Tenant coalition blasts rent-hiking MCI program in excoriating report

Analysis seeks to build case for ending rent increases for improving regulated buildings

Mar.March 03, 2020 02:45 PM
From left: Anita Long of Community Action for Safe Apartments, Joseph Strasburg of the Rent Stabilization Association,  Jay Martin of the Community Housing Improvement Program and Jonathan Westin of New York Communities for Change (Credit: Twitter; NYCC)

From left: Anita Long of Community Action for Safe Apartments, Joseph Strasburg of the Rent Stabilization Association,  Jay Martin of the Community Housing Improvement Program and Jonathan Westin of New York Communities for Change (Credit: Twitter; NYCC)

The tenant coalition that drove last year’s tectonic shift in New York’s rent law now has its sights on one of the last remaining ways to raise stabilized rents.

Housing Justice for All released a report today blasting the practice of allowing rent increases for major capital improvements in New York City’s rent-stabilized housing. The analysis seeks to debunk the real estate industry’s claims that curtailment of the program last year will prevent small landlords from maintaining their buildings.

“The two main arguments [against the reform] were that small landlords will be hurt, and it will cost construction jobs,” said a spokesperson for Housing Justice for All. “Our report is a response to that.”

Its analysis found that owners of more than 150 units filed 70 percent of MCI applications. The group would like state lawmakers to end the diminished program altogether.

The tenant coalition argues that the program encourages a cycle of building deterioration and costly upgrades, rather than regular maintenance. Eliminating it, they say, would end that cycle and that landlords would still maintain their buildings to protect their investment.

The landlord lobby was not surprised by the finding that owners of rent-stabilized portfolios were more likely to use the program, which allowed permanent rent increases to pay for work such as new roofs or boilers. (The new rent law limited the increases and made them temporary in response to tenants’ complaints that landlords abused the program to raise rents.)

Larger landlords may “have more wherewithal to do building-wide improvements than the smaller guys,” said Joseph Strasburg, president of the Rent Stabilization Association. “But at the end of the day there were a lot of smaller landlords who did MCIs — because they had to.”

A spokesperson for his group, which represents owners of rent-stabilized buildings, pointed to New York City’s aging rent-regulated housing stock and said MCIs should be encouraged, rather than discouraged.

A spokesperson for Homes and Community Renewal said the state agency is “advancing the implementation” of the new rent law, including the changes related to MCIs, which lowered the cap on annual rent increases through the program to 2 percent from 6 percent.

Community Action for Safe Apartments' Anita Long (Credit: CASA via Twitter)

Community Action for Safe Apartments’ Anita Long (Credit: CASA via Twitter)

Anita Long, a volunteer at Bronx-based tenant advocacy group Community Action for Safe Apartments, contends that during the 40 years of its existence, the MCI program has had limited success improving rent-stabilized housing.

“Plenty of people are still living in dangerous and dreadful conditions: with lead, no cooking gas, surrounded by rodents and caved-in ceilings,” Long said.

MCIs represented less than a hundredth of a percent of total construction activity in New York City in 2014, according to a 2015 analysis by the Rent Stabilization Association cited by the tenant report.

The report also points to secondary benefits landlords receive from major capital improvements, in addition to rent increases that expire after 30 years. In two buildings cited by the Mayor’s Office of Sustainability where the landlord replaced the boiler, heating costs per apartment fell by $551 and $335 in the following year.

The tenant group’s report — which uses data from Homes and Community Renewal, tax expenditures, the Rent Stabilization Association and the Mayor’s Office of Sustainability — also argues that values in the multifamily sector ballooned in the last 15 years.

Rent Guidelines Board data show the median sale price for rent-regulated buildings grew by 600 percent in the past 15 years — ticking up each year since the Great Recession, except for a dip in 2016 — while income after expenses increased in each of the past 13 years. From 2016 to 2017, according to the board’s latest income and expense study, income after expenses increased by 0.4 percent.

MCIs and other ways to raise rents in stabilized buildings were curtailed in the rent law passed in June, but MCIs remain a primary option for increasing rent rolls. That could put more pressure on landlords to use the program, tenant advocates say.

Tenant advocates say other programs already subsidize improvements to buildings. According to an analysis of tax expenditures, landlords will receive $301 million in tax exemptions from the J-51 program this year, spread over some 431,000 apartments, for improvements that are similar to those that qualify for MCIs.

The report also explains that while tenants can contest major capital improvement applications, an analysis of MCI applications furnished by HCR found more than 90 percent of applications were approved. The high approval rate discourages tenants from challenging MCIs, even if they think the improvements are unnecessary, according to tenant organizers.

“You just don’t think you can fight [an MCI],” said Aisha Gomez, a tenant leader at LeFrak City, which has seen “waves of MCI increases,” according to the tenant group’s report. “A lot of people just don’t think they could do something about it.”

In place in some form since 1969, MCIs have been called into question before, even by the agency that administers the program. A 1989 audit commissioned by the agency now known as HCR found that major capital improvements were most prevalent in neighborhoods already experiencing economic development, while low-income areas received little or no investment from the program.

“Our current MCI system effectively requires that some of the same people who were historically denied access to wealth-building home equity must pay to improve the value of their landlords’ equity,” the report said.

The blistering report leaves little middle ground between landlords who seek to preserve the for-profit housing market and the tenant coalition aiming to socialize it.

“There’s a level of respect I have for true ideologues,” Strasburg said of the report authors, who he said at least do not change their tune from year to year as politicians are apt to do. “It’s more frustrating to deal with people who you know don’t believe [the ideology], but go along with it.”

That ideology, according to Jay Martin, executive director of the Community Housing Improvement Program, which represents small landlords, is in direct conflict with for-profit housing.

“This is an organization run by devout democratic socialists who believe in the decommodification of housing,” Martin said. “So naturally, they are for any argument that takes away the ability for an owner to profit off housing.”

He added, “We need to have a frank conversation about who provides housing. There is a huge divide between people who have mega-developments and thousand-unit portfolios, and the vast majority, who have 150 units.”

Related Articles

Blackstone CEO Steven Schwartzman and Stuyvesant Town (Credit: Getty Images)

After authorities vowed review of Stuy Town deal, Blackstone changes course on vacancies

Tete-à-tete with TRD: How landlords are dealing with New York’s new rent laws

Tete-à-tete with TRD: How landlords are dealing with New York’s new rent laws

Real Capital Analytics data showed that New York’s multifamily market had a very slow July. (Credit: iStock)

New NYC rent law “beginning to shut down investment”

The Court of Appeals ruled today that a portion of New York’s rent law violates due process. (Credit: iStock; UpstateNYer via Wikipedia Commons)

State’s highest court strikes down portion of rent law

REBNY president James Whelan (Credit: Whelan by Evan Gutierrez)

NYC’s biggest landlords pledge to halt evictions for three months

Charles Urstadt

Charles Urstadt, architect of vacancy decontrol, dies at 91

The Chelsea Hotel at 222 West 23rd Street and Ira Drukier (Credit: Google Maps; Drukier by Jared Siskin/Patrick McMullan via Getty Images)

Chelsea Hotel renovation amounted to tenant harassment, city says

From left: Slate Property Group's David Schwartz, Patrick Jenkins, Assembly Speaker Carl Heastie, Senate majority leader Stewart Cousins, and Julia Salazar (Credit: Getty Images)

Two takeaways for real estate from Albany’s power weekend