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Gov't regulatory relief: too little, too late.

"Too little, too late," could well be rental real estate's theme song for 1993. The real estate property tax rate continued to be frozen, but taxes due and payable increased for many properties as new - and unrealistic - assessments were phased in.

Economically marginal properties were the hardest hit. There was relief from soaring water and sewer costs as rates were frozen and billing changes made, but the long term issue of water increases and future cost increases remains. Rent regulations were eliminated for those tenants who make $250,000 a year and pay over $2,000 in rent, while tenants with an income of a quarter million dollars or more, who pay lower rents, remain under rent protection.

The problems faced by property owners are reflected in the City's economic woes: property tax revenues and assessments continued to fall for the third year in a row, and further losses are imminent - the Community Service Society estimates that another 140,000 units of housing are threatened by abandonment. Related industries that depend on rental housing are in trouble as well.

Operating cost increases were not offset by sufficient rent increases. Four years of the Dinkins Rent Guidelines Board left property owners stretching ever further to make ends meet, a problem compounded by the growing inability of collecting rents in Housing Courts. Although a recent court decision appears to have eliminated the obstacle of mandatory inquests in nonpayments, the housing court judiciary is very inventive in finding reasons for not awarding rents to property owners. The RSA continues to pursue its federal lawsuit against the Housing Court, and will focus its attention on legislation requiring rents in escrow when the State Legislature reconvenes.

An ever continuing problem is the ancient, creaky regulatory mechanism as administered by DHCR. Many property owners feel -justifiably - that the lawyers and bureaucrats of DHCR's enormous payroll are antagonistic to the private sector. A good case in point is that of Catalina Lopez, a prominently featured in the January 12 edition of The New York Times. After years of fighting through the courts - the RSA is sponsoring her case - Mrs. Lopez, who is 72 years old, won a State Supreme Court decision to seek eviction of her unwanted tenants, so that she could move upstairs out of her damp basement. That was in April. To date, the certificated of eviction still has not been issued.

Buffeted by economic woes, inimical Housing Courts, and deeply entrenched bureaucracies, the regulated rental real estate industry continues its decline. Hardest hit are the small property owners, the shell-shocked "infantry" out in the trenches: it is their ranks that will be further decimated when their economically vulnerable properties are lost, and it is the loss of those small buildings which will create the greatest drain on the City's budget.

Looking forward, we can see hope for improvement. Mayor Rudy Giuliani campaigned on a promise of change. Since his election, he has demonstrated unflagging energy and a real desire to seek the rebirth of New York City and its economy. Since New York's economic health is inextricably woven with the health of the rental real estate industry, we can look forward with guarded optimism for a more favorable climate in his administration.

In the City Council, a significant number of representatives feel that the regulatory system is overdue for some real overhaul - if not for the scrap heap. And, among the public at large, there is the growing recognition that the regulatory system favors a few at the expense of the many, that it subsidizes tenants through sharply reduced property taxes, and discourages sales of real property with their healthy stimulus on the City's economy. The normal rationales for buying an apartment do not apply for those tenants who are renting one way below market rates.

There is a growing public perception that, in rent regulations, New York has imposed its own version of California's Proposition 13. It has the same effect of sharply lowering property revenues, of keeping renters frozen in place, of widening the rift between old time residents and new ones, the young and the old, the haves and have nots. It discourages construction, development and related industries, it reduces funding of essential City services for police, schools, and repairs of the infrastructure.

This year, as the City Council considers the extension of the rent laws, we must build on this growing public perception to continue the reforms begun in Albany. And we must seek, especially, relief for the small owners who suffer most and are least able to withstand the burdens of the regulatory structure. We have reached a pivotal point in public perception from which the slow dismantling of the rent laws becomes a real possibility.

In 1994, the non-profit housing providers will continue to be our unlikely partners in seeking reform. It was a coalition with the non-profit community which prompted relief from soaring water and sewer costs. In Albany, it was a coalition with the low and moderate income housing development community which helped defeat the disastrous" prevailing wage" legislation. The era of special interest legislation is drawing to a close. We must forge links with a growing array of allies to promote the industry's goals.

Lead paint abatement and insurance issues continue to be a major threat to the City's housing. However, we are beginning to see a movement away from the concept of complete lead paint removal to an approach of lead management and hazard abatement. Increasingly, studies point out that total removal may be more dangerous than in-place maintenance. Once a reasonable maintenance approach becomes established at the Federal, State and City level, insurers will have a basis for underwriting lead risks.

The Rent Guidelines Board actions in 1994 will provide a test of the atmosphere and directions to be established by the Giuliani administration. Low inflation will produce a low operating cost index. This will provide an opportunity to increase historically low rents resulting from decades of regulated increase. The new Mayor's appointments to the Guideline Board will be crucial in altering the unrealistic and punitive policies of the past.

A further test of the new administration will come in another crucial area - that of water and sewer billing policies and the universal water metering program. While metering is likely to continue, concepts such as tenant pass-throughs, reasonable caps and split billings with large frontage components offer reasonable approaches to mitigating the disastrous consequences of metering on low-income, high density housing.

To focus attention on the continued challenges we face in 1994, the RSA will kick off the year with its second Annual Government and Industry Housing Conference. The Conference will again bring industry leaders together with key government representatives who affect the housing industry, including Mayor Giuliani and his new commissioners, the new Commissioner of DHCR, Donald Halperin, and the Speaker of the City Council, Peter Vallone. I urge everyone involved with New York's rental housing to attend this critical event and demonstrate the importance of addressing the City's housing issues. The Conference will be held on Wednesday, February 9, at the NY Sheraton from 9 a.m. to 12:30 p.m. (registration and Continental breakfast from 8 a.m.). Call the RSA at (212) 944-4720 for registration and further information.

Jack Freund Executive Vice President Rent Stabilization Association
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Title Annotation:Annual Review & Forecast, Section III; analysis of property tax rates, rent control, operating cost increases for building owners
Author:Freund, Jack
Publication:Real Estate Weekly
Article Type:Column
Date:Jan 26, 1994
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