Distress in New York’s Rent-Regulated Housing Is Simple Math

New York City’s rent-regulated housing system is approaching a breaking point, not because of a single policy, but because of a compounding mismatch between political decisions, economic reality and simple mathematics.

For decades, the stated mission of the New York City Rent Guidelines Board has been straightforward: Allow rent adjustments that reflect changes in operating costs while balancing tenant affordability. In practice, however, recent rent orders have consistently lagged far behind the growth in expenses that building owners actually face. 

Property taxes, insurance premiums, utilities, labor, compliance costs and financing expenses have all risen at rates that outpace the increases permitted on rent-stabilized apartments. The result is not theoretical — it is mathematical. Net operating income in many regulated buildings is shrinking in real terms year after year.

This structural squeeze has been intensified by the Housing Stability and Tenant Protection Act of 2019. HSTPA fundamentally altered the financial model of rent-regulated housing by sharply limiting or effectively marginalizing the major capital improvement (MCI) and individual apartment improvement (IAI) programs. 

For decades, these programs were the primary mechanisms that allowed owners to reinvest in aging buildings and recapture at least a portion of those costs over time. Roof replacements, boiler upgrades, façade repairs, plumbing modernization and full apartment rehabilitations were often financed with the expectation that regulated rent adjustments would help justify the capital outlay. MCI and IAI increases motivated the private sector to invest tens of billions of dollars into the housing stock over several decades and catalyzed a reduction in the dilapidation rate (the percentage of apartments deemed uninhabitable due to condition) from 14 percent in 1978 to 0.04 percent in 2019. HSTPA eviscerated those highly productive programs. 

Today, those incentives have been dramatically reduced. In many cases, the allowable rent increases do not come close to supporting the cost of meaningful improvements. Owners are therefore faced with a harsh calculation: Invest hundreds of thousands, or even millions, of dollars into buildings with little realistic path to cost recovery, or defer work and hope systems hold together. Increasingly, the second option is winning and winning big.

One of the clearest signs of this dysfunction is the growing number of rent-stabilized units that are simply sitting vacant. Tens of thousands of apartments that would historically have been renovated and re-rented are now empty, in some cases literally sealed off. It’s estimated that as many as 80,000 units are sitting vacant. This is not because demand is lacking. It is because the cost of bringing these units up to habitable standards often far exceeds the future rental income allowed under current rules. The public conversation frequently frames this as a moral failure by owners, but the underlying driver is economic infeasibility created by poor policy.

Against this backdrop, proposals to freeze rents entirely for multiple years, an idea publicly supported by our current mayor (he pledged this during his campaign), would significantly deepen the crisis. 

A four-year rent freeze in an environment of persistent expense inflation would not maintain the status quo. Rather, it would accelerate both financial and physical deterioration. Buildings that are barely breaking even today would tip into negative cash flow. Reserve funds would be depleted. Preventative maintenance would be postponed. Capital projects would be shelved. The physical consequences would not appear overnight, but they would be inevitable.

Already, hundreds of rent-regulated buildings are experiencing financial distress. Declining income has reduced property values and eroded refinancing options. Owners who purchased or refinanced properties under older regulatory assumptions are finding that today’s rent structures cannot support yesterday’s debt. As loans mature, some buildings face the prospect of restructuring, forced sales or foreclosure. 

This is not an ownership problem. It is a building condition problem created by misguided policy. Current policy creates a disincentive to invest in the housing stock.

Some policymakers argue that transferring these properties to nonprofit ownership, potentially through mechanisms like the proposed Community Opportunity to Purchase Act (COPA), would provide a solution. But ownership structure does not repeal arithmetic. Even if a nonprofit operator pays reduced or zero real estate taxes, the fundamental imbalance remains: regulated rent revenue that grows slowly or not at all, versus operating and capital costs that continue to rise with the broader economy. 

Over time, the gap widens. Eventually, even mission-driven operators face the same reality: insufficient cash flow to properly maintain aging buildings. COPA would simply delay the inevitable. 

When maintenance is deferred long enough, the consequences move beyond spreadsheets. Aging boilers fail more frequently. Roof leaks go unaddressed. Elevators break down. Facades deteriorate. Apartments remain outdated and less energy efficient. The very residents the system is designed to protect end up living in buildings that are physically declining because the financial framework does not support reinvestment. 

This is so commonsensical, why is it so hard to see?

The uncomfortable truth is that rent regulation cannot function sustainably if it ignores the cost side of the equation. Affordability goals are legitimate and important. But freezing or sharply constraining rent growth while expenses rise at market rates is not a neutral act. It is a transfer of financial pressure onto the physical housing stock itself.

Without meaningful adjustments that restore a viable path for maintenance and capital improvement, the future of rent-regulated housing in New York City points toward growing distress, shrinking reinvestment and gradual deterioration. Good intentions cannot override basic math. If the system does not evolve, the long-term cost will be paid not only by owners and lenders, but also by the residents who depend on these buildings for stable, decent homes.

Robert Knakal is founder, chairman and CEO of BK Real Estate Advisors.