RGB Releases 2018 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 2018 Price Index of Operating Costs, Mortgage Survey Report, Income and Affordability Study, and Income and Expense Study.
Income and Affordability Study Highlights
This 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 2017 Housing and Vacancy Survey show that for rent-stabilized tenants, the median contract rent is $1,269; median gross rent is $1,375; median household income is $44,560; and the median gross rent-to-income ratio is 36 percent.
- Results from the 2016 American Community Survey show that median renter income is $45,753; median gross rent is $1,351; and the median gross rent-to-income ratio is 31.9 percent.
- NYC’s economy grew by an inflation-adjusted 2.4 percent in 2017.
- Inflation-adjusted wages were flat in the most recent time period studied (the fourth quarter of 2016 through the third quarter of 2017), rising just 0.03 percent.
- The city gained 81,000 jobs in 2017, a 1.9 percent increase from 2016.
- The unemployment rate fell in 2017, to an average of 4.5 percent, down from 5.2 percent in 2016.
- An average of 59,467 persons were staying in NYC Department of Homeless Services shelters each night of 2017, up 1.2 percent from 2016.
- Non-payment filings in housing court decreased 0.4 percent in 2017, while cases actually heard increased 9 percent and the number of tenant evictions fell 4.6 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 increased 4.5 percent this year.
- All costs in natural gas-heated buildings increased 4.4 percent, and all costs in fuel oil-heated buildings increased 5.1 percent.
- The “Core” PIOC, which excludes the changes in fuel oil prices, natural gas, and steam costs, is useful for analyzing inflationary trends. The Core PIOC rose by 3.7 percent this year.
- Fuel costs increased 16.4 percent, the highest increase of any PIOC component.
- Real estate taxes increased 6.3 percent, primarily due to a rise in assessments for Class Two properties.
- The Utilities component increased by 0.5 percent, primarily due to an increase in electricity costs.
- The PIOC for Rent Stabilized Apartment Buildings is projected to increase 3.4 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. The survey provides details about New York City’s multifamily lending market during the 2017 calendar year as well as the first few months of 2018.
The survey is organized into three sections: (1) financing availability and terms for rent-stabilized buildings; (2) underwriting criteria; and (3) additional mortgage questions, including vacancy and collection losses, operating and maintenance expenses, and portfolio performance information. In addition to the survey analysis, rent-stabilized building sales data, obtained from the NYC Department of Finance, is also examined. Here are the report’s highlights:
- Average interest rates for new multifamily mortgages increased 57 basis points, to 4.83 percent.
- Vacancy and collection losses decreased 0.09 percentage points, to 2.83 percent, the lowest level recorded by this survey.
- Average service fees for new loans remained unchanged, at 0.44 points.
- Average maximum loan-to-value ratios fell 0.16 percentage points, to 73.5 percent.
- In 2017, 793 buildings containing rent-stabilized units were sold citywide, a 32 percent decline from the prior year.
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 2016, the year for which the most recent data is available, and the extent by which these conditions changed from 2015.
From 2015 to 2016, Net Operating Income (revenue remaining after operating expenses are paid) grew 4.4 percent. This is the 12th consecutive year that Net Operating Income has increased. On average, in stabilized buildings, from 2015-2016:
- Rental income increased by 3.1 percent;
- Total income rose by 3.1 percent;
- Operating costs increased by 2.4 percent; and
- Net operating income (NOI) grew by 4.4 percent.