Rent-stabilized housing is in a fiscal free fall and the borough hardest hit is the Bronx.
All of the data available to the government shows this to be the case, even though that data lags behind by several years. The on-the-ground reality is far worse and if lawmakers don’t start paying attention, a severe crisis is imminent.
Let’s start with the data available to us. The Rent Guidelines Board data showed that from 2021 to 2022 (the last year the data is available) older rent-stabilized buildings in the Bronx saw an 18.5 percent decline in net operating income (NOI), which is the amount left over after expenses to pay for debt service and capital repairs. In 100% rent-stabilized buildings, NOI was down 19%.
NOI is used as the tool to determine a building’s fiscal health. When NOI declines, it means operating expenses are greater than rental income and the value of the building declines. Lower building values means there is less opportunity to access capital to make repairs or mandatory upgrades and reduces an owner’s ability to pay off existing loans.
This is sometimes dismissed as profit, but the reality is that the majority of NOI goes to pay off the mortgage on the building. Hundreds of buildings that had healthy NOI and conservative mortgages five years ago are now operating in the red, because income declined so rapidly. High interest rates are further complicating matters, leaving these buildings with no options to refinance.
Things are so bad that distressed pre-1974 buildings, where income doesn’t cover operating costs even before mortgage payments, were up 13% in 2022. That is hundreds of buildings. Thousands of tenants. If a boiler breaks or a roof leaks, there will not be money available to fix it.
This data isn’t an anomaly. From 2019 to 2022, NOI has declined 20.8%. We’re not fortune tellers, but all indications show that 2023 will show further decline. Insurance premiums have spiked, water and sewer costs are being increased, energy companies are seeking approval for double digit hikes, and on top of all that, property taxes continue to go up on most privately-owned rent-stabilized buildings.
When the government continues to raise fixed costs on affordable rent-stabilized housing and the Rent Guidelines Board continues to advance rent adjustments below inflation, the result is buildings are defunded. When they are defunded repairs are deferred and maintenance declines. This hurts tenants directly.
The biggest hypocrites are elected officials who call for rent freezes or rent rollbacks, while simultaneously passing bills or approving budgets that increase the cost of operating affordable housing. If they truly care about tenants then they would be working to lower costs that they control, so rent money could be spent on improving buildings.
If lawmakers fail to take action, the consequences will be dire. Already the current laws have contributed to the failure of Signature Bank and First Republic Bank. New York Community Bancorp, another larger backer of rent-stabilized buildings, had to take unprecedented steps to avoid bank failure last year and has hinted that they may have to foreclose on hundreds of rent-stabilized buildings in the immediate future.
Soon, there will be no banks left to lend money to buildings that need vital repairs or perform government required upgrades. This means hundreds, possibly thousands, of buildings in the Bronx may become abandoned in the coming years if we stay on this current trajectory.
In theory, there are some government programs that exist to provide relief. In reality, the government lacks the capacity to help a few dozen buildings, let alone the more than one thousand buildings at risk. While some buildings may be able to work through the red tape, and bureaucratic delays, the vast majority will not find any help from government programs – even if the city could come up with multiple billions of dollars in additional funding.
If the government focused on bringing down operating costs and tying rent increases to inflation, there would be little need to act as a harbinger of doom. Instead we get a performative circus every year, both in the state legislature and in the Rent Guidelines Board session, with renters suffering as buildings deteriorate.
This is not hyperbole. This is an imminent disaster.
Jay Martin is the executive director of the Community Housing Improvement Program.
