July 6, 2016

Cutting Rents Without Bleeding Landlords

By Flavia Leite, Courtney Loiacono, Grant Nagaki, and Dan Wooldridge

No rent increase through September 2017: That was last week’s verdict from the New York City Rent Guidelines Board concerning one-year lease renewals starting October 1 on rent-stabilized apartments. The ruling, covering some 1.6 million tenants, freezes these rents for a second consecutive year (although landlords will be permitted to raise rents as much as 2% on two-year leases). Not surprisingly, the Rent Stabilization Association, which represents owners and managers of rent-stabilized properties, labeled the decision “unjust and unlawful” and promised to fight it in court.

Yet whatever the outcome of this battle, the income slump that many low-income New Yorkers experienced after (and in some cases, even before) the 2008 Great Recession still puts them in a tight housing affordability squeeze. Almost 35% of households in rent-regulated apartments pay half or more their incomes for housing. In the parlance of housing policy, they are “severely rent-burdened,” because the hit that housing puts on their wallets makes it hard for them to meet other basic expenses. And despite our supply of public housing and an array of housing vouchers, property tax credits, and supports designed, for example, to reduce home energy expenses, affordable apartments remain scarce.  Mayor Bill de Blasio’s 10-year affordable housing plan paints a stark picture of nearly one million low-income households competing for fewer than half that number of affordable housing units.

That’s why we propose decreasing, not just freezing, what the hardest-pressed tenants pay – without penalizing their landlords, many of whom operate on tight profit margins in an unforgivingly high-cost city. At relatively low cost to taxpayers, and no cost to landlords, a system of City rent subsidies, administered through the property tax, would make a big difference to hundreds of thousands of low-income tenants – specifically, the more than 177,000 rent-regulated households with incomes of less than $50,000 who pay 50% or more of that income in rent.

Our proposed “targeted rental assistance” (TRA) program would provide a progressive scale of benefits. It would offer a top monthly allowance of $550 to households with annual incomes of less than $10,000, decreasing to a minimum of $150 for those making $35,000 to $49,999. Households earning $20,000 a year, for example, could qualify for a maximum monthly TRA subsidy of up to $350, which would decline as the rents they’re charged do. (Those paying rents of $1,100 a month, for example, would get the full $350 benefit; at a rent of $835 a month, they’d receive $335.)

By our calculations, which we’ve reviewed with City and State officials and with housing policy experts, the average TRA benefit would be $337 per month per household – a big economic shot in the arm for low-income families. Landlords would be held harmless in this process, because they could claim a dollar-for-dollar credit on their property tax bills, just as they now do for existing rent increase exemptions for elderly tenants and tenants with disabilities living in rent-regulated apartments.

The price-tag for TRA would depend on just how many tenants take part in the program. A 50% TRA participation rate – which would be appreciably higher than the uptake of the existing City rent increase exemption programs – would mean forgoing tax revenues of something less than $360 million a year. To put that in perspective, that’s less than 2% of the City’s gross property tax collections during 2013. It’s also less than 1% of the $41.4 billion cost of the mayor’s affordable housing plan. And unlike many elements of that program, which will take years to come to fruition, the rent subsidies we propose would have an immediate positive impact. They’d also benefit the poorest households, which are slated to receive only a small share of the market-driven elements of the mayor’s plan.

For more than 70 years, rent regulations have helped ensure housing stability for poor and working-class New Yorkers, while providing their landlords with a fair return on their investments. For thousands of low-income households today, however, this arrangement is clearly no longer enough. Tax breaks have long been used to subsidize housing. Existing New York State and City “circuit breaker” programs, for example, offer property tax credits protecting low-income homeowners and renters. Our proposed TRA program builds on that model, and broadens it to cover significant numbers of low-income, rent-burdened New Yorkers.

The authors are graduate students at the Milano School of International Affairs, Management and Public Policy at The New School. This Urban Matters post is based on research they conducted for the Milano School and the Center for New York City Affairs in the spring of 2016.