DHCR Releases Preliminary Standard Adjustment Factor for 2018–19 MBR Cycle
The rents in rent-controlled apartments in New York City are governed by the Maximum Base Rent (MBR) system. This system is based on a mathematical formula for computing the maximum rent levels for each controlled apartment in the city. This theoretical MBR represents an approximation of the actual income required to operate the housing unit under current costs, including an 8.5 percent return on the equalized assessed value. The MBR is adjusted every two years to reflect changes in economic conditions.
The DHCR recently released the preliminary standard adjustment factor (SAF), also referred to as the standardized increase factor, for the 2018–19 maximum base rent (MBR) cycle. The SAF is the percentage by which owners can increase the MBR of each rent-controlled apartment for the cycle. The preliminary SAF for the 2018–19 MBR cycle is 7.4 percent. The SAF for the 2016–17 MBR cycle was 9.6 percent. Prior to establishing the SAF for the 2018–19 MBR cycle, a public hearing will be held for the purpose of collecting information from interested parties. The DHCR’s Office of Rent Administration (ORA) will consider all of the information received from the public hearing before establishing the SAF for the 2018–19 MBR cycle.
How SAFs Are Determined
The original MBR for most rent-controlled units was computed for 1972 in accordance with Amendment No. 33 to the Rent and Eviction Regulations, which was adopted on Dec. 22, 1971. From 1973 to 1983, New York City’s Department of Housing Preservation and Development (HPD) computed the MBR’s SAF. The New York State Omnibus Housing Act of 1983 transferred the responsibility for administering rent control from HPD to the NYS Division of Housing and Community Renewal (DHCR) beginning April 1, 1984. The 2018–19 SAF will be the 17th to be issued by the DHCR.
The 2018–19 SAF reflects changes in the assumed MBRs of a sample of 1,429 buildings with rent-controlled apartments from 2015 to 2017. For owners to receive rent increases for rent-controlled units they must file MBR applications. Because of this incentive, the universe of buildings with rent-controlled units in New York City will closely approximate those buildings filing MBR applications. Thus, owners of such properties that did not file applications for the 2016–17 cycle were excluded from the population from which the sample was drawn. Buildings have also been excluded from the data set because complete statistical information (such as year of construction; number of units; number of rooms; assessed valuation; and water and sewer charges) was unobtainable from various databases.
The factor was determined by calculating the median of the percentage change in each of the sample’s building-wide MBRs. The mathematical formula that determines the MBR is derived from four cost components (operation and maintenance expenses; real estate taxes; water and sewer charges; and an allowance for vacancy and collection losses), as well as a return on capital value allowance and commercial income. The relative importance of each component varies, with operation and maintenance costs accounting for 46.99 percent of the 2018–19 MBR and the allowance for losses pegged at 1 percent of the MBR.
The 7.42 percent median increase in the MBR reflects a similar rise in its various expense components, ranging from the low of .82 percent for water and sewer charges to the high of 10.07 percent for the return on capital value allowance. It should be noted that the 11.22 percent increase in commercial income has an inverse effect on the SAF. Specifically, a percentage increase in the commercial income component results in a lower total SAF. Likewise, a percentage decrease results in a higher total SAF.
MEDIAN MBR COMPONENT CHANGES FROM 2016–17 TO 2018–19
MBR Component Median Change
Operation and Maintenance Allowance + 6.83%
Return on Capital Value Allowance + 10.07%
Real Estate Taxes + 9.02%
Water and Sewer Charges + 0.82%
Commercial Income + 11.22%
Maximum Base Rent + 7.42%