The ABCs of the RGB

A Primer on the City’s Rent Guidelines Board

Comments (0) By J.A. Lobbia Tuesday, Mar 27 2001

The Rent Guidelines Board is the bureaucratic equivalent of a sports car: It accelerates from a snooze to a nightmare in only eight meetings. Beginning, as it did this week, with a stream of statistics that measure the enormity of the city's housing crisis, the RGB toils in virtual obscurity through the spring and then suddenly bursts into action, which sometimes includes fisticuffs.

photo: Hiroyuki Ito

The Times calls RGB chair Ed Hochman a nail-biter. His mother calls him a disgrace. Those are kind words compared to what tenants and landlords say.

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No wonder. The board's job is to "adjust" the rents of the city's 1 million stabilized apartments, which means dipping into the pockets of more than 2 million tenants. Even the tiniest hike translates into a major economic transfer: A 1 percent jump, for instance, sends more than $72 million from the hands of tenants into the accounts of landlords.

Most New Yorkers know only the end result of the RGB's annual ritual, since the media tend to ignore the board until its last, roiling meetings, which culminate in a late-June vote on rent hikes. Rife with politics, deadened with statistics, and peppered with enmity, the RGB can baffle even seasoned observers. To the landlords and tenants who must abide by the board's rule, it's a minor mystery. Who are these guys? (The current board is indeed all male.) How'd they get the job? Why is no one ever happy with them?

Here's a primer on the RGB—the lowdown on why your rent is going up.

What is the RGB?

The RGB is a nine-member board established in 1969 to set guidelines for rents on stabilized apartments. Its members are appointed by the mayor. Two represent landlords. Two represent tenants. The remaining five are called "public" members who serve as swing votes to be won over by landlord or tenant members. A chairperson from among the public members serves at the pleasure of the mayor. Terms for other members vary, and there are commonly "holdovers" who sit long after their terms expire, unless they do something to peeve a subsequent mayor. One current member, landlord rep Harold Lubell, was appointed by Ed Koch; public member Agustin Rivera was appointed by David Dinkins. The remaining members were named by Rudy Giuliani.

While the RGB's main job is setting rates for stabilized apartments, it is also responsible for rent rates in lofts and single-room occupancy (SRO) hotels. It often exercises its option to impose an additional monthly surcharge on low-rent stabilized apartments, and to give landlords a hike for stabilized apartments when they become vacant.

RGB members must have at least five years' experience in finance, economics, or housing. They may not own or manage buildings covered by the rent stabilization law. No member of any tenant or landlord group can serve. Appointment to the board is considered more of a burden than an honor: The $100 per diem compensation has not increased since 1969, making it one of the lowest-paying boards in the city. Outrage expressed by landlords and tenants alike at meetings, says one former member, makes the board feel "like a hydrant surrounded by a pack of dogs."

How does the board set rents?

How much did lightbulbs cost last year? Toilet seats? Pine disinfectant? Those are among the questions the RGB asks when determining how to adjust rents; while under no obligation to actually raise rents—the board could freeze them—that is what it has always done. The board also takes into consideration, among other things, how much landlords pay for insurance, mortgages, and labor; what tenants earn and pay for rent, how many get evicted, and how tight the housing market is.

By law, the board must consider cost-of-living factors and the economic conditions of the residential real estate industry. Its staff produces five reports each year, beginning in the spring. Experts present additional information and public hearings are scheduled; this year there will be seven meetings before a final vote on rate hikes, which must be formally adopted by June 30. The hikes apply to renewal leases beginning the following Octobers; three-year leases were discontinued in 1984.

The staff reports that form the heart of the RGB's research are:

The Price Index of Operating Costs:Described as a market basket of goods and services that building owners buy, the PIOC is a landlord's consumer price index, presenting data on the cost of dozens of items and services from boiler repairs to detergent, fuel to refrigerators. When the PIOC is high—like last year, when a 54 percent fuel cost spike hiked the overall index to 7.8 percent after several nearly flat years—landlords argue that the PIOC is a true indicator of their rising costs, and that rents must follow. In years when the PIOC is low, owners dismiss its relevance, saying hikes are still needed.
Income and Expense (I&E): Since 1990, the RGB has used data that landlords give the city's Department of Finance (DOF) to measure what it costs them to operate buildings, and how much income they generate in rent. The data are reviewed only in summary form, so the board does not have details on specific buildings. From the data, the RGB staff determines the Net Operating Income (NOI) of landlords citywide.

The NOI is what they have left after paying maintenance expenses and real estate taxes. It doesn't include debt service payments or income taxes, but does give some indication of the financial condition of the city's landlords. In 1998 (the most recent year available), landlords overall netted $295 per month per apartment; Manhattan landlords got $451.

The I&E is considered flawed because it relies on landlords' honesty in reporting to the DOF. A 1992 audit found that 15 percent of the costs landlords claimed were not legitimate business expenses, and a later audit found landlords generally exaggerated costs by 8 percent.
Mortgage Survey:One of the board's most straightforward reports, this is usually the first presented each year. The study surveys lenders to see how much financing costs landlords. Last year, the staff sent surveys to 68 lenders; 27 responded. They found an average interest rate of 8.71 percent for a multifamily mortgage—the biggest jump in three years. But even so, a robust market meant that mortgages remained affordable. Foreclosures and nonperforming loans were also down.
Income and Affordability (I&A): This is the only study devoted exclusively to tenants, quantifying how much they earn and how much rent they pay. While last year's report found that most stabilized tenants paid about 30 percent of their income for rent (in line with federal guidelines), nearly a third paid at least half their income or more. Despite the booming economy that ushered out the '90s, the inflation-adjusted income of stabilized tenants slipped .5 percent. While jobs and wages were up, so were the population and demand for housing. A close look reveals the city's ever growing dual economy: From the late 1970s to the 1990s, the inflation-adjusted income of the poorest 20 percent of New Yorkers fell 21 percent; in that same time, the richest fifth gained 43 percent.
Housing Supply: Relying on the triennial Housing and Vacancy Survey (HVS) completed by the federal census bureau, this RGB report measures just how scarce New York City apartments are. Key to the housing supply issue is the state-set standard that defines a housing emergency as a vacancy rate below 5 percent. A rate above 5 percent would mean rent regulation could cease. The current vacancy rate, based on 1999 figures, is 3.19 percent, with variations among the boroughs: Queens was the tightest (2.11 percent), Staten Island the roomiest (5.82 percent).

The 2000 Housing Supply report noted an increasingly tight market even as new construction meant more apartments. The reason: Most of those apartments were for sale, not for rent, and even the 12,000-plus new units could not keep pace with the population. Among stabilized apartments, there was a drop of 6000 units; rent-controlled units plummeted by 18,000. As of 1999, of the city's 2,018,000 rental units, 52 percent were rent-stabilized.