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What Do Landlords Talk About When They Talk About Rent Increase Loopholes?

March 26, 2019

For Sale: “Near the truly gentrified section of Harlem” “Tenants are between the ages of 60-91 years old and the two oldest are 84 and 91”

Albany is an exciting place these days if you are a tenant. The state legislature finally seems ready to do something to stop the bleeding of affordable housing in New York City by closing loopholes in the rent laws. The legislative logjam that has served the interests of landlords for decades is finally breaking apart, as new laws that will protect affordable housing and strengthen tenants’ rights gain traction.

So the landlord lobby is throwing up a smoke screen to try to stop some of the changes that will have the biggest impact on their bottom line. One key issue is the loopholes that allow landlords to manufacture huge rent increases outside the usual system. The landlord lobby says these rent increase loopholes are wholesome and necessary to encourage healthy investment and fix up apartments. But what they say outside of Albany tells a different story.

Let’s take the example of the Individual Apartment Improvement loophole, which allows landlords to take major increases on vacant apartments. The best way to understand how landlords really use this rent increase mechanism is to read what they say when they are selling their buildings. Here are a few quotes from building sale notices in Harlem:

“Tenants are between the ages of 60-91 years old and the two oldest are 84 and 91.”

“Near the truly gentrified section of Harlem.”

“The average rents for the rent stabilized units are low…offering the investor an attractive value-add opportunity.”

These quotes are disturbing, but they shouldn’t be surprising. Unfortunately, this is how speculation works. Landlords will pay increasingly high prices for rent-regulated buildings assuming they can make their money back by aggressively pushing out the low-rent-paying tenants. Here’s how brokers for buildings in the West Village and Chelsea explain it in their own advertising:

“The remaining rent regulated apartments offer potential for significant rental increases when brought to market levels…”

 “The rent stabilized component of the property offers long-term potential…through buyouts of existing tenants…”

“An investor has the opportunity to add value by renovating the deregulated units and increasing rents.”

The foundation of this speculative logic is the Individual Apartment Improvement loophole because that’s how the “value add” actually happens after a low-rent paying tenant is pushed out. Here’s how two broker advertisements for buildings in Brooklyn explain why that loophole is a key to speculation:

“An investor is able to boost rental income by altering bedroom layout and renovating units with higher end finishes and amenities.”

 “…offering immediate upside potential via renovation.”

The problem with the Individual Apartment Improvement loophole isn’t just that it is being abused; the program is it’s fatally flawed. It permits landlords to collect a permanent monthly increase based on improvements they make in a vacant apartment, but the formula for determining that increase is so overly generous that it allows landlords to drive rent from affordable to market rate with only a modest investment.

So, every time an apartment becomes vacant – either through natural turnover, or more likely, aggressive harassment – a landlord can throw in a few new fixtures and amenities and drive the rent up to market rate. Rent increase loopholes, like Individual Apartment Improvement increases, are the driving force of the tenant harassment and displacement crisis, and the state legislature is right to address this problem

We should listen to what landlords are actually saying, not just what their lobbyists want us to hear. They are fighting to keep loopholes like the Individual Apartment Improvement intact because, “There is an opportunity for a new investor to renovate the apartments and achieve market rents.” The Individual Apartment Improvement loophole is not a reasonable public policy that encourages better-quality housing stock. It is a present to the landlord lobby and a major threat to affordable housing and tenants’ rights in our city and state.

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