The Rent Guidelines Board (RGB) moves to propose the biggest rent increase in 9 years

The governing body weighs a 4.5%-9% rent increase

Key insights from the research report, released on 4/14 by RGB are distilled below. The full report is available here

• The costs to run an apartment building >10 units from April 2021 to March 2022 rose 4.2% overall (for some reason or other, the RGB’s studies exclude tax class 2a and 2b buildings)

• Costs are projected to increase up to 4.7% annually in the following year.

• Double digit cost buckets: Fuel costs and insurance costs led the pack at 19.6% and 10.9% in annual increases. Overall, taxes declined by 3.7%

• The RGB uses three methods for adjusting rent increases, but only two are important: Consumer Price Index (CPI) based adjustment and a Price Index of Operating Cost (PIOC - same as CPI but only includes expenses tied to building management)

  • The PIOC-based approach suggests 2.7% and 4.3% increases for 1- and 2-year leases respectively

  • The CPI-based analysis suggests 4.5% and 9% increases for 1- and 2-year leases respectively

Perspective: Costs of managing rent regulated buildings has gone up by a non-insignificant amount and are projected to continue to do so, nearing the 5% OpEx mark for the next 12 months. This may be worrying for owners of multifamily in NYC because, save for last year’s 1.5% and 2.5% bump, the annual amount owners could raise rents stayed at 0% in recent history.  The mortgage survey report by RGB spells out what everyone already knows: the interest rates are climbing, and they are climbing fast. That report, filled with a verifiable data and some self-reporting surveys, is available here. These data points lend themselves well to a commensurate increase in rents.  Given the opportunity to pass the highest rent hike in recent history, the RGB meetings will likely be well attended. You can sign up to receive updates from the Rent Guidelines Board, by clicking the link here.

Opinion: The same way that former Mayor DeBlasio used his influence to appoint members to the RGB that were sensitive to his interests and views, it stands to reason that Mayor Eric Adams will do the same and that this will ultimately bode well for the real estate owner community. CHIP’s Jay Smith made a request to the State of NY’s DHCR to allow owners the right to take advantage of Vacancy Increases. One can envision a scenario where that proposal is rejected, to the dismay of owners, but the Rent Guidelines Board at long last throws them a bone on yearly rent increases.

Additional Perspective: Historical Interest Rates for Rent Stabilized Buildings in NYC

Source: RGB 2022 Survey Mortgage Report

Originally published on 4/24/2022