Can a Rent Freeze Beat Back New York’s Predatory Wall Street Landlords?

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Tenant rally in Crown Heights, Brooklyn
A tenant rally in Crown Heights, Brooklyn. (Photo: John Light/BillMoyers.com)

Next Monday, New York City’s Rent Guidelines Board will vote on a proposed rent freeze for the city’s roughly one million tenants who live in rent-stabilized buildings. The move, which was championed by Mayor Bill de Blasio during his election campaign, would be unprecedented in the 45-year history of the city’s Rent Guidelines Board.

It comes as the city faces a housing crunch that’s unlike anything in recent history. An April report by City Comptroller Scott Stringer found that between 2000 and 2012, median apartment rents rose by 75 percent — that’s compared to 44 percent for the rest of the US. Over the same period, New Yorkers saw their average incomes actually decrease after adjusting for inflation.

Advocates and some politicians — including Comptroller Stringer and Public Advocate Letita James — say a rent freeze could help New York remain affordable for low- and middle-income residents.

“Predatory equity”

A freeze would also put a damper on a trend that housing advocates call “predatory equity.”

With the cost of real estate climbing, the city’s market has become a good bet for speculators with private equity money. Increasingly, landlords in gentrifying neighborhoods are not a single individual or a family, but a large, faceless hedge fund seeking to turn a large profit on renters’ homes.

“In the years leading up to 2008, we had lots of private equity companies coming in and snapping up buildings from private individuals,” said Cea Weaver, an assistant director with the Urban Homesteading Assistance Board (UHAB), a tenant advocacy nonprofit. After the 2008 crash, New York, like the rest of the country, suffered a wave of foreclosures. But the city’s real-estate market rebounded faster than others. “We’re just sort of seeing a resurgence of the same sort of speculative prices for the first time in awhile,” Weaver said.

Speculators often pay far more for a building than its current tenants’ rents can support. “When a landlord speculates on a building, they’re basically making the assumption that they’re going to be able to rapidly raise rents,” said Weaver. UHAB studied one building in the Crown Heights section of Brooklyn, a rapidly gentrifying neighborhood, with over $5 million dollars in loans on it. Given what tenants pay in rent, UHAB calculated that the building could only support a loan of less than $2 million.

Each year, the Rent Guidelines Board sets how quickly landlords are able to raise rent. To release an apartment from rent regulation, a landlord must raise the rent to $2,500 a month. When a new tenant moves into a rent-regulated apartment and signs a lease for $2,500 or more, that apartment gets released from rent controls.

So the key to predatory equity is to push out long-term tenants who enjoy lower rents.

Organizing around a rent freeze

Vera Walker has lived in Crown Heights her entire life. She’ll be 87 next month.

Vera Walker

Vera Walker, a long time resident of Crown Heights, at a Crown Heights Tenant Union rally. (Photo: John Light/BillMoyers.com)

When she was a child, it was a predominately white neighborhood, but in the 1960s and 1970s, the racial make-up shifted toward African- and Caribbean-Americans, with pockets of Hasidic Jewish communities. Walker’s community is now ground zero for gentrification — and for predatory real estate investments.

“I don’t have any problem with the people coming back,” she said. “But the poor people — the people that have been here, and supported the landlord, and were able to hold on to their property — they’re being pushed out.

“And even the so-called rich people that are coming in, they can’t afford the rents. They take a one-bedroom apartment, and in order to pay their rent, they have three or four or five people living in that one-bedroom apartment. That speaks volumes.”

At a tenant rally earlier this month, Keisha Jacobs, an organizer with the Crown Heights Tenant Union, described some the displacement strategies longstanding tenants are faced with every day: “The stack of small injustices; the clerical mistakes on your rent receipt; the administrative errors like cashing your rent check late; the miscommunication, repeated unreturned messages. They say they’re coming to finally fix your sink. You take a valuable day off only to have them never show up. Or the ceiling in your bathroom that’s coming down around your ears, but you see workmen fixing your new neighbors’ apartment because they pay twice as much as you do.

“These things are not just oversights. It’s not incompetence. It’s not mismanagement. This is not just a simple screw up. It’s systemic. It’s tactical. You are being targeted.”

Keisha Jacobs

Keisha Jacobs at a Crown Heights Tenant Union rally. (Photo: John Light/BillMoyers.com)

In Crown Heights, a rent freeze has become a rallying cry for tenants old and new who want to unite against predatory landlords.

“I think it [gentrification] causes a lot of fear in people, and you think ‘what am I doing? How am I a part of this?’” said Celeste Hornbach, a member of the Crown Heights Tenant Union who moved to the neighborhood four years ago after graduating college. “So joining a tenant union with long-term tenants and fighting back together is one way I can feel like it’s not just me coming in and forcing them out, it’s making it about a bigger issue — that this is a structural problem, real estate, and it’s not us against them. We have to fight together.”

How a rent freeze could help

A rent freeze could shut down speculation.

“It’s telling the speculators, ‘you can buy this building if you want to, but you are not going to be able to raise the rents on it,’” said Weaver. “If you know, from the get-go, that you’re not going to be able to raise rents on a rent-regulated building, then why the hell would you speculate on it?”

Hornbach, of the Crown Heights Tenants Union, said she’s hopeful that with a new, progressive mayor and city council, New York is ready to tackle its housing crunch.

“It’s still something we have to organize around and rally against,” she said. “But I definitely feel like the moment is hot right now with the rent guidelines board vote coming up. And I hope we get the rent freeze.”


Update: The Rent Guidelines Board did not approve a rent freeze, instead opting for an historically low rent increase.

The Wall Street Journal reports “the board voted 5-4 to approve a 1% increase for one-year renewal leases beginning on or after Oct. 1. Tenants who opt for two-year leases could face up to a 2.75% increase. … Until Monday’s vote, the smallest increase the board approved since its inception in 1969 had been 2%, last adopted in 2012.”

John Light blogs and works on multimedia projects for Moyers & Company. Before joining the Moyers team, he was a public radio producer. His work has been supported by grants from The Nation Institute Investigative Fund and the Alfred I. duPont-Columbia Awards, among others. A New Jersey native, John studied history and film at Oberlin College and holds a master's degree in journalism from Columbia University. Follow John on Twitter @lighttweeting.
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  • Anonymous

    I believe an equitable and long term viable option for American cities such as New York to provide affordable housing is to extend the requirement and usage of the Leasehold and Freehold system of property. The City should create and self manage a publicly traded REIT for urban housing. HOME NYC REIT or something along those lines. It would invest primarily in raw land leased under Leasehold leasing and all properties available for sale that could be converted for Leasehold leasing. The rental incomes from such properties would be distributed, after management fees and under REIT guidelines, to all shareholders of the REIT’s shares. The REIT would acquire more property by use of issuing more REIT shares for those purchases.

    The use of the Leasehold REIT financial model would free the city to act in a much more timely manner to housing shortages without also having to raise taxes or borrow large sums of money.

    As either the amount of the rental income or the income from management fees would be used by the REIT to pay the property taxes the city would have a much greater control on property tax collections and amounts for a much larger percentage of the cities land stock.

    At the future sale of all commercial residential buildings the city REIT would have the legal to option to offer either the seller or the buyer to sell the underlying land to the REIT in exchange for REIT shares. The price would be based upon the return from the land rental amount. The rental agreement going forward would require a certain portion of the rental units lease amounts be based upon income for qualified low and middle income tenants. The buyer or seller of the property would then be free to sell those shares, perhaps sometimes after an agree short time period, into the open market.

    The buyer or the seller would seriously consider such offers for a few primary economic incentives. The first being that by selling the land separately the seller might find a qualified buyer much quicker. The acceptance of shares for the land value instead of cash could also lower or spread out the tax implications on capital gains.

    For the buyer the need to put up a substantially lower upfront amount of monies in equity and debt would make financing much easier. To perhaps pay the entire agree upon purchase price by the seller and then being able to turn around and sell the underlying land in a virtual sell/leaseback agreement would again stimulate many more transactions of this type.

    As most leases of this type are for multiple decades long terms it would still be relatively the same underlying cash flow that would determine financing options for the lenders.

    If the buyer of the building were to remodel or scrape and build a new building the set asides for a portion for income base housing would remain.

    Why this method instead of just legislating a portion of all housing be rent controlled?

    The main two reasons are incentives for buyers and builders to act and for the ability of the city to more easily and effectively deal with underused, run down or abandoned properties going forward.

    By securitizing a great portion of the selling or purchase price in the use of a REIT, new owners or developers would have to put up a much smaller amount of their own monies in equity and borrowings to finance purchases. This would stimulate upgrading and new builds throughout the city without shutting out large numbers of people. The city would get a revenue stream based upon current and/or future income instead of property tax levies based upon current methods.

    This would also allow the city to have much more effective and direct control over upkeep, safety on current properties and much quicker turnaround times in dealing with dilapidated and abandoned properties of all types. The city REIT could acquire commercial industrial or retail properties for conversion to housing in much the same manner using overall much lower up front cash requirements.

    This method could then dramatically increase the ability for investors to seek out and develop the great amount of underused and economically inefficient use of land and buildings throughout the greater NYC area.

    Shares in the publicly traded REIT could also be used as a method for encouraging such investments by low and middle income young people as a way of saving for home ownership and participating in the rise of assets in the city.

    This same method could be used in urban environments all over the US. It would greatly help to alleviate that very large problem of massive amounts of rental income properties being run down, unkempt or abandoned. It would also then stimulate and increase the building or providing of housing for all sectors of the renting public. Each greater urban area could have its own REIT or perhaps a commercial rental REIT and a Commercial industrial and retail buildings REIT.

    It would be a great way to also spread the ownership of American land values to a much wider degree to the general public.

    Just a thought.

  • JonThomas

    Property rights are not absolute. As the article discusses, although this proposal is the largest in scope, rent stabilization has a long history in NY City.

  • JonThomas

    Sounds complicated.

  • Anonymous

    The simple version is your splitting the land from the building. Large parts of England are done this way. Some of the land is owned by national or local governments. A large portion is however also owned by individual or family land owners as well. There are people who own $50 million dollar homes in London and they do not own the land under it. But they have a 125 year lease on the land. They pay the rent and keep up the property and the landlord has no right to set them off. If the landlord sells the land the renter gets first dibs on buying it. The new owner has to agree on already set lease. Same if the renter sells the building. The lease can either be for the remaining time and conditions or re-negotiated with the land owner. That determines the price the new buyer pays. A new buyer buying a property with only say 10 years left on the lease pays literally pennies on the dollar for the underlying value in most of these cases.

    The underlying pluses are that building owners have to come up with much less upfront cash to get into either an single home or to own a commercial property. For developers of raw leased land the upfront costs to build new are also much less. Obtaining a lease on the land also allows for better access to financing from banks and such.

    Just as in all real estate, location, length of lease, terms and other factors determine the percentage of equity in a property that is the land value or the rental or equity value of the actual building.

    For the land owner or the governmental sector that owns it what they really get is more control over the upkeep of the property leased. They are much quicker to turn abandoned or rundown properties to new usage and rental streams. Buildings where the owner owns both the land and the building are much less likely to be the same prime conditions and overall value as those that are owned as two legal entities.

    There are many properties in major cities such as NYC where they are currently split in ownership, it is just not widely publicized or known. In cities such as NYC you will also find places where the land, the building, and the air rights above the building can be owned by three separate owners. Again just not publicized.

    I threw in the REIT method as it would be a great way for cities such as NYC to reclaim more control over certain types of properties without having to use tax monies or go into debt to do so. Mainly acquiring those types of properties that tend to be owned by owners who let them become run down or abandoned.

    By using a REIT method all aspects of the process would be more effectively set by free market forces than by government dictate or regulations.

    If there was currently a more advanced system of such a REIT land ownership the blight in places like the Bronx or Detroit could be more effectively countered and replaced.

    I use this method because it has been my experience from personal knowledge that a good many of the people living in rent controlled housing are making much more money and could easily afford to pay much higher rents without undo hardship that it was designed for.

    Here in California I know of two separate urban professionals that pay less than 10% of their annual incomes for all rental and utility costs in their housing. And they live in very well maintained and exclusive housing units. But local rent control limits there landlords ability to raise their rents to say the average 30% of income.

    Meanwhile the neighborhoods (West Hollywood and Santa Monica) are seriously short of low income housing options currently or being considered for those that really need help with housing costs.

  • Anonymous

    ohhhhhhhhhhh so that was what was going on.. HEDGE FUNDS!!!!!.. so it was just another machine of wall street. the rich destroying middle class and poor neighborhoods for profits………….wow. replace old tenants with gull able white kids willing to be ripped off………….. unbelievable….

  • JonThomas

    Read the article. It’s not about creating, or ‘paying for affordable housing,’ It’s about keeping the housing market affordable.

    Property rights are not absolute, especially when the property is being used as a marketplace commodity.

    What is being described is a housing price bubble. An unsustainable economic condition affecting a significant portion of NYC citizens. The efforts are an attempt to reign in an out of control market… a tiger eating it’s own tail.

    Did you not read that it affects about 1 million tenants? 1 million potentially homeless citizens! Families. Children. Imagine the pain that could have been saved had regulations remained in place during the housing and sub-prime mortgage bubble of a few years ago.

  • Still Anonymous

    “An April report by City Comptroller Scott Stringer found that between 2000 and 2012, median apartment rents rose by 75 percent — that’s compared to 44 percent for the rest of the US.”

    Yes, but that is ALL apartments, not just rent stabilized ones. The rent stabilized ones went up much much less than 75%. Everyone else’s went up much more than 75%. The rent freeze would apply only to rent stabilized apartments. So this figure is misleading and irrelevant.

    New York now has an apartheid system where some people have great protections and most people have *no protections whatsoever.* And yet all of the effort goes to creating even more protections for the protected class.

  • Jennifer Geeky

    How do we help push this through?

  • Dude

    If you freeze rents this will cause rents that are not frozen to rise. Helping the people in one building will cause people in another building to pay higher rents. The reason rents rise is because supply is not in balance with demand. So I don’t know that freezing rents is a real answer. Artificially lowering rents in one building effectively takes that building out of the free market supply and demand equation. It will increase demand for buildings that do not have heir rents frozen.

  • JonThomas

    Dude, read the article, again if necessary.

    My point being… Have you ever been to NYC? Ever visited there? Ever lived there? Ever had close family or friends who lived there?

    Rent control has a VERY long history in NYC. Housing itself even takes up a large part of the NY State Constitution. Anyone who lives there knows the role that rent control plays on the local economy.

    Your comment on ‘supply and demand’ as if this stabilization is just starting is simply irrelevant.

    The reason rents are rising in NYC has nothing to do with ‘supply not in being balance with demand.’

    The actual reason rents are rising, had you carefully read the article, is speculation. It’s an artificial bubble produced by market forces of investment speculation. Anyone commenting on economic issues using ‘supply and demand’ as their mantra should really study the history and role of bubbles.

  • Dude

    Your simply incorrect. I work in NYC. It’s supply and demand full stop. There is a shortage of apartments and the occupancy rate is extremely high.

  • JonThomas

    Over what exactly am I incorrect? You work there and do not know that rent control first began as far back as 1920, and has been in constant effect since 1943?

    New York’s current rent control program, which began in 1943, is the longest-running in the United States. New York City is the only large city in the United States that has strong rent control laws.[2] From 1943 to 1950, rent control was administered by the federal government but has been administered by state government since 1950, although state and city agencies shared administrative work from 1962 to 1984.

    http://en.wikipedia.org/wiki/Rent_control_in_New_York

    How many times need you be reminded that there is no such thing as a free market in the U.S. There is no tradition nor legal basis for free market ideology.

    Speculative bubbles have been a problem as one of the worst scourges of capitalism since it’s very beginning.

    From the article above…

    A freeze would also put a damper on a trend that housing advocates call “predatory equity.”

    With the cost of real estate climbing, the city’s market has become a good bet for speculators with private equity money. Increasingly, landlords in gentrifying neighborhoods are not a single individual or a family, but a large, faceless hedge fund seeking to turn a large profit on renters’ homes.

    “In the years leading up to 2008, we had lots of private equity companies coming in and snapping up buildings from private individuals,” said Cea Weaver, a tenant organizer with the Urban Homesteading Assistance Board (UHAB), a tenant advocacy nonprofit. After the 2008 crash, New York, like the rest of the country, suffered a wave of foreclosures. But the city’s real-estate market rebounded faster than others. “We’re just sort of seeing a resurgence of the same sort of speculative prices for the first time in awhile,” Weaver said.

    Speculators often pay far more for a building than its current tenants’ rents can support. “When a landlord speculates on a building, they’re basically making the assumption that they’re going to be able to rapidly raise rents,” said Weaver. UHAB studied one building in the Crown Heights section of Brooklyn, a rapidly gentrifying neighborhood, with over $5 million dollars in loans on it. Given what tenants pay in rent, UHAB calculated that the building could only support a loan of less than $2 million.

    Each year, the Rent Guidelines Board sets how quickly landlords are able to raise rent. To release an apartment from rent regulation, a landlord must raise the rent to $2,500 a month. When a new tenant moves into a rent-regulated apartment and signs a lease for $2,500 or more, that apartment gets released from rent controls.

    So the key to predatory equity is to push out long-term tenants who enjoy lower rents.

    Why would you comment on an article and not read it first? Do you understand what an economic bubble even is? The founders of this nation set guidelines for the regulation of commerce. NY State too has long recognized the need to protect it’s citizens from predatory market forces and actions, especially so in the housing market.

    My suggestion, instead of staying blinded by ideology, is for you to go out and smell the tulips.

  • Dude

    Huge domestic and foreign demand is pushing prices up in NYC. It’s not a bubble. The. Same thing is happening in Boston. Even if I we’re to accept your incorrect premise, if it’s a bubble it will pop and prices will go down. So there would be no need for a rent freeze because matters will self correct. Yes NYC has had a long unsuccessful history with rent control. I have lived around the city for decades. Many buildings were abandoned in NYC due to rent control. The author has limited understanding of the negative implications of a rent freeze because the premise and conclusions are driven by ideology. There are no free lunches. That is the nature of economies and economics. I am just stating economic fact as a counterbalanced to ideological excess. If you freeze rents it will mean other people will pick up the bill due to market forces. It’s just that simple. Its not a very complicated concept.

  • Dude

    If presenting facts are trolling so be it. So you all lived in a rent controlled property and paid below market value. We’ll i guess that was lucky for your family and unlucky for the landlord. He was required to subsidize your family. You seem to be driven by socialist ideology and an inherent dislike of those that have achieved financially. So be it. I respect private property rights. It’s a free country. DeBlasio is going to bankrupt NYC. He is an ideologue with no common sense. NYC will soon wish Bloomberg was back. I am the furthest thing from an ideologue.

  • JonThomas

    It’s obvious we could go back and forth for a long time, so instead of putting any balls back in your court, I’ll just respond to your phrasing.

    It wasn’t luck that helped my family. It was concern over the fate of human beings… a purposeful effort to stop the predatory exploitative forces of capitalists and capitalism from negatively affecting the lives of vulnerable people through controlling the housing market.

    It also wasn’t a subsidy, it’s the rules of the game. Just like poor people aren’t allowed to string their rich landlords up by the neck, rich landlords aren’t allowed to choke the life out hard working citizens.

    I am not ‘driven by socialist ideology.’ However, as I have repeatedly said on these forums, there is no history, no tradition, no legal basis for ‘free market’ capitalism in the US.!

    Any program or regulation that is constitutional, and which helps the weakest of peoples is preferable to a society which is ruled by the influence of a select few.

    Truth be told, I am a Christian Theocrat. I believe that humans should not rule at all. Christ’s message, along with that found in the Hebrew Scriptures, is strongly supportive of the weak. Most of the Bible’s message is about the concern for other humans. Any decision we make, including financial (in this case, what we would charge as rent) should keep in mind the circumstances of our neighbors. I find this message to go far beyond the ideology of any ‘ism’.