More Rent Hikes Loom for Rent-Controlled Tenants

Tenants in rent-controlled apartments face another 7.5 percent rent increase in 2014, and an additional, possibly smaller, increase in 2015.

In November the state Division of Housing and Community Renewal announced an 8.3 percent increase in the 2014-2015 Maximum Base Rent, the figure used to calculate increases for rent-controlled tenants. The increase supposedly reflects increases in landlords’ operating costs over 2012-2013. 

Enacted by the New York City Council in 1970, the MBR formula produces two numbers: the Maximum Base Rent and the Maximum Collectible Rent. The landlord can increase the MCR by 7.5 percent each year until it reaches the MBR. The MBR serves as a cap—until the next biennial adjustment. The formula virtually guarantees annual rent hikes that are often more than those rent-stabilized tenants get.

Because the MBR is written into the law, the DHCR cannot alter the formula. And because of the state Urstadt Law, the City Council cannot repeal it, forcing tenants to go to the state legislature for relief. Attempts to end the MBR in Albany have failed year after year.

Unlike rent-stabilized tenants, rent-controlled tenants are often hit with a second annual increase, the fuel- cost pass-along, which the DHCR adjusts up or down based on energy price changes. Some tenants also get hit periodically with labor-cost pass-alongs. 

Rent-controlled tenants, who are almost all elderly and living on fixed incomes, are among the poorest New Yorkers. According to the Census Bureau’s 2011 New York City Housing and Vacancy Survey, their median household income in 2010 was $29,000 a year, compared with $37,000 for rent-stabilized households and $75,000 for owner-occupied housing.

The MBR formula was originally intended to compensate landlords for the difficulty of raising rents under the city’s 1947 rent-control law, but after 43 years, it has lost whatever economic relevance it once might have had. Before 1970, rents in controlled apartments were frozen. To obtain a rent increase, landlords had to prove “hardship,” that they were not earning a minimum return on their investment. Owners could also raise rents for improvements, such as putting in new kitchen cabinets, and were allowed a 15 percent increase on vacancy.

In 1972, the first year of annual 7.5 percent rent hikes, a rent-controlled tenant paying $200 a month would have gotten a $15 increase. By the mid-1990s, the rent on their apartment would have reached $1,000, bringing the MCR increases up to $75 a year. Today, many rent-controlled tenants pay more than $1,700—despite the urban legend that they’re all paying $250 for apartments on the Upper West Side.

In 2010, the median rent for controlled apartments was $800, according to the HVS. However, current rents for apartments subject to increases through the MBR system generally range from $1,200 to $1,500. The HVS median rent is substantially lower because about one-third of rent-controlled apartments are not eligible for MBR increases. In rent control, unlike rent stabilization, landlords must correct violations before being granted rent increases.

In 1979, the City Council voted to remove fuel from the MBR calculation, and allow landlords to impose the separate fuel-cost pass-along. This roughly doubled the annual rent hikes. It also had the effect of inflating the MBR formula, making future 7.5 percent increases more likely.

When the MBR was originally enacted, there were 1,265,000 rent-controlled apartments in the city. Another 63,000 single-room-occupancy units were also rent-controlled, and there were 350,000 rent-stabilized apartments. Those added up to 1,678,000 rent-regulated units, representing 76 percent of all rental housing. By 2011, there were only 38,000 rent-controlled apartments left, plus 987,000 rent-stabilized units, for a total regulated universe of 1,025,000 units—only 47 percent of the rental housing stock.

Two bills to reform the rent-control system have been introduced in the state legislature. Sponsored by state Sen. Adriano Espaillat (D-Manhattan) and Assemblymember Linda Rosenthal (D-Manhattan), S.1815 and A.848 would terminate the MBR system and the fuel and labor-cost pass-alongs, and have the city Rent Guidelines Board set increases for rent-controlled units.

Ending the MBR system would give rent relief to overburdened tenants, and free DHCR staff to work on more useful programs, such as processing tenants’ complaints about illegal overcharges.