Across 10 buildings in the Chelsea neighborhood of Manhattan, Weber Realty manages 45 regulated rental units. Rent roll data indicates that these stabilized/controlled units are receiving a 253% discount compared to its comparable market rate neighbors. For these 10 buildings, the average price of a rent regulated unit is $996/month. For a 1-bedroom, some rent controlled units pay less than $135 per month. There is even a 1,500 square foot 3-bedroom unit paying $256 per month occupying an entire floor of their building. Furthermore, the Rent Guidelines Board (RGB) mandates their rent cannot increase more than 1.5% a year. Most of these tenants are relatives of the original renter who transferred their lease through succession rights. This new generation of rent regulated tenants are college educated people that can afford market rate rent. The problem is that rent regulated units do not come with means testing, meaning that tenants are not selected based on their income or assets.
In the past, owners could deregulate an occupied unit if the total household annual incomes were over $200k for two preceding years. The purpose was to promote affordable housing and ensure the program is being used by those who actually need it. However the 2019 HSTPA laws reversed high income deregulation and a tenant with unlimited income is forever entitled to the regulated price. This is completely counterproductive to affordable housing. In fact, a Wall Street Journal analysis found that “wealthy, older Manhattanites benefit most from rent regulation.”
For an 18 unit building in the West Village neighborhood of Manhattan, Weber Realty found that this building owner needs at least $1,369/month per unit to break even on operating costs such as taxes, maintenance, labor, fuel, utilities, insurance, admin costs, mortgage, etc. There is no government subsidy provided to compensate the building owner for the loss of rent revenue associated with regulated units.
As operating expenses are rising in 2022, an owner’s only choice is to raise market rate rents in order to continue subsidizing their regulated rentals. It is a common misconception that these rent increases are going straight into the owner’s pocket as profit. In reality it is needed to cover the higher expenses associated with maintaining rent regulated units.