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3% & 5%: Lowest rent hikes ever.

The New York City Rent Guidelines Board made history last week when it handed down the lowest rent increases since the board was created in 1969.

The seven-member body, which sets the allowable increases for more than 600,000 rent stabilized units in the city, will permit 3 percent increases for one-year leases, 5 percent for two-year increases, and a five percent vacancy allowance. While the increases were unchanged from what was proposed in May, the board had not suggested any vacancy allowance at all.

The rates, affecting leases that expire between Oct. 1 1992 and Sept. 30 1992, did not meet the approval of either tenants or owners.

Owners believe the rates show a blindness to rising operating costs. Tenant representatives on the board showed their contempt with the vacancy allowance by resigning publicly at the announcement of the rates at the board's annual meeting.

John J. Gilbert, president of the Rent Stabilization Association, said the low increases will lead to more property abandonment and homelessness.

"It's truly economic suicide being committed by the City of New York," said Gilbert.

Each year, the Rent Guidelines Board devises a Price Index, based on income and expense statements, and the proposed guidelines are derived from that. The index is a weighted average of increases in a number of expenses for the year 91/92 - tax, labor, fuel, utilities, contractor services, administrative and others. This year the cost index was 3.9 percent, which, Gilbert said, did not properly reflect the average 29 percent increase in government-mandated charges - 18 percent increase in water and sewer and an 11 percent rise in taxes. The factor that brought the index down, Gilbert said, was the mild winter.

However, Gilbert said, the one figure that stands out is a 31 percent increase in tax delinquent buildings. In other words, 800 more buildings were four quarters in arrears.

"More property owners will go out of business," Gilbert said. "And the less tax dollars there are, the harder it is to run the city."

The increases were the smallest in the board's 24 years. The previous record low was 87/88 when the hikes were 3.5 percent for one-year leases and 6.5 percent for two-year leases.

Rent increases have historically fallen short, Gilbert said. His organization estimates that rents are 22 percent behind where they should be in the ratio of rent dollars to operating and maintenance costs.

Dan Margulies, president of the Community Housing Improvement Program (CHIP), said there has been a dramatic downward trend since Mayor David Dinkins took office. Previously, he said, the price index reflected about three-quarters of the real increase in price for the various elements. Next year's increases, Margulies said, are less than one-half.

"Since Dinkins was elected the increases have been shrinking annually," he said. "And now they won't cover the tax, water and sewer increases for a single building next year."

Holders of unsold co-op shares where rent does not meet maintenance costs are expected to feel more crunched.

Vacancy Allowance

Owners did manage to squeeze out a 5 percent vacancy increase, which is designed to enable them to get some additional rent and make some improvements on apartments when they turn over. Owner reps argued successfully that the vacancy allowance would not affect owners in place.

Joseph Forstadt, an owner-representative on the Rent Guidelines Board and an attorney with Strook Strook & Lavan, said the need for the vacancy allowance was the thrust of the public hearings, which all went well into the night.

"The owner reps and the owners managed to persuade the board it was a great error to not adopt a vacancy allowance," he said.

The allowance though, Forstadt said, was not enough. It costs $200 to $250 per unit just to paint, he said, and on a one-bedroom apartment that rents for $400 that would only be $250 for the first year.

"It's minimal," he said. "Its really more symbolic ... it tells owners we haven't abandoned them."

Board Members Resign

Small as it was, Forstadt said, the vacancy allowance was the reason given for the resignation of two tenant reps - Galen Kirkland and Oda Freidman - at the public announcement of the hearings. The two claimed that the rent stabilization law provides other provisions by which owners can cover these expenses.

Forstadt said the dramatic departure of the board members was well rehearsed as each read a prepared statement.

"There wasn't any momentary excitement," he said. "It was clearly a planned event in the event their position was not upheld."

In his nine years on the board, Forstadt said, there has not been one resolution passed that he would have proposed that was in favor of owners, but that, he said, is no reason to quit.

Margulies said this is a "game" the tenants reps play, and that there was a similar display three years ago. "It gives them an opportunity to make a speech," he said.

At the announcement of the hikes, according to Margulies' estimation, owners outnumbered tenants eight-to-one. "The tenant reps are in the majority on the board and they [tenants] are they really are not suffering under the guidelines," he said.

Those tenants and tenant advocates in attendance, Margulies said, shouted at owners: "Open your books! Open your books!." The Rent Guidelines' price index, Margulies said, is based on the review of 14,000 income and expense statements, which, he said, showed that more than 10 percent of the owners did not collect enough rent to pay expenses, not including debt service. In addition, he said, taxes have increased three years in a row.

"How much evidence do they need," Margulies demanded.

The Rent Stabilization Association has an ongoing suit - RSA vs. Dinkins - that challenges the Rent Stabilization Law and its application by the New York City Rent Guidelines Board (RGB) and the State Division of Housing and Community Renewal (DHCR). It is expected they will use these increases in further testimony.

The increases, Margulies said, "prove the board is not responsible and will give some support for legislative relief.

"Unfortunately," he said, "I'd rather have the increases than a good argument."
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Title Annotation:rent increases allowed by New York City Rent Guidelines Board affecting leases expiring between October 1, 1992 and September 30, 1992
Author:Fitzgerald, Therese
Publication:Real Estate Weekly
Date:Jul 1, 1992
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Next Article:NYS legislature proposes tax rate dilemma solution.

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