More rent stabilized buildings are in distress. That's from a top bank that's trying to figure out what to do with thousands of loans; we break it down. 

Could a New York City Council mandate end up bankrupting rent stabilized buildings? We discuss Local Law 157. 

And we want to set the record straight on the Rent Guidelines Board, as some try to politicize this independent body. 

Let's start Housing New York. 

[THEME]

“We need 800,000 units to meet the demand today… What we have right now in the United States and what we have right now in New York City is almost a crisis of absurdity… We have to figure out a way to get these vacant units back online in a reasonable way that sets a rent that's affordable for most people… We will end America's housing shortage by building 3 million new homes and rentals…” 

[INTRO]

Welcome to Housing New York, our weekly podcast where we break down the news that is impacting rental housing in our great city. It's Halloween week here. So be sure if you're like me and wait until the last minute to get your costume stock up on candy, because kids will be at your door this Thursday. I'm your host, Kenny Burgos. We are taping this Monday, October 28th. Let's get to the news. 

[THE NEWS]

[New York Community Bank]

We kick off this week's podcast with some depressing news, but not surprising. Last Friday, New York Community Bank held a call with investors and announced that delinquencies among multi-family buildings have skyrocketed up by 990%. For those who are not familiar, New York Community Bank was a top lender to older rent stabilized buildings in the Outer Boroughs.

Following the passage of the 2019 rent laws, those buildings saw their value plummet as operating costs increased and rent adjustments from the Rent Guidelines Board failed to cover those costs. The 2019 laws also implemented vacancy control. That has led to thousands of apartments sitting empty because the building does not generate enough income to do the renovations and banks won't lend more money to renovate a unit that is going to lose money.

This is just more evidence of the housing policy failures that need to be addressed. Thousands of buildings are failing. It's not because there isn't demand for affordable housing, it's because the regulations have destroyed the value of these buildings. Unfortunately, it doesn't seem like there is going to be a large structural change to the housing laws in the near future.

For hundreds of buildings, relief was needed years ago. Those buildings are going to continue to have deteriorating conditions, high violation counts, and the government doesn't have the capacity to take them over. The people who will suffer the most are the renters living in these buildings. That's the real tragedy of this situation. 

[Broker Fees]

Moving on. The New York City Council is preparing to pass a bill to reform the way broker fees are regulated. The bill is called the FAIR Act. Its sponsor, Chi Ossé, posted a social media video last week claiming it will be voted on in a few weeks. But the council speaker's office has not confirmed that yet, and they control the schedule. 

For those unfamiliar with the bill, It is designed to make the person hiring the broker pay the fee. But the latest bill language makes it clear that if a property owner advertises an apartment on StreetEasy, or another website, then by default, they have hired the broker. Currently, most brokers pay the fee to advertise units on sites like StreetEasy. 

NYAA has not taken a position on this bill, but we have been monitoring it, and we will be providing our members guidance on how to comply if it is passed. The reality is that this bill is just shaking a snow globe. If it passes, owners are going to be forced to change how they advertise apartments. Some might pay the broker's fee and raise overall rents. Others might tell brokers just not to advertise units, but let them rent them out once a prospective tenant hires them. 

It will absolutely change behavior and disrupt the brokerage industry. But we are kidding ourselves if we think this is going to help renters. In a supply constrained environment, property owners will be able to rent their units without paying broker fees.

And tenants are going to have to pay the brokers to find apartments that fit their needs. If renters want better housing and more affordable housing, then we need to build more. And make better use of current stock of housing. If we aren't increasing supply, then we are not solving the problem.  Our next item is about gas detectors.

[Local Law 157]

This past week, we started getting a lot of calls into the office about Local Law 157. This is a law that was passed by the City Council back in 2023, requiring natural gas detectors to be installed in all apartments with gas stoves. The City finalized the rules back in March of this year, and the compliance deadline to do this in all buildings is May 1st, 2025. 

Here's what people need to know. There is only one provider of these detectors. If buildings want to be in compliance, they have to put the order in ASAP. We are encouraging all of our members to get ahead of this one. The cost is not cheap. More than 70 a piece. Ideally, the detectors should last 10 years once installed, but installing them could also cost you.

The Real Deal wrote an article about how these detectors are highly sensitive. If they go off, it could trigger thousands of dollars in investigative work to try and locate a natural gas leak.  Our organization is all for safety measures that protect tenants and buildings from natural gas leaks. What we hope is that the City Council understands that this is going to raise rents. And for rent stabilized buildings, the Rent Guidelines Board is going to need to account for this added expense. 

You might be asking, why not just get rid of the gas stoves and replace them with electric? Many building owners want to do this. In fact, many building owners wanted to do this 20 years ago. But the decision is not up to the building owner. They have to get permission from Con Ed to increase the amount of electricity their building will need. And the grid capacity in many places in the city is not large enough.  We fear that this law is going to lead to massive expenses for older rent stabilized buildings in the outer boroughs.

In many cases, the current rents don't cover the operating costs and this is just going to plunge these buildings further into debt. This is why we're going to continue to work with the City Council in an attempt to reduce the cost of housing and push back on unfunded mandates.  

[Housing production]

Turning to some stories about the lack of supply in New York City, the Real Estate Board of New York is out with a new report on the housing pipeline in New York. Shocker. It's bad. Their report found that the housing production is about 15% below the historical trend since 2008. Meanwhile, the Building Congress put out their own report looking at permits. Their conclusion was that things were not great, but could be worse. They admit that the city is building less than half of what housing experts suggest is necessary to meet demand.

We think having these reports are great. We always have to take stock of where we are. It's also good to have data proving that we are not building enough housing. Hopefully these reports help push the City of Yes for housing opportunity through. But more importantly, we hope that state lawmakers read them and realize that the housing package they passed earlier this year was insufficient to resolve the current crisis. 

[How the Rent Guidelines Board works] 

We want to end the podcast with a quick note about the Rent Guidelines Board. Nearly 1 million apartments in New York City are rent stabilized. And every June, the Rent Guidelines Board votes to decide how much rents can be adjusted. It gets lots of press, and whatever the outcome, the mayor gets blamed.

But the news media mostly just reports the result and doesn't really talk about how the Rent Guidelines Board actually works. So we wanted to take a moment to explain it.  First off, the mayor doesn't decide the outcome. It is illegal for the mayor to tell the Rent Guidelines Board how they are supposed to vote. 

The mayor does appoint the members of the board, but they have a clear mandate set forth in state law. It is illegal for the Rent Guidelines Board to make a decision before they have evaluated basic data like economic conditions, property taxes, operating costs, interest rates, and cost of living. So what does the data tell us?

The 2024 report showed significant growing financial distress in older rent stabilized buildings in the Bronx, northern Manhattan, and parts of Queens and Brooklyn. It showed that property taxes remain high. Roughly 30% of the rent checks for older rent stabilized buildings. Operating costs continue to grow faster than inflation, with insurance costs up a staggering 22%.

Interest rates remain high, making it very difficult for declining buildings to get access to capital for maintenance and repairs. On cost of living, median rent stabilized rents are $1,322, which is 26% of median rent-stabilized household income. With the data showing that the majority of rent stabilized apartments are at risk of deterioration, and the majority of renters paying less than 30% of their household income on rent, the RGB decided to allow rent increases of 2.75% on a one year lease. This was 1.05% less than inflation, and 1.25% lower than the RGB's recommended increase to prevent building deterioration. When the rent adjustment doesn't keep up with the costs, the result is that the buildings are defunded. For the past decade, the RGB has defunded buildings.

Despite what you may hear from some mayoral candidates or advocates, the defunding of rent stabilized apartments has accelerated under the Adams administration. In fact, adjusting for inflation, the RGB under Adams has adjusted rents downward by twice as much as the RGB under de Blasio. The result of this defunding has been a growing number of violations in older rent stabilized buildings, an increase in property tax delinquency, plummeting building values that have contributed to the failure of two regional banks.

I get that we live in a world where vibes and rhetoric tend to matter more than data, but it's important to be honest about what the data says. Vibes will not protect the long term viability of New York City's main source of affordable housing. 

[OUTRO]

And that's it for this week's episode. Be sure to follow us on all social media handles @HousingNY, that's for Instagram and for X.

We're coming out with regular content. Later this week, I'm going to break down the cost of operating a rent stabilized apartment, so be on the lookout for that. The Housing New York podcast is a proud product of the New York Apartment Association. We appreciate your feedback, and you can leave us a comment on Substack or wherever you're listening to this podcast.

You've been listening to Housing New York with Kenny Burgos, and I'll see you all next week. And remember, good housing policy starts with good conversation.