Wednesday, August 20, 2008

Rent Stabilization 2008

Each year I try to take a look at the state of rent stabilization so I can better understand how it's doing. My conclusion is that this is a worse-than-average year for tenants, especially those with rents under $1000/month. The increases [PDF] are higher-than-average—and in some cases they're record-setting for the past twenty years.

As of October 1, 2008, the basic rent increases for apartments where the tenant pays for the heat is 4.5% for a one-year lease and 8.5% for a two-year lease. (Knock off 0.5% for tenants who pay for their own heat.)

However, for long-term tenants (6 years or more) whose rent is less than $1,000, the increase for a heat-included apartment is a flat $45 for a one-year lease or $85 for a two-year lease. That means a $750/month rent would go up 6% on a one-year lease and 11.33% on a two-year lease.

(Note that there are distinction regarding the circumstances of the tenants and the size and quality of the apartment. A shabby $750/month studio would get the same increase as a well-maintained $750/month three-bedroom apartment.)

Let's go for the historical perspective.

According to my records, the basic one-year increase of 4.5% has been met or exceeded only five times since 1988: 2003 (4.5%), 1996 (5%), 1990 (4.5%), 1989 (5.5%), and 1988 (6%). But if you're a longtime tenant with a rent lower than $750, it would be the highest increase for that period.

Also according to my records, to find a higher rate than the basic two-year increase of 8.5%, you'd have to go back to 1988 and 1989 (9% each). If you're a longtime tenant with a rent lower than, say, approximately $940, there's a good chance you've got what would be an increase higher than anything in that period.

The basic one-year increase of 4.5% is 40.625% higher than the average one-year increase from 1998-2007 (3.2%) and 30.435% higher than the average one-year increase from 1988-2007 (3.45%).

The basic two-year increase of 8.5% is 50.442% higher than the average two-year increase from 1998-2007 (5.65%) and 45.299% higher than the average two-year increase from 1988-2007 (5.85%).

To reiterate: This year's increases are on the high end, particularly for longterm tenants paying rents of $750 or less, regardless of their personal circumstances and the size and condition of the apartment. I also think that it continues to be hard for tenants to figure out whether a one-year or two-year lease would be more advantageous. Anyone have a clue about that?

You might think that people who complain about their stabilized rents don't appreciate how lucky they are considering the "market" rents at this time. I think it's reasonable for people who appreciate their stabilized rents to want to hold on to them as long as possible, especially if they are not independently wealthy or raking in high salaries. The faster that stabilized rents go up, the faster those rents will go off the system. People trying to slow down that process are understandably trying to preserve the system. Landlords and others who push for high increases are both pushing the stabilized rents out of the system and increasing the rents in an arguably inflationary manner that would push the "market" rate higher.

Also on the downside for tenants: Landlords can still invest security deposits in individual low-interest bank accounts, take a cut for maintaining the accounts, and leave only a tiny (and taxable!) amount behind for their tenants. This strikes me as advantageous to banks (who benefit from the low interest rates on huge amounts of money) and landlords (who take a cut of the interest from masses of tenants) while being of no advantage for the tenants, who continue to kick in increases to their security deposits. A more equitable plan would involve the money being considered as pooled into a huge high interest account, perhaps at a rate negotiated by the city or state.

In other words, a landlord with 100 $1000/month tenants theoretically opens 100 separate $1000 security deposit accounts at low interest rates commensurate with the low deposits, takes a cut of the interest for maintenance, and then leaves the rest for the tenants, who upon renewal have to kick in an additional amount to keep up with the increase in rent. Instead, the security deposits could be pooled in the equivalent of one $100,000 account, which would merit a premium interest rate. The interest gained could often if not always cover the average one-year increase of around 3.24-3.45%, precluding the need for tenants to kick in any additional amount, and also leave room for others (i.e. the landlord and/or the government) to take a cut (though I'm not sure why that would be necessary). I have no issue with the custom of landlords holding a security deposit; I just think the current system could be reformed to be better for the tenants without putting landlords at a disadvantage.

Your thoughts are welcome!

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