Will The Defunding Continue? 

On June 25, the New York City Rent Guidelines Board will issue their Final Vote

In nine out of the past ten years, the New York City Rent Guidelines Board has adopted rent adjustments that were below inflation. In total, the rent adjustments have been 14%, while inflation has gone up 23%. The RGB’s decisions have led to the devaluation of thousands of buildings, increased foreclosures, and bank failures. Currently, hundreds of thousands of rent-stabilized apartments cost more to operate than the rents being collected, putting them at severe risk of deterioration and the long-term viability of this vital housing stock in jeopardy. 

On April 10, 2025, Mark Willis, an NYU Furman Center Senior Policy Fellow presented research on the troubling decline in this housing stock. Their analysis showed that the RGB has fallen short in rent adjustments that keep up with costs by roughly 1% annually from 2010 to 2023. This has been particularly hard on the roughly 500,000 apartments that reside in highly stabilized buildings, where there are no deregulated apartments with market rents that are not limited by the RGB’s guideline. These buildings have no ability to increase revenue to cover operating costs other than the rent adjustment advanced by the RGB.

In short, roughly half of the rent-stabilized housing stock is being defunded. 

Earlier this year the RGB announced a preliminary range for this year’s vote. That range is 1.75% to 4.75% on a one-year lease, and 3.75% to 7.75% on a two-year lease. Historically, the final vote has always fallen inside these ranges. 

Before this Preliminary Vote, the RGB also released an analysis of the current rent-stabilized housing stock. Their calculations suggested a rent increase of 6.25% on a one-year lease was necessary to simply maintain half of the current rent-stabilized housing. This figure, called the commensurate adjustment, factors in the rising operating costs and current rents to determine what’s necessary to keep a 100% stabilized building healthy.

If the Rent Guidelines Board sticks to the preliminary range they approved earlier this year, then a majority of the rent-stabilized housing will once again be defunded.

What is Net Operating Income

The key data point that highlights the decline of rent-stabilized housing is the net operating income. Each year, rent-stabilized buildings with more than 10 units, which make up roughly 75% of all rent-stabilized housing, are required to open their books to the Department of Finance. The data submitted in the Real Property Income & Expense reports (RPIEs) is then used to calculate the general health of rent-stabilized housing. 

The report released in 2025 uses RPIE’s filed in the Spring of 2024, which detail the entire year’s data from 2023. When the RGB casts its final vote on rent adjustments on June 25th, they will be relying mostly on data that is 18 months old. 

Even so, that data shows severe financial distress for the majority of rent-stabilized housing. The report publishes tables that breakdown the income and expense data by borough and building age. The majority of rent-stabilized apartments, roughly 800,000, are in Pre-1974 buildings that are located outside the core of Manhattan (which is defined as south of 96th street). 

These buildings show steady decline of net operating income, which is the amount of revenue leftover after basic expenses are paid. In 2023, the median net operating income was $361 per apartment, per month in these buildings. In 2022, it was $348. Adjusting for inflation, the change basically even. 

When you look at the net operating income from 2018 to 2023, you see a much more troubling downward trend for these buildings. Adjusting for inflation, NOI was $479 in 2018, which is a 24.6% decline.

Cutting Back On Maintenance

Between 2022 and 2023 spending on maintenance and repairs declined by roughly 8%, despite costs of this work increasing. The deferred maintenance in older rent-stabilized buildings was the main reason that net operating income stayed constant instead of declining. This trend is alarming though. If buildings can only maintain financial stability by reducing maintenance, the long-term sustainability is put at risk. 

The majority of rent-stabilized apartments are in pre-war buildings that require significant maintenance and capital investment. Historically, net operating income needed to stay around $500 per apartment, adjusting for inflation, in order to make sure there was adequate money leftover to pay for mandatory upgrades that protected the long-term viability of the housing stock. 

As NOI declines, building quality declines. Renters will see this in slower repairs for non-emergency items like cracks to tiles. Over time, the building may not be able to afford a roof replacement if there are small leaks, instead opting for cheaper temporary repairs to address the problem. The more a building is defunded, the worse the conditions get. Eventually, the housing can become unsafe for renters. 

Severe Distress 

Declining net operating income means the value of buildings is declining. Mortgages and debt service for buildings is calculated based on Net Operating Income. Non-profit housing providers tend to carry higher leverage than for profit building owners, but they won’t exceed a debt service coverage ratio of 1.2, which means that you can only spend about 84 cents for every dollar of NOI on financing. 

As the NOI declines, the allowable debt coverage by banks and lenders also declines. For example, a 40-unit building in 2018 may have had an average net operating income of $500 per unit. They would be able to get a loan from the bank with payments of $400 per unit at a responsible debt service coverage ratio of 1.25, allowing them to invest money back in the building for the future. 

Over the course of five years, the net operating income declined by 25%, falling to $400 per unit. The mortgage on the building stays the same, bringing the debt service coverage ratio to 1. Apartment buildings have to refinance every 5 to 7 years. Since the NOI has declined, the bank will only lend the building $333 per unit per month. This means the owner of the building has to pay the bank significant money in order to secure a new loan. 

In many cases, they cannot afford to make this payment, or do not want to invest more money into a failing building. This forces the bank to foreclose on the building, or enter into a pre-foreclosure in hopes of forcing a short sale. In either outcome, the renters lose. Buildings in foreclosure do not have access to additional funding in order to make emergency repairs, which puts the renters at risk. 

One Bronx-based non-profit housing provider estimates that roughly 3,800 rent-stabilized buildings are currently in foreclosure or pre-foreclosure, and therefore are unable to properly maintain their buildings.

Bleak Future

The current state of distress is not the low point. All indications are that the financial health of rent-stabilized housing got even worse in 2024, as insurance premiums continued to skyrocket, fuel prices surged, and inflation remained sticky. We expect the Rent Guidelines Board reports in 2026 to detail this steady decline of net operating income for Pre-1974 buildings in the outer boroughs. 

Recently a portfolio of rent-stabilized buildings in the Bronx, previously owned by the New York City Employees Retirement System and the Teachers Retirement System of the City of New York, sold for a loss of more than $160 million, adjusted for inflation. The 34 buildings with more than 2,000 apartments were systematically defunded over the course of ten years due to operating costs rising faster than RGB adjustments. The owners of the buildings, to their credit, invested more than $31 million into the properties in the past decade to make sure they were well-maintained. 

The story shows that the downfall of rent-stabilized buildings is not due to speculation, but a failure of the system. When the pension funds invested in the portfolio of buildings they were not expecting a windfall return and they were not backing a model of tenant turnover through eviction or harassment. They were simply hoping for a safe and modest return on their investment over time that they believed would be less volatile than the stock market. 

In the decade since that investment was made, the Rent Guidelines Board stopped adjusting rents to keep up with inflation and the passage of the 2019 rent laws handicapped the buildings with vacancy control on apartment turnover, which further devalued the buildings. Ultimately, retired teachers and city employees paid the price for these policy changes. 

Without substantive changes the picture is bleak. Mark Willis from the NYU Furman Center said distress will grow exponentially in the near 100% stabilized buildings, eventually bankrupting all of them. He added:  “This is a large-scale problem: simply filling the gap with public subsidy could be very expensive over the long run.” 

By our calculations, the government would need to advance $432 million annually to sustain rent-stabilized properties in the Bronx alone, based on 2023 data. The price tag to save these aging buildings grows each year, and easily exceeds $1 billion right now.