There are two sides to New York City’s preferential rent crisis

On Monday, we published an op-ed from state Assemblywoman Diana Richardson highlighting what she dubbed the “preferential rent crisis” in New York City.

Preferential rents are the amount that a landlord chooses to charge a tenant living in a rent stabilized apartment, less than the legally regulated rent. Richardson framed her argument from the perspective of tenants, some of whom have seen landlords charge a preferential rent with nefarious ulterior motives. When an apartment has a vacancy, the landlord can legally increase the regulated rent by 20 percent, but still charge a preferential rent more in line with the market for a given neighborhood. The problem, according to Richardson, is that as neighborhoods become rapidly gentrified and market rents increase, landlords can revoke the preferential rent and force out tenants who can’t afford to pay the regulated rent.

But according to the Rent Stabilization Association, a trade association that lobbies on behalf of New York City property owners, there are two sides to this crisis. Joseph Strasburg, the association’s president, penned a letter responding to Richardson’s op-ed, in which he explains why preferential rents are one of the only ways for property owners to make a profit in a city that levies enormous property taxes.

Here is Strasburg’s response:

The recent Daily Slant by Assemblywoman Diana Richardson seeking an end to preferential rents in rent-stabilized housing reflects a complete misunderstanding of the issue. A preferential rent exists when an apartment building owner charges a stabilized tenant less than the legal regulated rent, the amount that the law allows the owner to charge the tenant. Based upon data from the state Department of Housing and Community Renewal, as of 2014, tenants in 238,573 apartments (28 percent of the total number of stabilized apartments) were charged preferential rents. From 2013 to 2014, upon renewal more than 95 percent of those rents remained preferential.

Why do owners charge preferential rents? The reality is that typically owners charge preferential rents for one simple reason – because the legal regulated rent for the particular apartment exceeds the market rent. In other instances, the owner determines that in order to keep a reliable, long-term, rent-paying tenant, a preferential rent is the best mechanism for doing so.

Prior to 2003, owners who attempted to “do the right thing” and charge a preferential rent were punished because, pursuant to state policy and not state law, that rent remained the base upon which all future increases were premised until the tenant vacated the apartment, perhaps many years later. In 2003, the state Legislature enacted a law that provided that as long as the tenant was provided with notice of the legal regulated rent, the owner could increase the preferential rent to the legal regulated rent, or anywhere in between, upon subsequent lease renewals.

Property owners, particularly the smaller property owners in the neighborhoods outside of Manhattan, have suffered under the de Blasio administration’s Rent Guidelines Board. In 2015, the Rent Guidelines Board, controlled by the mayor, froze stabilized rents, deciding not to increase rents for the first time in the almost-50 year history of rent stabilization in the city; in 2014, the increase was only 1 percent. There is no reason to think that this pattern will change during the remainder of the de Blasio administration. As a result, the pressure to increase revenue, whether by eliminating preferential rents or through other legal means, is enormous.

This is not complicated – increases in preferential rents are the direct result of the mayor’s decision to freeze rents and not property taxes. When rents are effectively frozen, what are property owners supposed to do when, in the past two fiscal years alone, property tax assessments have increased 21.6 percent, property taxes have increased by 9.2 percent and water and sewer charges have increased by 6.32 percent? Owners, desperate to keep their properties afloat, need to pay these ever-increasing costs imposed by the city while continuing to provide affordable housing in the city’s neighborhoods. The money needs to come from somewhere.

In 2015, the state Senate unanimously passed legislation which would have created a new tenant rent increase exemption program for all low-income households in the city. Modeled on the Senior Citizen Rent Increase Exemption and Disability Rent Increase Exemption programs, the legislation would have targeted government assistance to those truly in need. The legislation would have exempted tenants in stabilized apartments with incomes of less than $50,000 from future increases. In exchange, the law would have provided owners with tax abatements equivalent to those exemptions. The response from Assemblywoman Richardson and her Assembly colleagues was silence, and the legislation subsequently died. Where was the Assembly? Where was the mayor?

Apparently, according to Assemblywoman Richardson’s thinking, the burden should be solely on property owners to maintain and preserve affordable housing regardless of the financial realities dictated by the real estate market. We respectfully disagree and suggest that the burden should be on the government and the public at large to do so. Eliminating preferential rents is not the answer.