RGB Releases 2016 Operating Cost, Affordability, Mortgage Reports
The Rent Guidelines Board (RGB) is mandated by law to establish yearly rent adjustments for rent-stabilized apartments in New York City. The board holds an annual series of public meetings and hearings to consider research from staff and testimony from owners, tenants, advocacy groups, and industry experts.
Throughout the year, the RGB staff is responsible for providing administrative support to the board and year-round research efforts regarding the economic condition of the stabilized residential real estate industry. Section 26-510(b) of the Rent Stabilization Law requires the RGB to consider “relevant data from the current and projected cost of living indices” and permits consideration of other measures of housing affordability in its deliberations.
The RGB annually publishes six research studies that it uses to determine the rent guidelines: Price Index of Operating Costs; Income and Expense Study; Housing Supply Report; Income and Affordability Study; Mortgage Survey Report; and Changes to the Rent Stabilized Housing Stock.
Recently, the RGB released its 2016 Price Index of Operating Costs, Mortgage Survey Report, Income and Affordability Study, and Income and Expense Study.
Income and Affordability Study Highlights
The study highlights year-to-year changes in many of the major economic factors affecting New York City’s tenant population and takes into consideration a broad range of market forces and public policies affecting housing affordability. Such factors include New York City’s overall economic condition—unemployment rate, wages, Consumer Price Index, and Gross City Product—as well as the number of eviction proceedings and the impact of welfare reform and federal housing policies on rents and incomes.
The following summarizes some of the data issued thus far that the RGB will consider before voting on the upcoming rent guidelines for rent-stabilized apartments:
- Results from the 2014 American Community Survey show that median renter income is $41,210; median gross rent is $1,276; and the median gross rent-to-income ratio is 32.7 percent;
- New York City’s economy grew by 3.4 percent in 2015, compared to a 2.1 percent increase during 2014;
- The city gained 119,000 jobs in 2015, resulting in a 2.9 percent increase from 2014 in total employment levels;
- The unemployment rate fell in 2015, to an average of 5.7 percent, down from 7.2 percent in 2014;
- In 2015, an average of 57,158 people were staying in Department of Homeless Services shelters each night, up 5.6 percent from 2014;
- The number of nonpayment filings decreased 2.4 percent in 2015, while those actually heard in Housing Court decreased 12.5 percent, and the number of evictions fell 18.1 percent;
- Cash assistance caseloads increased 5.7 percent during 2015, while SNAP caseloads fell 3.2 percent, Medicaid enrollees fell by 15.5 percent, and job placements among cash assistance recipients fell 2.1 percent.
Price Index of Operating Costs Highlights
The Price Index of Operating Costs (PIOC) measures the price change in a market basket of goods and services used in the operation and maintenance of rent-stabilized apartment buildings in New York City. The goods and services that make up the market basket were originally selected on the basis of the findings of a study of 1969 expenditure patterns by owners of rent-stabilized apartment buildings.
Changes to the market basket have been made over time. The relative importance of the various goods and services in the market basket was updated in 1983 by means of a study of expenditure patterns of owners of rent-stabilized apartment buildings. And additional updates to these expenditure patterns have been done throughout the years in order to present a current and relevant analysis of changes in owner expense.
Here are the highlights of this year’s report:
- The PIOC for rent-stabilized apartment buildings decreased 1.2 percent this year;
- All costs in natural-gas heated buildings increased 0.5 percent, and all costs in fuel-oil heated buildings declined 2.8 percent;
- The “core” PIOC, which excludes the erratic changes in fuel oil prices, natural gas, and electricity costs, and is useful for analyzing inflationary trends, rose by 4.2 percent this year;
- Fuel costs decreased 41.2 percent;
- Real estate taxes increased 7.5 percent due to a rise in assessments for Class 2 properties;
- The utilities component decreased by 0.3 percent, due to steep declines in electric and natural gas costs, but was offset by an increase in water and sewer rates; and
- The PIOC for rent-stabilized apartment buildings is projected to increase 5.5 percent next year.
Mortgage Survey Report Highlights
Each winter the RGB research staff surveys lending institutions that underwrite mortgages for multifamily rent-stabilized properties in New York City.
This year’s Mortgage Survey finds a decrease in both interest rates and service fees, to the lowest levels recorded in this survey’s 36-year history. Vacancy and collection losses declined to their lowest levels as well; maximum loan-to-value ratios remained unchanged; and underwriting criteria remain similar.
Furthermore, the RGB’s analysis of rent-stabilized building sales data found that sales volume remained virtually unchanged citywide between 2014 to 2015, though volume did vary within the boroughs and among different sized buildings.
Income and Expense Study Highlights
In 1990, the RGB acquired a new data source that enabled researchers to compare PIOC-measured prices and costs with those reported by owners: Real Property Income and Expense (RPIE) statements from rent-stabilized buildings collected by the NYC Department of Finance. These Income and Expense (I&E) statements, filed annually by property owners, provide detailed information on the revenues and costs of income-producing properties. The addition of I&E statements has greatly expanded the information base used in the rent-setting process. I&E statements not only describe conditions in rent-stabilized housing in a given year, but also depict changes in conditions over a two-year period.
Most important, I&E data encompasses both revenue and expenses, allowing the RGB to gauge the overall economic condition of New York City’s rent-stabilized housing stock. This year’s findings examine the conditions that existed in New York’s rent-stabilized housing market in 2014, the year for which the most recent data is available, and also the extent by which these conditions changed from 2013.
On average, in stabilized buildings, from 2013 to 2014, rental income increased by 4.8 percent; total income rose by 4.9 percent; operating costs increased by 5.6 percent; and net operating income (NOI) grew by 3.5 percent. This is the 10th consecutive year that net operating income has increased.