High Vacancy in Rent-Controlled Units NYC Owners Can't Repair

A survey of multifamily buildings owners in NYC shows that those with portfolios of rent-stabilized apartments are struggling to make necessary repairs on their units, leading to higher vacancy rates.

The Real Estate Board of New York and the Rent Stabilization Association of NYC commissioned the study, which focused on the impact of the 2019 rent control law and surveyed 781 residential property owners and managers representing properties encompassing 242,000 units.

REBNY said the results prove that the 2019 rent law, known as the Housing Stability and Tenant Protection Act “has wrecked the ability of property owners to pay for the upkeep of their property.”

Since the HSTPA was enacted, the report said, rental apartment building owners are struggling to put rent-stabilized units back on the market once they become vacant, especially after long tenancies and particularly among small property owners with buildings of less than 11 units.

The survey found that the vacancy rate is much higher in smaller buildings that are predominantly rent-stabilized. Owners with small portfolios with moderate rent stabilization have an 18% vacancy rate, while owners with small portfolios that are primarily rent stabilized have a 25% vacancy rate.

Longer-term vacancies, defined as three or more years, have trended upward since the HSTPA went into effect. Nearly 30% of survey respondents cited “economic infeasibility of unit improvements” at the end of a long tenancy as the reason for continued vacancy.

Owners of rent-stabilized properties are required to register Major Capital Improvements (MCI) and Individual Apartment Improvements (IAI). Among small portfolios with a higher share rent stabilized units, 99% of buildings need MCIs and 78% require IAIs, the survey found.

Owners and managers cited new boilers, roof and wall repairs and plumbing as the most pressing MCI needs. Kitchen and bathroom improvements topped the most-needed IAI categories.

“Despite the clear need, annual MCI and IAI filings have declined by 45% and 77%, respectively,” the report said.

REBNY noted that NYC property taxes are assessed based on a building’s NOI.

“For every one percent drop in NOI across the rent-stabilized stock, rent-stabilized apartments will generate $67.3M less in property taxes,” the trade group said.

REBNY estimates the potential NOI reduction between 40% to 60% across the city’s rent-stabilized stock by the early 2030s, saying that property tax revenue generated by rent-stabilized apartments could fall by up to $2B on an annual basis.

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