Housing Policy

Study: New York City Apartments Being 'Defunded' by High Inflation, Rent Caps

A new report from The Community Housing Improvement Program argues that allowable rent hikes in rent-stabilized buildings cover less than half the increase in operating costs.


New York City's rent-stabilized housing stock is being "defunded" by a mix of rising operating costs and insufficient allowable rent increases, putting owners in financial distress and leading to declining housing quality.

That's the conclusion of a new report from The Community Housing Improvement Program (CHIP), a trade association representing the owners of rent-stabilized buildings, which argues that this year's cap on rent covers less than half of operating increases for most rent-stabilized buildings.

In June, the city's Rent Guidelines Board (RGB) allowed rents to rise by 3.25 percent for one-year leases and 5 percent for two-year leases on the city's 1 million rent-stabilized units. About 45 percent of New York's rental housing stock, and one-third of its total housing stock, is rent-stabilized.

That was the highest rent increase in nearly a decade, prompting furious complaints from tenant advocates and city politicians, some of whom had called for a rent freeze.

But CHIP argues that the 3.25 percent increase covers less than half the 8 percent increase in operating costs building owners are facing, particularly when higher fuel, water, and insurance costs and inflation are considered.

"Housing has costs. The RGB's own reports show that rents are not keeping up with those costs and in many rent-stabilized buildings in the outer boroughs, those costs already exceed revenue, leaving them functionally bankrupt," said Jay Martin, executive director of CHIP. "To be blunt, the RGB has defunded the majority of rent-stabilized buildings in New York City."

Rising operating costs outstripping rent increases are compounded by a series of progressive-backed changes to New York's rent stabilization law in 2019 that put new limits on the ability of building owners to raise rents to cover maintenance and capital costs. (CHIP is one of the plaintiffs in a lawsuit challenging those changes.)

The city's 2021 Housing and Vacancy Survey shows that maintenance issues have been increasing across New York's housing stock and that these problems are about twice as likely to appear in rent-stabilized housing.

Rent-stabilized units are older than unregulated units and will naturally have more maintenance problems. But the need for more frequent upkeep also makes the inability to raise rents to cover maintenance costs more problematic.

When factoring in increases in energy and fuel costs, the CHIP study estimates an average monthly return in buildings where 80 percent or more of the units are rent stabilized is just $24 per apartment.

This is the "shabbification" that Manhattan Institute's Howard Husock warned about when New York passed its 2019 rent stabilization law, where lower and lower returns lead to shabbier and shabbier buildings.

It's a dynamic that's playing out in other cities as well. Lingering hardships from the pandemic are leading policy makers to curtail rent increases where they can, even as the owners of those buildings are also facing increased operating costs.

The Los Angeles city government froze rent increases on the city's rent-controlled housing stock as part of its COVID emergency order. Los Angeles landlord David Greenhut says that's made it impossible to cover record inflation, rising insurance costs, and a quadrupling of trash fees.

"We've had negative cash flow, and we've been financing our business for the last 24 months," Greenhut told Reason back in March 2022. "I'm borrowing money to feed my family."

The situation is getting so bad in New York that some housing units are coming off the market, argues CHIP's Martin. The city's vacancy survey found that 42,000 rent-stabilized units were currently vacant.

One wouldn't expect to see a surplus of a below-market rate product. Martin says that many of those are units that have fallen into disrepair, and the owner has no financial incentive to bring them back online.

Rent control, or rent stabilization, is becoming fashionable again. A wide array of pundits, politicians, and policy wonks argue it's a necessary tool to prevent displacement and add stability to the lives of tenants. The criticism of rent control has long been that it disincentivizes new construction and, thus, makes the affordability picture worse for most people in the long run.

In New York City, rent stabilization might be eating up units that already exist.