Opinion: The real impact of a rent freeze on New York City

There is no free lunch. Someone always pays for it. That’s true of housing as well. Freezing rent for all rent-stabilized tenants, who make up 40% of renters, will have two main consequences. First, 60% of renters won’t see a freeze but will likely see higher rents. Second, the 40% getting a rent freeze will be at risk of worse living conditions.

Let’s tackle the first group. Most renters in New York City do not have rent-stabilized leases. Roughly 500,000 apartments are in buildings that have rent-stabilized units, and the higher rents that these tenants pay subsidize the lower rents of their neighbors.

One East Village building illustrates this. On the same floor, there’s a rent-controlled unit at $502 (only about 20,000 of these remain), a rent-stabilized unit at $906, and a free-market unit at $5,000, subject to good cause eviction protections. If stabilized and rent control units are frozen for four years, the owner is likely to raise the $5,000 rent by 8% or $400 at renewal.

These 500,000 free-market units in rent-stabilized buildings also distort the Rent Guidelines Board’s annual data. This year, the RGB said landlords’ net operating income (NOI) rose 12%, which was driven almost entirely by growing rents in these free-market units, primarily due to the city’s housing shortage.

About a quarter of rent-stabilized buildings are filled with primarily free-market units. In the other 75%, which are mostly older buildings, the median NOI, adjusted for inflation, was flat in 2023. The only reason it didn’t decline was a 10.3% drop in repairs and maintenance spending.

Most rent-stabilized housing is in 100% regulated buildings or close to it. When rents are frozen in these buildings, there’s no way to increase revenue to cover costs like rising property taxes. The majority of renters benefiting from freezes live in such buildings and will likely endure years in properties that are bankrupt or are heading that way.

Don’t take our word on this. Independent housing experts from the NYU Furman Center, the Citizens Budget Commission and the leaders of the mission-driven lender Community Preservation Corporation have already sounded the alarm that roughly 200,000 rent-stabilized apartments are in buildings that are functionally bankrupt. 

And a recent report from Columbia Business School found that freezing rents for four years would guarantee that the average building in the Bronx would fail, even if rent increases resumed in 2030. 

A bankrupt building has no access to new capital. Rents must cover all costs, forcing owners to choose between paying the mortgage, property taxes, insurance or maintenance. If a private owner stops paying mortgage, insurance, or taxes, foreclosure looms. This is why repairs and maintenance are the first to be cut.

Some argue foreclosures aren’t a concern. They say to sell the building, let tenants buy it or transfer it to a nonprofit. In reality, nobody buys a building losing money. Most tenants would pay more per month if they purchased the property. Few entities can take over failing buildings, and even then, it works only if the government subsidizes the takeover with property tax relief, grants or low-interest loans. 

The belief that such transfers ensure financial stability is false. Cutting taxes and offering low-interest loans can help distressed buildings, but nonprofits and community-based housing providers will not survive rent freezes without more support.

CPC, one of the largest mission-driven affordable housing lenders, has stated that rent freezes will lead to more foreclosures and distress for rent-stabilized housing. In testimony to the RGB, they explained that even below-inflation rent adjustments cause distress: a 3% increase on a $1,145 rent (the Bronx median) is $34.35 – less than the increase of monthly expenses.

One proposed offset to freezes is property tax relief. This would help privately owned rent-stabilized buildings, but it would not prevent foreclosures in most nonprofits, which already pay little or no tax. Hundreds of millions in new government funding would be necessary to offset freezes just in apartments run by nonprofits. 

Property tax relief is still necessary, though. Pre-1974 rent-stabilized buildings are overtaxed, paying five to six times as much as 1- and 2-family homes on the same land in the same neighborhood. These decades-old tax breaks for wealthy homeowners have shifted the burden onto affordable properties, while forcing the city and state to offer massive tax breaks to new construction in order to incentivize development.

For example, a 40-unit building in Crown Heights with average rents of $1,600 pays nearly $250,000 in property taxes. A brand-new building next door, with 30 “affordable” units averaging $3,300, pays nothing.

But property tax relief has been stalled in Albany for decades and is unlikely this year. No other proposals have emerged to reduce housing costs for either privately owned rent-stabilized buildings or nonprofits, so it would be foolish to think they are magically going to happen in the next year.

This is why a rent freeze will harm affordable housing citywide. Renters should be prepared for the consequences.