What about NYC's existing housing stock? - The Owner's Voice

Real Estate Weekly, Jan 8, 1992 by Ruben Klein

What about NYC's existing housing stock?

It seems the city just can't see the forest for the trees. Take, for example, the apparent inability of New York City to understand there are a million privately-owned affordable rental apartments whose preservation should be priority budgetary and policy items.

Of course, funds for them are not in the city's budget, and rather than their preservation being a goal of public policy, it's their destruction that the rent laws, tax laws and other laws and regulations appear to be seeking.

The great pool of affordable apartments here is the forest that the city can't see.

The city not only should help owners of these properties obtain adequate income to operate their apartment buildings, but it should provide timely and adequate incentives to encourage owners to maintain them. I strongly believe that if the city is going to spend money on affordable housing, this existing affordable housing stock is where the money should be spent.

But, instead, the city is focusing on the "trees" - the new not for profit apartments that are and will be heavily subsidized to make them affordable. These are important additions to New York's housing stock, but the existing supply of affordable rental apartments is important too and deserves all the financial assistance that the subsidized housing is getting. Why shouldn't indigent tenants occupying apartments in privately owned buildings be entitled to rental subsidies of one sort or another? Landlords should not have to bear the burden of carrying tenants who can't pay rent. Lost to the city is the fact that most investors trying to operate existing rental housing are struggling just to survive.

Meanwhile, the city recently announced that it's going to spend $76 million of federal grant money to build 837 varied types of affordable housing units. It is an important story and it was a lead story in this newspaper. The units will be built by the city's Housing Authority which will use partnership-arrangements with other city agencies and private developers. In addition to the grant money, these units will require other subsidies to make them affordable. What about the million or so units of privately owned regulated housing that could make good use of such subsidies?

The article about the grant program didn't detail the types and amounts of subsidies, but an article in The New York Times discussed subsidies that would be required to make a few hundred new town-house condominiums in the South Bronx affordable. The article came up with an average subsidy of $25,000 an apartment, with a peak of nearly $42,000 per unit.

For this kind of money, the city could get a lot more well-maintained affordable rental units by spending it on the existing housing stock. The city should not allow the existing affordable housing stock to go down the tube, lost to the in rem process.

The fact is the city has become the owner of last resort of one out of every seven rental buildings, having foreclosed on properties unable to pay taxes. Despite the fact that city-owned buildings pay no realty taxes or debt service and are immune from many burdens facing the private sector, the in rem buildings are operating at losses. It was reported last summer that some $60 million in rent produced by the city's $280 million annual investment in city-owned apartments doesn't cover operating costs - taxes make up the difference.

However, not only is the city requiring taxpayers to help it carry its in rem housing stock, and not only isn't the city providing financial aid to private owners, but its tax and regulatory policies make it difficult for owners to maintain their properties.

Real estate and other taxes, are at historical highs and drain funds from private owners, funds that otherwise could be available to improve operating systems and for ongoing maintenance. Several years ago, the practice of assessing buildings at 69 percent of sales price was implemented. The resulting higher taxes, for the most part, consumed any return that existed. They also helped make co-op and condo conversions unaffordable.

Water and sewer taxes are soaring in many instances under a new metering system that the city is implementing. When metered water charges are double and triple what they had been, we can only conclude that they are thinly disguised taxes.

The same can be said for fines that are imposed on owners. A range of fines, penalties and use charges were increased last year to such an extent that these, too, are a form of taxation. Why must fines always be levied at the top of the scale? Especially, when the owner may have little control over the violation. Sanitation Code regulations require owners to keep a large strip of sidewalk free of debris, but they can't stop passers-by from littering. Meanwhile, the city beefed up the number of inspectors and the result has been a flood of summonses and heavy fines.

Owners who install new operating systems to maintain their properties consistently find that the major capital rent increases to which they are entitled under the rent laws become stuck in the pipeline. Even, worse, because of a recent New York State Supreme Court decision - Bryant Avenue Tenant Association vs. Koch - there is confusion as to how the major capital increase is calculated: Should it become part of the legal rent or should it be a surcharge? The difference may be substantial. Until the issue is resolved, MCI increases may be held up by trial courts, as well as by bureaucratic obstacles in the Department of Housing and Community Renewal.