Rent control

New York City Orders Inflation-Adjusted Rent Cuts at Rent-Stabilized Buildings

The country's largest legacy rent-control policy is pushing building owners to the breaking point.


New York City officials have decided once again to allow rent increases at rent-stabilized apartments below the rate of inflation, upsetting both tenant advocates who wanted a total rent freeze and building owners who argue their properties are being "defunded" by persistent real cuts to rent.

On Wednesday, the city's Rent Guidelines Board (RGB) ordered that annual adjustments for one-year leases starting in October 2023 on New York City's roughly 1 million rent-stabilized apartments could rise by 3 percent and 5 percent for two-year leases.

The board cited rising inflation, which was 6.1 percent in New York City, as a reason for keeping rent increases low for tenants. That level of inflation nevertheless means that real rents are falling for building owners who are also seeing their own costs rise faster than inflation.

An RGB report from earlier this year found that owners' operating costs rose by 8.1 percent.

The board's effort to split the baby on rent increases doesn't seem to have appeased anyone.

Tenant advocates were furious that the board didn't accede to their demand for a zero percent rent increase.

Their allies in the Legislature have said that they'll keep up their efforts to pass a Good Cause Eviction (rent control) bill that once again failed in the Legislature this year.

Meanwhile, landlord advocates have argued that this year's increase, when matched with past years' increases that were also well-below inflation, is depriving building owners of money necessary for maintenance and renovations.

"Every year, we see the same drama unfold," said Jay Martin, of the Community Housing Improvement Program (CHIP), which represents building owners. "The RGB puts data out there which is largely ignored, tenant advocates and politicians scream and shout, and rent-stabilized housing gets defunded."

New York's rent stabilization law caps rent increases at units in buildings with six or more units that were built prior to 1974 or which benefited from certain tax abatements. The law covers about 45 percent of rental housing in New York City and a third of the overall housing stock.

Prior to 2019, building owners still had a number of avenues whereby they could "deregulate" (start charging market rates on) units or pass on rent increases above the RGB minimum if there was a vacancy or a significant capital improvement.

Thanks to progressive-led amendments in 2019 to the law getting rid of or restricting those avenues, "the RGB is now the primary, if not sole, driver of income an owner is allowed to realize from rent-stabilized apartments," reads an April 2022 report from New York University's Furman Center.

The report recommends the RGB recognize this reality and start using inflation as a baseline for setting rent increases. Instead, the board is sticking to passing rent increases well below the rate of inflation, which is putting a huge financial strain on buildings that are largely made up of rent-stabilized apartments.

In a September 2022 report, CHIP calculated that the average monthly per-unit return on an 80 percent rent-stabilized apartment was just $24.

As returns fall, the cash and capital necessary to keep buildings in good working order dry up, hence CHIP's complaints that their members' buildings are being "defunded."

Rent control is experiencing a very undeserved reputational resurgence in the past few years. Wonks, politicians, and activists argue that a well-designed rent-control policy can be one solution among many to rising housing costs.

The performance of the country's largest legacy rent-control scheme suggests that the policy will always be a massive impediment to an abundant, quality housing stock.