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Proposed rent hikes called 'ridiculous.' (Rent Guidelines Board's proposes increases on rent-stabilized apartments in New York, New York)

Industry representatives were distressed over proposed rental increases for rent-stabilized apartments that account for more than 1 million units of the city's housing stock.

The nine-member Rent Guidelines Board (RGB) recommended a 3 percent rise for one-year leases, a 5.5 percent rise for two-year leases and in a controversial proposal, suggested a 5 percent vacancy increase for apartments with rents under $400. After two more public hearings, a final vote is scheduled for June 22.

Industry advocates had pleaded with the RGB for a low rent supplement so that these private owners would not be subsidizing the true costs of operating an apartment. This is estimated at an average of $382 without financing costs, vacancy factors, collection losses or any profits, said Jack Freund, the Rent Stabilization Association's director of Research.

"We think a minimum rent should be set at $450 per month," he added.

The good news, said Dan Margulies, executive director of the Community Housing Improvement Program (CHIP), is that the RGB recognized the need for a low rent supplement with the five percent vacancy factor, but the bad news, is that it was "totally inadequate" and ignored the need for increases on apartments over $400.

"It was a really bizarre and baffling way to approach the low rent issue," Margulies said, noting they should have given a vacancy allowance on all apartments as well as a low rent supplement. "There were some board members trying to do something but missing the mark."

The RGB is made up of a combination of two owner representatives, two tenant representatives, and five public members. The current members include: New tenant reps Leslie Holmes, a legal aid attorney; and Kenneth Rosenfeld an attorney with the Northern Manhattan Improvement Corp.; new public members Barbara Gordon-Espejo, an attorney in private practice; and Jane Stanicki, a former bank official; and returning public members including chair Aston L. Glaves, Hilda Blanco and Augustin Rivera.

The owner representatives are Joseph L. Forstadt, a Stroock, Stroock & Lavan partner serving in his 10th year; and Harold A. Lubell, a partner with Robinson Silverman Pearce Aronsohn & Berman in his eighth year on the RGB.

Lubell said it is disappointing that there was a misunderstanding of the significance of the vacancy allowance.

"That's aside from the increase which is so modest and doesn't bear upon the PIOC [price index] increase of 4.7 percent," he said.

There was also a failure to recognize that there is not a great displacement of tenants in low income-properties, he added, a sentiment echoed by Margulies.

Lubell estimates that about 25 percent of the tenants in rent- stabilized properties cannot afford to pay the current rent or any increases. "What you do is serve the 75 percent who can afford to pay and, in many cases, afford to pay more," he added.

It could be, he observed, that the person in a $750 apartment cannot afford to pay more while the person paying $150 can. Additionally, owners have had to reduce rents for certain tenants at the same time they are subsidizing many high income tenants.

This is beginning to be recognized in the New York State Senate as well. Senator Nicholas Spano, a Republican from Yonkers, told busloads of tenants in Albany last week that there was not much support outside of New York City and the immediate suburbs for continuing the stabilization program. While the Democratic Assembly has already passed enabling legislation designed to make the system permanent, the Republican Senate has passed a measure that lifts regulations from owner-occupied cooperatives and condominiums to conform with New York City rules. The current laws expire on June 15 and there is sure to be a down to the wire fight in Albany by both sides.

Forstadt recalled that for the interim rent stabilization guidelines last year, the RGB did hot adopt a vacancy allowance until a later meeting and at that point the two tenant reps quit. "They felt they had been betrayed," he laughed.

Forstadt proclaimed the new owner reps "worthy advocates" whose empha-

Freund said, "The proposed guidelines are ridiculous. They don't account for the economic reality of the housing market today." He deemed the one- and two-year guideline proposals "simply too low" and said the proposal to eliminate the vacancy allowance for rentals over $400 per month ignores the economic needs of those apartments. Perhaps worse, he added, the guidelines do not address the need to have rents that at least break even with operating costs.

For an owner who would receive the 5 percent vacancy increase on a $399.99 or lower rent, the increase in rent would come to less than $20 a month or $240 a year on an apartment that will cost an average of $600 to $1,000 to put into shape for renting, including painting. Freund and others observed it will take nearly four years to recoup the cost of fixing the apartment and the owner would have painted it once in between, as well.

According to Timothy L. Collins, executive director of the board, of the 39,000 apartments that were vacant and available for rent during the Housing and Vacancy survey conducted in 1991, 14.4 percent had asking rents under $400.

The projected 4.7 percent increase in operating costs in the past year was primarily driven by electricity and utilities including water, sewer, electric and gas that were up over 12.7 percent. Water and sewer, he said, increased 9.85 percent since last year. Taxes went up 3.1 percent, labor 5.6 percent, fuel - heating oil and some gas - was up 5.2 percent.

Charles R. Rappaport, president of the Federation of New York Housing Cooperatives noted that it is very nice to have protected tenants but, he wondered, when is the government going to protect cooperative or condominium shareholders who are still struggling because the sponsor still owns apartments that he cannot sell and has tenants who are not paying as much as the actual maintenance and financing.
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Author:Weiss, Lois
Publication:Real Estate Weekly
Date:May 26, 1993
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