half are in a position of deficiency. This tracks with many of what we are hearing from our own property members – the 40,000 members between RSA and CHIP that we both speak to on a regular basis, representing well over 400,000 units of housing.
We continually see that the Rent Guidelines Board is part of this process where expenses continue to rise well over what the yearly Rent Guidelines Board vote is for rent increases. And that difference is continuing to lead outside of core Manhattan, by the way, to a major issue where expenses continue to outpace the amount of rent that they are collecting, leading to serious deficiencies in this housing.
The upcoming PIOC [price index of operating costs] will likely put forth a rent adjustment that will not be sufficient for older stabilized buildings outside the core of Manhattan. That's the price income operating calculation that we'll be going over a little bit later, but basically, it is an estimate that the staff puts out that figures roughly what the rent guidelines board should be considering between the expenses and again, the affordability reasonableness of renters expenses and concerns.
As we know, this process is highly political. It's influenced directly by tenant groups last year, which held the proceedings hostage by having what we would call a rather raucous storming of the testimony that brought the proceedings to a halt. Police were called in. We anticipate further shenanigans that will prevent this proceeding from going forward.
So this whole process doesn't play out as it should. It's not really fair to both renters or property owners for that matter for a fair airing of the data. That properly considers the funding of what's nearly a million units of housing and roughly the housing for nearly two million people across the city.
So we don't anticipate a fair commensurate number coming out of Thursday's meeting, but we will be advocating for a proper rent adjustment for sure. Our second story is from the Wall Street Journal. Great reporter Jimmy Vielkind has covered the budget for decades. Probably not too many decades he'd like me to mention, but he's been a veteran in Albany covering the budget.
His article is, ‘New York is passing a big housing deal and everyone is grumbling.’ We'll highlight in particular some of the issues we have, but first we'll go to a quote from the governor on what she says the housing deal is going to accomplish.
[Gov. Kathy Hochul:] “Creating 485-x, a successor program to 421-a… Extending 421-a for six years… Converting underused office buildings into housing… Bringing warehoused rent stabilized units back into the marketplace.”
So that's Hochul saying it'll bring warehoused rent stabilized units back onto the marketplace. We have issues with the entire budget, but we're going to focus on that in particular. So the current proposal, as the Wall Street Journal article points out, raises the amount to 30,000 for rent regulated units that become vacant from 15,000, that's the current IAI, and 50,000 for units that were occupied for 25 years or longer.
And we believe there's around 20 to 25, 000 of these units that exist around the city that are currently vacant, and obviously we think 3-to-5,000 of those units become vacant every single year, many of them that have been occupied for 10 years or more. Here's why the math doesn't work. So at the 15 years that the current proposal works, there's something called the amortization rate.
So an owner doesn't get 15,000 up front. They don't get the ability to set a new rent that would allow them to cover that money in a reasonable time. In fact, the way the amortization rate currently works is you are only allowed to collect anywhere from 83 or 89, depending on the size of your properties.
So that means on a 100,000 renovation, the doubling of the IAI at 30,000, it would take more than 50 years to earn back the money. Assuming operating costs were break even, there was no inflation, and accounting for no interest on the borrowing of the money. So not only are you not collecting the 15,000, but at the rate you collect it back at, You probably will have shuffled off this earth the property owner before you would be in a position to have raised the rent enough to collect the amount of money you've spent to renovate the apartment and put it back online.
So you might be saying, and you might believe the governor when she says, well, we're doubling the IAI from 15-to-30, so all is fixed, all is well, these units are going to go right back on the market. Well, because the amortization rate isn't changing and it's still staying at one 180th. The max rent increase that a property owner can apply for isn't 30,000, actually, it's $166 per month.
So at that rate, at $166 a month for a 100,000 renovation, it'll take more than 24 years for a property owner to recoup that. And that is only one month. If they only spend 100, 000. And remember that's just a break, even on the expense of the renovation cost. That is nothing to speak to the interest costs of borrowing that money because most property owners have to go to market for a loan.
They don't have hundreds of thousands of dollars in working capital sitting aside to renovate these units. It also doesn't speak anything to the fact that many of these units have been losing money for decades. Up until this point anyway. And a vacancy is one of their only opportunities to set a rent that allows them to catch up to the operating costs they've been losing for decades on these apartments.
There's a second tier that I'm sure the governor and many lawmakers are saying, well, well, well, if you're losing too much money, you'll be able to take advantage of the second tier. And we're hearing rumors of a third tier, which in reality is now being pushed back. And there's some people arguing that that tier doesn't even exist.
But there's other tiers in which the IAI could be as high as 50,000 and you may be thinking that's even better. In reality, that only applies to apartments that have been occupied for 25 years or more that become vacant. The truth is those apartments that have become vacant after 25 years or more of occupancy need even more work on renovation and have been losing even more money from the property owner's perspective because those rents are more often than not Even further below the 1,200 operating costs.
So think of this, these are units that have been occupied for 25 years and for at least 25 years, the property owner has been losing money on them; so now they become vacant. The owner has a choice. They can use the system and invest, uh, from this system, it would be 50,000. That's what the government is saying.
They should invest, but a property owner should be investing more actually. At least a hundred to 125,000 to get a 25-year-old unit back on the market. So under this proposal, a $50,000 IAI would be capped at 144. That's 1/144th amortization for 35 units or less. And if you have more than 35 units in your apartment, for some reason, you have a more bifurcated amortization rate at one 156th.
If it sounds confusing, it's because it is, and it's intentional. It means if you have 35 units or less, you can collect 347 per month. And if you have 35 units or more, you can collect 321 per month. The bottom line is this proposal incentivizes property owners from spending less money on renovations, recouping it at a longer period of time, and putting less money back into the quality of housing.
We know because we sat down with the laborers union to try and get them involved in the process We got quotes from them on what the average gut lead abatement proceeding would cost and the average was 30 to 50,000 So if we're to believe lawmakers true intent here that they are trying to help this proposal Even at the highest cap at 50,000 at best would only cover a union paid renovation on lead abatement.
Doesn't say anything to the replacement of the materials, anything to the electrification of the unit, the replacement of windows, any other parts. Just pulling the lead out costs between 30,000 and 50,000. And that quote comes directly from the labor unions. So the lawmakers are on one hand telling us we have to get the lead out, telling us we have to electrify apartments to get it in line with Local Law 97.
And at the same time proposing a solution to the problem. That will require property owners to come out of pocket for expenses that they won't get paid back for, for decades. It is not a viable solution. It continues the path of defunding these apartments. That's why we as an organization never wanted to go down the path of IAIs as a fix, we were pushing for a close to a reset of rents, albeit capped at the HUD voucher affordability levels on vacant apartments, because our argument is if the government is paying.
For the cost of housing and affordability on a vacant unit of housing to non profits and to themselves in government housing, then rent stabilized private property owners deserve the exact same amount of cost coverage for that same amount of housing. There has to be a baseline amount of rent that a property owner can collect to cover operating costs.
And at the very least, they should be able to cover the operating costs, which the Rent Guidelines Board says is 1,200 per month per apartment. And any dollar of rent below that, that the government is forcing the property owner to collect, to lose money on every apartment, should be offset by some sort of compensation, whether that be a tax credit or some sort of way that the government is subsidizing that affordability, because right now there is no subsidy.
This program furthers that defunding of housing. It furthers private property owners subsidizing affordability out of their own pockets. forcing other renters to pay for that affordable housing in the system with property taxes that are also unsustainable and We reject it outright. So it is a half measure solution.
We hope the legislature comes up with a better one. There's still about a few days left Hopefully in the budget process and we continue to lobby and advocate for a better solution Our third story is from City Limits, Christian Janaro Highlights public review to begin for mayor city of yes, housing plan.
We a hundred percent support the city of yes. We've had meetings as early as last week with the mayor's administration. We are advocating for the rent stabilized community to be able to add more housing to their footprint, perhaps air rights. We think rent stabilized has an opportunity to be part of the solution.
The article highlights one component that would let developers build about 20 percent more housing than otherwise allowed, so as long as the extra units are income restricted. In order to qualify for the density bonus, dubbed the Universal Affordability Preference, UAP, U-A-P, the additional units need to be permanently affordable to New Yorkers earning an average of 60 percent of the area median income, so about 76,260 for a family of three.
All of this is pushing us towards the amount of new housing that the city needs to build to bring the affordability curve back down to reality. And we're hopeful that the mayor is successful in implementing it. The New York Times, in our fourth story, highlighted that New York City is closer to getting its first soccer stadium.
The City Council voted to allow New York City Football Club to build a facility for its team. The proposed stadium would be built across Seaver Way from Citi Field where the New York Mets play. In this newly approved phase of redevelopment, the site would include approximately 1, 400 units of permanently affordable housing.
A hotel and 80,000 square feet of retail. I've already seen some lawmakers push back, specifically a city council member who opposed this project, saying things like, this is public property, shouldn't be used for private development. This is a parking lot. This is not being used for anything effective at the time.
This is a private developer willing to come in and it's 1,400 new units of permanently affordable housing. How this can't be seen as a win win. If you've ever been to a New York CFC soccer match, these are great fans. They are clamoring to have a home for their team. I bet they sell out every match as much as they can.
Queens is a great place to be and It's clearly going to be beneficial to the community. And there is enough of an offset. We think that the community benefits from the added economic development and certainly the 1400 affordable units. It's a great thing. We need more things like this and not more of this kind of thinking that kicked Amazon out of New York and that parking lots are a better use of space than building more housing.
Our fifth story is Wall Street Journal again. The Fed chair is signaling that interest rate cuts are not going to be coming anytime soon. His remarks indicated a clear shift in the Fed's outlook, allowing a third consecutive month of stronger than anticipated inflation readings. Powell indicated Tuesday the Fed wasn't considering rate increases either.
So, good news, the rates aren't going up. Bad news, they don't seem to be going down anytime soon. This is great for job growth. Jobs continue to be through the roof. Wages are through the roof. Consumer spending, surprisingly, is still pretty robust. Seems to be like the post COVID economy is a bubble. And so, the interest rates will not be coming down anytime soon.
Our last story is David Brand covering, in Gothamist, the New York City lawyers Right to counsel attorneys from Mobilization for Justice who have been on strike for probably two months now complaining about their pay and we would agree they are underpaid for the amount of work that they do. The problem is that once again in New York thought process we've decided that the way to solve the non payment crisis in housing court where 85 to 90 percent of all housing court cases are for non payment is to hire more attorneys.
Who we apparently cannot pay to go into a housing court system which is underfunded with not enough judges and clerks to go through a housing court process that takes months to years where the renter ends up owing money anyway. Seems like a very roundabout way to get to a solution where the housing ends up getting defunded by the fact that the person who needs the housing isn't paying for it and could be solved a lot quicker with a robust voucher system.
We have no objections to tenants being represented by council. We do have objections to throwing money at a problem that doesn't seem to be fixed by more attorneys, but instead could be fixed by actually helping renters who can't pay their rent, pay their rent. The government paying for it is actually mutually beneficial to both the renter and the housing provider because the housing gets paid for, the property tax gets paid, utilities get paid, the rest of the building gets maintained for the rest of the renters.
It's a circle of life conversation that happens in housing. This system that we are perpetuating just means that lawyers get paid more, housing court gets constrained more, and these renters at the end of the day end up owing just as much money, if not more, at the end of the process. It doesn't seem to be solving the problem.
These lawyers aren't happy, the renters are not happy, housing courts continue to be clogged up, and the property owners are certainly not happy. We need leadership. We need lawmakers who understand the problem, who are willing to stand up to special interest groups and fight for solutions that actually solve problems.
And this story highlights them once again.
Alright, that's a wrap on this week's news. Now onto some final thoughts on the budget process. I've seen some comments from the Republican minority. A leader commenting today that the budget process is not transparent, should be more transparent, which is rich considering the Senate Republicans had the majority for 70 years and they perpetuated the same process.
It seems as if leaders in Albany only want to be transparent about the budget process when they are not in power and in a position to make it transparent. But he is right. The budget process as it is playing out right now is not one that is indicative of good policy. The IAI proposal we covered earlier in the podcast is a perfect example of that.
What is happening is a micro minority of representatives of this industry are influencing certain lawmakers, in this case the governor herself, to tell her what is on the best interest of the entire community. We know because we've spoken for almost three years now. With property owners in the rent stabilized community, what solutions are needed for the vacancy crisis that they're dealing with the defunding issues that have been caused by the 2019 rent laws.
And unfortunately, the people who are representing the industry right now in those conversations with the governor have other interests and that's okay. It just speaks to the need that varied interests need to represent their specific interests in the budget process. And that means that Rent Stabilized needs to represent Rent Stabilized, developers need to represent developers, the unions have to represent unions, and tenants, for that matter, have to represent tenants.
All these groups should have a voice and seat at the table, but they should be their own voices. They shouldn't indicate that they're representing every group when they're not. And I think the results speak for themselves. Many small property owners I've spoken to in the last two weeks were under the impression that Good Cause was not going to pass.
I've been saying for two years to many folks in this industry that I thought Good Cause was going to pass. Some called me a heretic as early as last year when I said good cause was likely to pass and that we were better off putting out proposals of what this industry needed in exchange for being forced to accept good cause.
But I think it's more than coincidence that the good cause proposal that is being passed caters to certain groups and those groups are the ones that have a seat at the table. I think people can understand that. We appreciate you listening each week. We'll continue to provide the most up to date information on the nuanced perspective.
You need to engage with the world of New York housing. We all call this city home and it's going to take all of us working together to solve this crisis. If you have any thoughts, comments, or suggestions, you can hit us up in the comments section of the podcast. Catch you all next week on Housing New York.