Opinion: A rent freeze is good politics and good policy

This year, members of the Rent Guidelines Board voted to raise rents on one-year leases by 3% and by 4.5% on two-year leases. This news took on particular salience after Assembly Member Zohran Mamdani’s resounding win in the city’s Democratic primary for mayor. One of his biggest, most popular policy planks is his call for a rent freeze.

Many political observers have mischaracterized the policy, painting it as extreme, economically ruinous and a potential damper on development. Some of Mamdani’s supporters, on the other hand, may have unrealistic hopes for what the rent freeze can achieve. In fact, a rent freeze is a sensible policy tool for easing pressure on tenants and strengthening their purchasing power as consumers. It is also compatible with pro-growth housing policies. It has been used in past years by former Mayor Bill de Blasio, and can be used to greater effect by the incoming administration.

Rent stabilization 101

It may sound like Mamdani is seeking to marshal some previously unheard of law to force private landlords into freezing their rents, but nobody – and especially not the mayor – has that authority. First, a rent freeze is not a freeze on paying rent – rent is still due every month. Rather, it is simply the maintenance of rents at their current monthly rate. Furthermore, a rent freeze will not apply to all rental units across the board. The city can only freeze rents for units that are covered by rent stabilization and governed by the Rent Guidelines Board. 

The mayor has near unilateral control over RGB, which is composed of nine members representing tenants, landlords, and the general public who determine rent increases for nearly one million rent stabilized apartments, representing 41% of the city’s rental market. Established in 1968 under then-Mayor John Lindsay, the board has gone through changes over the years, starting off with self-regulation from landlords (which didn’t go well and resulted in the state attorney general dismantling it) to mayoral control. In its current form, rent stabilization generally covers apartments in three types of buildings: privately-owned buildings built before 1975 with more than five apartments; subsidized affordable housing that is subject to a regulatory agreement with the state; and new private construction subsidized by property tax exemptions. The vast majority of rent stabilized housing comes from the first category.

Each year, the RGB meets to review an enormous amount of data, which paints a granular picture of the economic welfare of tenants and the operating costs and income of landlords. The board then votes on a fair rate of increase, attempting to balance the relative needs of both sides. In recent history, the Bloomberg administration’s RGB delivered steep annual increases. Altogether, rent stabilized tenants saw their monthly payments increase by roughly a third. Under de Blasio, the RGB delivered far smaller increases, including three rent freezes. Adams’ RGB has consistently increased rents, leading to some T-shirts that may have played a role in Mamdani’s successful messaging. 

Why this year?

Every year, the Rent Guidelines Board staff presents a myriad of data points to the Board members, but four of the most salient are: landlords’ net operating income, price changes, tenants’ incomes and owners’ distress levels. As mayoral candidate and New York City Comptroller Brad Lander testified before the board in April, this year’s data clearly supported a rent freeze.

• Net operating income (NOI) is landlords’ revenues minus operating expenses. This year, the data showed a record high increase of over 12% from the previous year. Even adjusting for inflation, the increase was substantial at roughly 8%.
• Prices for landlord expenses (such as income taxes and, most precipitously, insurance costs) certainly went up the past year, but not enough to counter rising rent collection rates from tenants – hence the rocketing NOI levels.
• Meanwhile, in real terms, rent stabilized tenants’ incomes fell by $240, on average. 
• And while some landlords are facing distress – or expense levels that outpace incomes – the board found that this applies to just 9% of buildings with rent stabilized apartments. That represents the historical median from 1990 to the present. The city has programs specifically aimed at these types of buildings – though due to the Adams administration’s budgets, HPD has not been able to operate them all in recent years. A new administration could change that.

Common myths

Two misconceptions confuse the discourse and make a rent freeze seem more dangerous than it is.

As this year’s RGB data shows, rent collection was up across nearly the entire city, and other forms of landlord revenues – including retail, parking and tenant fees – rose as well. Meanwhile, most rent stabilized apartments are held as part of real estate portfolios that contain both rent stabilized and market-rate units. Freezing rent stabilized rents in no way restricts rents in their remaining stock. 

Landlords’ profits have risen substantially since the COVID-induced crash (which was driven by departing market-rate tenants, not by anything having to do with rent stabilization). The rent stabilized landlords who are facing the greatest economic pressures right now are those who took out massive loans on their properties before the passage of stronger rent laws in 2019, which made it tougher to deregulate rent stabilized units.

Landlords in true distress can apply for a myriad of city and state grant, loan and tax relief programs, like the recently renewed J-51 R, which are all designed to help landlords stabilize their properties without raising rents. Both landlords and tenants are struggling with the past few years of inflation. The solution to rising prices, however, is not to raise prices further by mandating across-the-board rent increases.

Only a marginal number of newly developed units are subject to rent stabilization, mostly thanks to voluntary tax incentives that developers can opt into, such as 485-x. The great majority of rent-stabilized units to which the rent freeze would apply are over 50 years old. Some arguments claim that these restrictions nonetheless limit availability of capital for new development, but developers rely heavily on outside financing rather than their own funds. Of all the large lenders and investors that are interested in NYC real estate, should rent-stabilized tenants be expected to fund new supply?

Recent studies reviewing the literature have found no evidence that rent restrictions affect the supply of new housing. Economist JW Mason has argued that the main effect of rent restrictions is to reduce the profits of owners of existing housing. He also suggested, in a recent piece, that strong controls on rent could produce more popular support for new development, as incumbent tenants become less anxious about their own displacement.

Ultimately, the major obstacles to new development are considerations such as high interest rates and cost of materials and labor, not the ambient effects of rent stabilization. New York City has long exceeded other cities in both promoting dense development and stabilizing rents. The two approaches are entirely compatible. 

Freeze the rent, build more, and stabilize the market

A rent freeze entails several commonsense benefits for New York’s economy: in a time of economic uncertainty, easing the cost of housing for rent stabilized tenants, who on average earn $30,800 less than market rate tenants, will prevent homelessness and reduce displacement. Trump’s budget will wreak havoc on New York and put strain on our social safety nets, and a rent freeze is a budget-neutral way to stabilize working- and middle-class New Yorkers and ensure they are able to stay in their homes.

A host of other policies can be implemented alongside a rent freeze to spur development of housing, especially affordable housing. City of Yes was a great start for housing production in our post-COVID world, and we are already seeing positive benefits. In addition to a rent freeze, Mamdani has called for the upzoning of low-rise neighborhoods, as well as comprehensive planning, which would consolidate the city’s disparate processes into one plan that sets targets across agencies. If he is elected mayor, Mamdani can use former Council Speaker Corey Johnson’s “Planning Together” plan as a starting point. Updating it for a post-COVID world linked with the benefits of City of Yes will be a great start.

Gov. Kathy Hochul and the state Legislature can work with Mamdani on new and exciting ideas to develop social housing, a key part of any affordable city. Assembly Member Emily Gallagher’s Social Housing Development Authority bill (which would create a new public authority tasked with producing housing at all income levels) has a lot of promise. Additionally, Hochul can consider using the state's Dormitory Authority to build housing.

We are a city fueled on growth and must come up with some more ideas, including smarter subsidies, to stimulate private sector development in the public interest. That should include a comprehensive review of 485-x. We should be working together with private sector leaders and developers to help them build more affordable housing instead of repeating previous decades' history of building too much for the top of the market. Mamdani has said he will make better efforts to reach out to the private sector and assure them he is a partner. Hopefully, they will make a good faith attempt to work with him as well.

A path to the future

We don’t have to look too far back to see a model for success – de Blasio. As Caitlin Lewis recently noted in Vital City, staffing will determine policy success. De Blasio’s tenure proves that we can have the best of affordability and growth: In Alicia Glen, he hired a seasoned real estate executive and smart technocrat who spurred development and was (and remains) a champion for regulated rents through her support of “good cause” eviction protections.

Mamdani would be wise to replicate de Blasio’s successes. At just 33 years old, with a clear mandate from the city’s voters, he has the energy to pull it off. With a talented staff and willing state partners, he’ll have the rest of his bases covered too.