The Future of Multifamily Dynamics
As we head into a new mayoral administration next year, there has been plenty of talk about potential changes to the housing market in New York City. Clearly, one of Mayor-elect Bill de Blasio’s initiatives on the housing front is to create more affordable housing, which is an objective applauded by all members of our industry. The city is in dire need of more affordable housing for the folks who make our city run.
While this objective is a worthy one, there are concerns about the impact the new mayor will have on our market. These concerns are centralized around three issues: real estate tax policy, rent regulation guidelines and DHCR changes.
The mayor-elect has laid out an ambitious agenda for the city. Many of these initiatives will require funding that is not currently allocated for in the budget. One of the first major tasks the mayor will have is to renegotiate the 152 municipal labor union contracts, many of which expired several years ago. Not only will the workers covered by these contracts expect raises, but they are also seeking retroactive pay as compensation has been flat during the time since these contracts expired. None of this potential additional revenue is in the budget, and even if all of those contracts were to remain at present levels, without increases there is already a $2 billion budget deficit.
The mayor-elect has indicated a desire to increase taxes on high earners to raise funds for some of the initiatives. However, he does not have the ability to implement that type of policy. Income tax increases can only be approved by the legislature in Albany. What the mayor can control are our real estate taxes. Many in the industry, myself included, believe that significant real estate tax increases will be on the horizon next year.
Tax policy has been crushing property owners over the past 7 years. Tax assessments are supposed to be correlated to property value. However, we went through a four-year period from 2007 to 2010 during which values dropped, on average, by 38 percent, yet real estate taxes never went down.
We may see some political rhetoric, as politicians are prone, saying that they will not increase taxes. However, this rhetoric pertains to tax rates not real estate tax assessments. This allows a politician to leave the tax rate fixed, proclaiming “no tax increases,” but then with a wink, nod and soft elbow to the ribs of the department of finance, real estate tax assessments go up significantly, leading to higher real estate taxes. We expect that this will happen given the city’s massive need for revenue.
On the rent regulation front, one of the pledges made by the mayor-elect during the campaign was that he would seek to freeze increases on regulated tenants. The mayor does not make this decision; the Rent Guidelines Board controls it. The RGB consists of tenant advocate members, landlord advocate members and public members. The landlord members and tenant members effectively cancel each other out, so the decisions made by this board typically come down to the public members. There are four public member seats that will need to be filled, and the mayor appoints replacements. This gives the mayor-elect the flexibility to appoint members who are sympathetic to his position, so a rent freeze is something that is a real possibility.
Lastly, DHCR has proposed 27 changes to rules and regulations that would effectively vaporize almost all of the pro-landlord changes to rent regulation over the past 20 years. At this point, all indications are that these 27 rule and regulation changes will be adopted, which could be mean extraordinarily tough times for owners and operators of multifamily properties in this city moving forward.
We should all support the mayor, as the better he does, the better the city does, and the better the city does, the better we all do. However, let’s hope that, for the sake of our housing stock, the issues mentioned in this article don’t all swing the wrong way.