Invited Testimony Victor Bach & Tom Waters, Housing Policy Analysts Community Service Society (CSS) At Public

Meeting New York City Rent Guidelines Board (RGB) April 26th, 2012 Thank you for the opportunity to present our concerns about the potential impact of this years RGB decisions on low-income New Yorkersi, particularly as they endure a job-short recovery, still facing high unemployment and reduced hours in the wake of the economic recession that struck the city in late 2008. According to the 2011 NYC Housing and Vacancy Survey (HVS), rent-regulated apartments are still the primary source of housing for low-income familiesabout two out of five of the citys 1.1 million low-income households will be affected by the rent guideline increases set by this body.

Tenant Experience in the Private Rental Market, Pre- and Post-Recession Data from the 2011 NYC Housing and Vacancy Survey (HVS) and from the American Community Survey (ACS), also conducted by the U.S. Bureau of the Census, allow us to draw a picture of New York tenant experience both before and after the recession struck the city, depicting how rents and incomes have changed during this volatile period in the local job economy. No doubt it also describes what is happening to rent-income pressures at present. Chart 2 describes rent and income shifts experienced by tenants in private unassisted rentals over the three most recent HVS studies conducted in 2005, 2008, and 2011. Consistently, net increases in median rents over the six-year period vastly outpaced net gains in median incomes for the typical renter. Overall, rents soared to a net gain of 31 percent over the six years, compared to an income gain of only 12 percent. The disparity between the two is a clear indication of rapidly rising rent burdens, the portion of household income that is paid for rent.

ALLPRIVATERENTALS MedianContractRent MedianHouseholdIncome REGULATEDRENTALS MedianContractRent MedianHouseholdIncome UNREGULATEDRENTALS MedianContractRent MedianHouseholdIncome

2005 2008 2011 $900 $1,000 $1,176 $38,000 $44,000 $45,000 $832 $909 $1,050 $33,700 $38,000 $38,132 $1,000 $1,200 $1,369 $44,000 $50,200 $55,000

The disparity between rent and income trends is also evident in both rent-regulated and unregulated apartments. Even under regulated rents, the median contract rent escalated by 26 percent over the six years, more than twice the 12 percent net increase in median renter income. In unregulated units, rents increased by 36 percent against an increase in tenant incomes of 25 percent. Belts tightened for all tenants, regulated and unregulated, as rent escalation took a larger and larger bite out of household income, leaving families with less residual income to cover other non-housing living costs. The triennial HVS surveys also confirm the dramatic impact of the recession on renter incomes and their ability to keep up with rising rents. Median income increases roughly paralleled rent increases through 2008, a growth period in the local economy, after which there is post-recession fall-off in household incomes while median rents continue to escalate. The ACS data provide a clearer annual picture of trends from 2005 through 2010, including renter unemployment. Again, the picture is one of persistently rising median rents through the five years against median renter incomes that rose through 2008 and fell off dramatically in 2009 and 2010. (See Chart 3.)

Unemployment among renters declined from 2005 to 2008 during the citys upward economic cycle, then spiked in 2009 and 2010 following the recession.ii Per capita household residual incomethe income remaining per member once rent is paidis arguably the best 3

proxy for rent-income stresses, because it takes into account household size. As a whole New York tenants across the rental sectors experienced a net loss of over 2 percent in residual per capita income (constant 2010 dollars), largely occurring after 2008. Once the recession struck, New York renters, regardless of income, had to tighten their belts to make ends meet and keep up with market rents that persistently increased while rising unemployment and an unfavorable labor market were taking a toll on tenant incomes. . It can be assumed that the picture for renters in unassisted private apartments, particularly lower-income renters, is bleaker than the ACS data indicate. ACS data do not distinguish among the range of housing types that renters occupy, from public housing to private government-subsidized housing, to private unassisted rentals, both regulated and unregulated. As a result the ACS renter population includes over 300,000 households who live in government-assisted housing, where rents are affordable and based on income. Even so, the ACS data point to a rapid rise in median rent burdens and in the incidence of high rent burdens (50% or more of income) to new highs over the 5-year period, with a net 2 to 3-point post-recession increase between 2008 and 2010. (See Chart 4.)

Low-Income Tenants in the Private Rental Market, Pre- and Post-Recession The experience of low-income tenants in the private rental market mirrors that of renters throughout the city. But because their unemployment rates are roughly double those of renters as a wholeiii, the impacts on rent-income stresses and residual incomes is much more severe. Chart 5 confirms the extent to which net rent increases over the 6-year period outpaced income gains. Surprisingly, based on the 2005 starting points, the net rent increases in regulated units (29%) exceeded those in unregulated apartments (25%). By comparison, household incomes increased by from 14 percent. Residual per capita incomes declined sharply by 11 percent for low-income renters, but the impact was far more severe in the unregulated market (21% decrease) than in the regulated market (7 percent decrease). In short, the dynamics of an escalating local rental market, combined with the post-recession effects on employment and income, have left low-income renters in far worse economic circumstances than they were in before the recession.

ALLPRIVATERENTALS 2005 2008 2011 Med.ContractRent $800 $900 $1,000 Med.HouseholdIncome $15,000 $16,000 $17,160 iv Med.PCResIncMo($2011) $388 $371 $346 REGULATEDRENTALS Med.ContractRent $750 $830 $966

Med.HouseholdIncome Med.PCResIncMo($2011) UNREGULATEDRENTALS Med.ContractRent Med.HouseholdIncome Med.PCResIncMo($2011)

$14,000 $15,000 $16,220 $395 $377 $367 $920 $1,050 $1,150 $16,000 $18,000 $18,590 $408 $368 $323

As a result, median rent burdens and the incidence of high rent burdens (50% or more) among low-income renters reached a 6-year high as of 2011. (See Chart 6.) Estimates based on the CSS subsamplev indicate a 4-point increase in median rent burdens in both regulated and unregulated apartmentsa rise from 45 to 49 percent in regulated units by 2011, and from 48 to 51 percent in unregulated units. The growing incidence of high rent burdens was even more dramatic. By 2011, a near-majority (51%) of low-income renters in the market were carrying burdens of at least half their incomes, up from 43 percent in 2005. In the regulated stock, high rent burdens rose from 45 to 49 percent of low-income families.

Conclusions In light of rent escalation trends that persisted before and since the recession struck the city, it would appear that the private rental industry has not suffered a decline as a result of the economic crisis, certainly not a decline comparable to the losses in income and employment that continue to beset New York renters, particularly low-income tenants. Continuing high demand in

a market short of affordable rental opportunities, along with growing difficulties in sustaining or financing home ownership, may have spurred greater returns for apartment building owners. The RGB Income and Affordability Studies from 2006 through 2011 also confirm the steep increase in rent burdens for rent-stabilized tenants. Gross rent burdens rose from 31.9 percent in 2005 to 35.2 percent by 2011. The combined effects of an uncertain economy and a tight, high-cost rental market on tenant rent-income pressures are beyond debate. Certainly the impacts of a global recession and financial crisis on the income and employment of New Yorkers, and their ability to pay for their apartments, are hardly within the control of the city or of the RGB. However, RGB decisions over recent years have contributed significantly to the growing rental affordability crisis at this stage of the presumed recovery. At a time when the RGB should have exercised restraint to ease the impacts of the recession on its struggling resident constituency, it has tended to err on the side of owners by granting larger guideline increases than were necessary. The 2012 Income and Expense Studyvi demonstrates clearly that RGB consistently overestimated projected owner income and operating costs, compared to the actual cost increases later reported in owner surveys. For instance, in 2007 RGB projected a 7.1 percent cost increase against and actual increase of 5.2 percent; in 2010, it projected a 5.5 percent increase against an actual 0.9 percent increase. This is an important time for the RGB to reflect on and revise the methodology it uses to determine what it considers reasonable rent guideline increases. Before and since the recession struck the city, it has tended to over-compensate owners to the expense of rent-stabilized tenants. This is certainly a time for the RGB to exercise greater restraint by keeping guideline increases to a minimum, for an industry that appears to be prospering in the wake of recession. RGB should consider its unique potential contribution to stabilizing the rental market and easing the rent-income stresses that New Yorkers continue to experience.

Recommendations 1) CSS urges the New York City Rent Guidelines Board (RGB) to take into account the disastrous effects of the recession on many New Yorkers, regardless of income, and exercise overdue restraint in setting new, minimal rent guideline increases. In past years CSS has recommended a rent freeze; we continue to do so in light of the persistent rent

escalation that has benefited the industry in the face of a major economic set-back for many tenants. 2) CSS urges the RGB to refrain from further step-increases at the lowest rent levelswhat tenant advocates refer to as the poor taxwhich raise rents at the lowest levels beyond the percentage guideline increases. RGB should do its best to minimize increases at the low-rent levels where the poorest tenants tend to live. 3) CSS urges that RGB endorse measures to strengthen enforcement of rent administration and deny rent guideline increases to owners who fail to comply with rent regulations.

APPENDIX: CSS Renter Sub-Sample Because of unavoidable inconsistencies and inaccuracies, in respondent reporting of household income and contract rent, this analysis of rent burdens is based on a sub-sample of renter households within each of the HVS samples used. The CSS renter sub-sample for each HVS year was selected on the following basis: 1) Rent-paying households only (exclude rent-free and owned housing) 2) Head of household age at least 25 and less than 65. 3) Households with a positive HVS contract rent burden 4) Households within the middle 90 percent of the income distribution for renters (excludes 5-percent outliers at either extreme) . The resulting household income intervals used for each HVS year are as follows: 2011 $7,896 to $175,000 2008 $6,912 to $160,000 2005 $6,006 to $133,000 2002 $6,000 to $130,000 1999 $5,700 to $131,000 1996 $5,000 to $119,950 5) Households within the middle 90 percent of the contract rent distribution for renters (excludes 5-percent outliers at either extreme.) The resulting contract rent distributions used for each HVS year are as follows: 2011 $342 to $2,800 monthly 2008 $252 to $2,500 monthly 2005 $208 to $2,100 monthly 2002 $200 to $1,900 monthly 1999 $177 to $1,550 monthly 1996 $163 to $1,300 monthly 6) Residual (after-rent) household income of at least $100 monthly, in 2002 dollars. For each HVS year, the residual income threshold, in 2002 dollars, was: 2011 $129 2008 $123 2005 $111 2002 $100 8

1999 $93 1996 $87 The resulting CSS sub-sample can be considered a more "mainstream" sample of New York City renters than the HVS renter sample as a whole. The comparison below of some of the key parameters for each of the two samples suggests that the CSS results are more likely to underestimate rent burdens and related measures of rent-income pressures for the city as a whole. Comparison: HVS and CSS Renter Samples 1996 Median Income HVS: $24,680 CSS: $31,000 Median Contract Rent HVS: $ 600 CSS: $ 600 1999 2002 2005 2008 2011

$27,600 $35,000

$32,000 $39,000

$33,904 $40,050

$ 40,000 46,400

$40,000 $50,000

$ 648 $ 650

$ 706 $ 730

$ 850 $ 850

$ 950 $ 996

$1,100 $1,100

Median Contract Rent Burden HVS: 28 % 27 % CSS: 24 % 23 %

27 % 23 %

28 % 25 %

29 % 25 %

31 % 27 %

Percent Households with High Burdens (50% or more) HVS: 26 % 26 % 23 % CSS: 12 % 12 % 12 %

26 % 14 %

26 % 15 %

29 % 18 %

ENDNOTES
i

The term low-income refers to households with incomes no greater than twice the federal poverty threshold, in 2010 about $34,114 for a family of three persons. Household incomes recorded in each HVS are for the previous calendar year. Low-income households include the poor, as well as the near-poor with incomes above poverty but no greater than twice the poverty threshold. Unemployment figures are for individuals at least 18 years old and below 65.

ii

iii

ACS 2005-2010 data estimate renter unemployment rates of 9, 8, and 12% for 2005, 2008, and 2010 respectively, against unemployment rates of 19, 15, and 22 % for low-income renters.

Median monthly per capita residual income figures were calculated only for the CSS renter subsample (See Appendix)
v

iv

For description of the CSS subsample, see Appendix. See: NYC Rent Guidelines Board, 2012 Income and Expense Study, April 19, 2012, page 13.

vi