Rent Stabilized Apartments: A Dying Breed?

Perhaps you've visited a friend's apartment and looked around thinking, "I had no idea Insert-Friend's-Name was a bazillionaire!" But there, in a to-die-for two bedroom in the best neighborhood in one of the most expensive cities in America, how could you think anything less? That is, until they utter the words, "It's rent stabilized," with a modest shrug.

How did they get it? You wonder. Did it belong to a kindly aunt who has since fled to a warmer climate? Are they just the kind of lucky that trips over pots of gold at the end of the rainbow? Do rent stabilized apartments even exist anymore? And if they do, where can I get one?

"I have felt lucky," says Joanie Kay, a retired schoolteacher who lives in a rent stabilized apartment in the Gramercy Park area of Manhattan. "I've been here for quite a while. My rent goes up but it's still below market rate."

The truth is, rent stabilized apartments are becoming more and more elusive in a lot of big cities including London, New York and San Francisco.

Back in 1974, when you could buy a Datsun 1200 Sports Coupe for around $1800, vacated apartments that had been rent controlled became rent stabilized. The difference varies somewhat by state, but in New York (because New York City has the longest history with rent stabilization and functions as something of an archetype, this article will mostly explore the standards found there) "rent control" functions as a way to limit annual rent increases based on a set and generally unchanging percent. In New York City, this number has hovered somewhere around 7%. For a tenant this is great news. For a building manager-not so much.

Enter, rent stabilization, a method by which members of a city council, roughly half pro-tenants rights and half pro-management rights, get together to hash out what the annual rent increase will be for that year. While the pro tenant side usually asks for a rent freeze, you can count on the management side to argue for alarming increases. Generally, the two sides meet somewhere in the middle, allowing for a slow and steady increase that tends to keeps rents below the market rate.

However, it is true, rent stabilized apartments are growing increasingly difficult to come by. "Firstly buildings built since 1974 are usually not rent stabilized," explains Mark Lawrence, former Housing Assistant, Assistant Housing Manager and Housing Manager in the New York City Housing Authority. "Secondly, increasingly apartments are being de-regulated."

After a tenant in a rent stabilized apartment moves out, the management has the option of gussying up the place. In other words, by upgrading the appliances and adding value to the apartment in other ways, its status can be reevaluated by the city so that it no longer falls under the umbrella of "rent stabilized." In this way, landlords have found that by investing several hundred dollars or more into a property, they can rapidly set rent at, or even above market value and likely make a lot more money in the long run.

Further, explains Lawrence, "If a building becomes a co-op, apartments that are bought leave the system, And of course many tenants will stay for years in a rent-stabilized or rent-controlled apartment if the rent is low."

New programs are popping up whereby landlords and building managers of new properties are offered tax breaks for including middle-income and low-income housing. For a tenant, this requires extra paperwork in order to be approved, both by the landlord and the city in order to move into an apartment.

"Some are part of the 80/20 program," says Lawrence. "The landlord gets tax benefits by renting 20% of the apartments at `affordable' rents. The other 80% are rented at market rates."

In the long run, the financial protection might be worth the extra legwork, no matter how much extra it proves to be.

"Individuals have to apply for these apartments," cautions Lawrence, "and they have lotteries for new buildings and waiting lists."

So what is the downside to a rent stabilized apartment? If you ask Joanie Kay, there aren't many but there is one: "There's no negotiation [about rent increases]," she explains. You are at the mercy of city councils and litigators. "But if you live in a market rate rental you can negotiate with the landlord."

Let's just hope the landlord is reasonable.

For more information on procuring rentals below market rate in New York City, please explore the following resources:
http://www.nyc.gov/html/nycha/html/home/home.shtml
http://www.nyc.gov/html/hpd/html/apartment/mitchell-lama.shtml