November 19, 2003
Bit by Bit, Government Eases Its Grip on Rents in New York
n New York City, where for generations government has played a uniquely ambitious role in helping people pay their rents, a fundamental shift is taking hold — apartment by apartment, building by building.
Three major programs, originally intended as temporary relief measures, are winding down: the city's vast rent-regulation system, which has guaranteed rent ceilings for tenants at all income levels for decades; the state's Mitchell-Lama program, which has helped keep rents down for low- and middle-income tenants for nearly half a century by subsidizing the construction of apartment buildings; and the federal Section 8 program, which has provided the same sorts of building subsidies on behalf of the poor.
So far, only a modest number of tenants have been exposed to rents determined by the market, given the size of the programs. But tenants, landlords and housing groups say that the pace will accelerate in the next few years.
In the decade since the State Legislature began loosening the city's rent regulations, 105,000 of the one million apartments under rent control and stabilization have lost those protections. Tens of thousands more units are expected in the next few years to reach $2,000 a month in rent, which allows their removal from regulation.
Mitchell-Lama has lost about 17,000 of its 140,000 apartments as dozens of buildings have left the program; 11 more buildings, with a total of 3,000 units, are considering joining the exodus as their contracts expire, allowing owners to rent the apartments at market rates.
In the last three years, Section 8 has shed about 2,000 of its 100,000 apartments as building contracts have expired, and federal officials say many more contracts will run out in the next two years. And several other programs that reduce rents or offer tax breaks to owners are on the verge of expiring as well.
For landlords and free-market advocates, all of this is simply the comeuppance of a failed social experiment in which temporary aid turned into an entitlement, creating bewildering inequities in rents and discouraging construction of housing.
For tenant advocates and their political patrons, however, these events signal something frightening: the passing of an era in which government believed that part of its essential mission, along with dispensing welfare checks and Medicaid, was helping to provide shelter, particularly in New York, where the cost of living is steep.
Perhaps the poor and middle class will be pushed out of Manhattan in overwhelming numbers, as tenant advocates warn. Or perhaps the end of artificially low rents will encourage a new building boom, and supply will quickly catch up to demand, as free-market groups predict.
However the changes play out, there seems to be little disagreement that a new New York is in the offing, shedding its longtime identity as a place whose rental-housing market — a complicated thicket of regulations and politics — is like no other in the nation.
"All these things are happening at once," said Kathleen B. Cudahy, a spokeswoman for Laurence Gluck, the owner of Independence Plaza North, a Mitchell-Lama complex in TriBeCa that is leaving the program. "Everything is moving toward market-rate housing."
City housing officials say that their role has not diminished. After all, Mayor Michael R. Bloomberg announced a $3 billion plan last year to repair, preserve and build 65,000 units of housing for poor and moderate-income residents, reversing City Hall's decade-long retreat from public investment in housing.
Even so, the plan, called the New Housing Marketplace, leans more heavily on private developers than earlier programs; the city hopes to entice them by streamlining its rezoning, building-code and approval processes. The plan also reflects a consensus among housing officials and developers that the federal government can no longer be counted on to underwrite any bold new housing programs.
"Certainly what's different now than 40 years ago is the federal government's perception of its role in housing development," said William Traylor, deputy commissioner for development at the city's Department of Housing Preservation and Development.
Many of the housing programs were created in the 1960's and 70's. The rationale was that instead of just constructing public housing — the traditional approach to housing the poor — the federal and state governments would offer private developers tax breaks and other subsidies to build housing, in exchange for low rents.
Many programs offered building owners the chance to get out of their Mitchell-Lama obligations after only 20 years, when they could begin renting their units at market rates.
"The idea, then, was that as people worked their way out of poverty, the needs of these people would go away or substantially lessen after 20 years," said La Fonte Nesbitt, a lawyer at the Washington firm of Holland & Knight, which has an active housing practice. "But the need is still there."
Some developers could have opted out of their contracts in the late 1970's. But many parts of the city were struggling, market rents were depressed and federal and state housing subsidies were more plentiful than now, said Michael H. Schill, director of the Furman Center for Real Estate and Urban Policy at New York University.
How times have changed. The federal government's commitment to housing — especially multifamily rental housing in cities — has weakened. New York's surging real estate market has gilded neighborhoods that were once forlorn, making more areas attractive to developers. And some scholars say the city's demographic shifts have made its housing policy anachronistic.
"It's skewed toward people who have lived in the city for a long time," said Peter Salins, an author of "Scarcity by Design: The Legacy of New York City's Housing Policies" (Harvard University Press, 1992) and a longtime critic of government regulation. "A lot of immigrants who are arriving are not entitled to these benefits, so the best thing we can do for them is to have a high volume of decent housing being built responsive to market interests."
As these programs ebb, though, they are becoming a potent political issue because they affect New Yorkers in all income brackets. By far the most significant program undergoing change is rent regulation, which sets limits for half of the city's two million rental apartments.
Since Albany began relaxing the rules in 1993, 105,000 rent-regulated apartments have gone on the open market or otherwise been removed from regulations, according to the city's Rent Guidelines Board, which readjusts the rents each year. (About 30,000 apartments have been added to the system voluntarily by owners in exchange for tax breaks, but usually at rents higher than $2,000.)
In June, Albany extended rent regulations for eight years, allowing landlords to continue raising rents on vacant apartments and deregulating apartments with rents above $2,000 a month. In the most expensive parts of Manhattan, according to an analysis of city data by The New York Times, 115,000 of 206,000 rent-stabilized apartments are now renting for $1,000 or more, meaning that some are potentially within reach of deregulation over the next several years.
Assuming that the State Legislature remains divided between the Democratic-led Assembly, which has backed tenant groups, and the Republican-led Senate, which has not, Michael McKee, associate director of Tenants and Neighbors, an advocacy group, estimated that 300,000 to 400,000 rent-regulated units could go off the rolls by the time Albany takes up the rent laws again, in 2011.
"Clearly the real estate strategy is that when tenants come back in eight years, we will be smaller and less powerful, and they will likely at that point say, `Let it expire,' " Mr. McKee said.
Critics of regulation say that the tenants' estimate is too high, but that it is time to end a policy that allows some people to pay artificially low rents in prime spots in Manhattan, while residents in other boroughs sometimes pay roughly the same for market-rate or government-subsidized units.
"Manhattan is the most valuable real estate on the planet, and I see no reason why tax dollars should be going to make affordable housing on such fertile territory," said Vincent S. Castellano, a former member of the Rent Guidelines Board.
Under Mitchell-Lama, begun in the 1950's to help the middle-class and working poor, about 140,000 units of both rental and co-op housing have been developed in New York City by the city and the state.
Owners of at least 11 Mitchell-Lama developments are contemplating buying their way out of the program early, according to the city, joining the 43 Mitchell-Lama projects that have already pulled a total of 17,000 units out of the program. Although many Mitchell-Lama tenants are eligible for other subsidies, the New York City Independent Budget Office estimated in April that 2,130 households in buildings that may leave the program have no protection against steep rent increases.
To call attention to that ticking clock, a group of about 30 tenant associations, unions and community groups started the Campaign to Preserve Affordable Housing last summer to lobby officials and stage rallies.
Last month, Gifford Miller, the City Council speaker, held a public hearing on his bill to require owners of Mitchell-Lama buildings to give tenants earlier notice of buyouts. Not to be outdone, Mayor Bloomberg announced just hours before the hearing that he would submit legislation to Albany to extend rent-stabilization protections — which typically apply to any development built before 1974 — to 32,000 expiring Mitchell-Lama units built after that date.
Mr. Bloomberg also proposed that building owners be given tax breaks to encourage them to stay in the program. But many owners feel that the breaks being discussed are not enough, and that the mayor is trying to change the rules just as they are about to reap the benefits of their participation.
"A deal is a deal," said Frank Ricci, director of government affairs for the Rent Stabilization Association, a landlord group. "To change it now is just another reason why people don't like to develop in New York City."
Mitchell-Lama provided the model for Section 8, which flourished in the late 1970's and early 80's. Its two best-known components are vouchers that allow low-income tenants to find and pay for their own housing, and subsidies for developers who construct housing at reduced rents in exchange for guaranteed profits.
Since 1999, 20 Section 8 buildings have opted out of the program, according to the federal Department of Housing and Urban Development, and contracts for 42 more of these so-called project-based buildings are set to expire by 2005.
One contract expiring in February is for 210 Stanton Street, on the Lower East Side. So residents, who now pay $150 to $1,800 a month, are organizing to make sure the contract is renewed.
"I can't be optimistic because I know that people in this area are getting $3,000, $4,000 a month. It's a very powerful reason not to keep the building in the program," said Marie Christopher, president of the tenants' association. "But if this is Custer's last stand, then Custer has to pull out all the stops."
HUD officials point out that the vast majority of building owners have decided to renew their contracts. Since 2000, an average of 272 buildings have renewed each year, though for shorter terms of one to five years.
Several other tax programs are also running out of time.
One popular program created in 1986, the federal low-income-housing tax credit, has been responsible, in part, for most of the rental units for low-income residents built in the United States in the last 15 years. Now, the first contracts powered by the tax credit are set to expire.
Many have already been extended by another 15 years, but some groups involved feel that the tax credit is vulnerable to political pressures.
Time may also be getting short for two other programs: HUD's rental assistance and rental supplement programs, which are similar to Section 8. They cover 72 projects with 33,000 units, most with 40-year mortgages. The first contracts expire in 2010, with the bulk scheduled for 2015 and 2016, and it is unclear what will happen then, HUD officials say.
One local effort, a tax-exempt bond program known as 80-20, temporarily sets aside 20 percent of a development for units with rents below market rates. Some bonds expire in a few years, and it is unclear how building owners will respond, said Joseph Weisbord, staff director of Housing First! a coalition of civic, business and labor groups that has tried to bridge tenant and landlord interests.
"Government has played this historic role in meeting the city's needs, and if we're chipping away at that in various ways and various levels, what happens then?" he said. "And in a market like New York City that's extremely tight, there's an ongoing concern about where is the next generation of people who need affordable housing going to live?"