Rent Board Chief Marvin Markus Pleads for ‘Rationality’

Location: The Rent Guidelines Board sets increases for the one million or so stabilized apartments in the city, and you’ve recommended raising rents up to 4.5 percent this year.
Mr. Markus: For a one-year lease. We do one- and two-year leases.

Obviously, the question from tenant groups and tenants is, why are their rents going up when market-rate rents are falling in the city?
The tenant can negotiate, and say, ‘The market has gone down and I don’t want to pay it.’ And the owner is free to say, ‘No, you have to leave,’ also. Certainly, people don’t feel they have leverage in the system, and I understand that.

Of the rent-stabilized stock, what proportion do you think is below market?
I think that’s really hard to tell. We don’t study the market—the market shifts much quicker than the data we have …  but the dilemma the board faces on an annual basis is being concerned with the poor tenant and the poor owner. And clearly it’s a confluence of factors, but the tenant can’t afford [an increase], and the income that the tenants are providing to the owners is likely to be insufficient to carry that building.

The board sets a broad-based rent increase for all—that seems to be a pretty glaring flaw in the system.
I wouldn’t necessary call that a glaring flaw, but the system was a reaction to the earlier quote-unquote rent-control regime, which for years was a rent freeze, then went administratively to a unit-by-unit, building-by-building analysis, which was from an administrative point of view, from a governmental point of view, from a regulatory point of view, an overwhelming task. So the stabilization system was developed to be, admittedly, a system of gross justice.

You’ve criticized the structure before—what are some of the greater flaws of the system?
It is a guarantee of tenure system, and it has evolved into a major affordability program, if you will, but its basic premise is not affordability. It is to protect the tenant in occupancy from illegal and large-scale gouging—to give them leverage in a hot market, by giving them the ability to stay no matter what, as long as they sign the allowable lease increases.

It’s a tough job for us, and I’m looking at the vantage point of chairman of the Rent Guidelines Board; and the reason I think the system I [have] suggested makes a lot more sense, which is a rent-increase exemption  …  [for which] those who feel they can’t afford it can apply for and be exempted from the increase if they meet certain definitions that the legislative bodies would create—

Your plan to adjust the system—it would have any tenant [in a rent-stabilized apartment]… be able to say the rent’s too much?
It’s a rent increase exemption program. It dovetails very well with the regulatory scheme of tenant longevity/tenant tenure. So the legislature would set the criteria on what’s the maximum income, and what’s the minimum rent-income ratio, and then the government at large would pay the difference [to the landlord, between what the tenant can afford and what the rent is]. … There are benchmarks out there that have been utilized—the Section 8 program, which works, in a sense, similarly, says the tenant has to pay 30 percent of their income for rent, and anything above that, the feds pay. I’m not suggesting, either, that there be a minimum—tenants can pay very little.

It would be done by the tenant on a year-by-year basis?
Yes.

And you think it should be paid for by a rent tax?
One suggestion is a rent tax/surcharge of some limited amount, on all rents in the city …  and all co-op and condo charges in the city. … It’s very important for the city of New York that there be a mixed income base—from an economic standpoint; from a social standpoint—and we want to make sure, I want to make sure, that that continues.

That would be bringing in the idea of affordability in an official way [into the rent-stabilization system]?
Absolutely. … The owners say, and I agree … there are poor tenants, they should be protected, but the individual owner is not the one that should protect them. The population at large clearly should be the ones footing the bill.

What proportion of owners do you think have so few rent-stabilized apartments and so many market-rate apartments in their buildings that they would be getting an added break under this?
We’re generally not concerned overall with those buildings that are quote-unquote working. What our overall concern is to make sure that the buildings that are in the distressed category, or are barely working, have income. They tend to coincide with where the poor people are. It’s not an Upper East Side problem, or an Upper West Side problem, if you will. There are equities that need to be balanced there, too, but that’s less of a concern on my part.

To be clear, this isn’t the Bloomberg administration’s plan?
This is my view, this is not the Bloomberg administration’s [or the Rent Guidelines Board’s]. … It’s just an observation of doing this after 13 years or so.

What else is problematic about the existing structure?
The system that I would advocate is no preferential rents … a one-year lease only. The Guidelines Board has a real problem with two-year leases, because it’s predictive, and I can guarantee you that we’re wrong. … I would have a system that when a unit became vacant, it was destabilized—all units, not just over $2,000—and upon occupancy, would be restabilized. So the tenant in possession would be protected.

Under the new, higher rent?
Yes. Owners should get the market when the unit becomes vacant.

But how would the poor be able to find new units if all these stabilized units suddenly jump up in rent? Is there enough that the city’s doing to create enough new, low-income housing?
There’s never enough. It goes back to a fundamental question—who should subsidize? Government should subsidize.  … There’s never going to be enough resources, but the system has no rationality, in my view, when you transfer to landlords the subsidization role.

So what you’re essentially saying is we have a system we should install that deals with stabilization and tenure more than anything else, and in terms of creation for affordability, we need a lot of other programs?
Absolutely. But no matter how much you do in the mayor’s very ambitious and great New Marketplace [affordable housing creation] program … this is the largest part of the stock, and this is where you need the most rationality, and the most reform.

What do you think of the proposals on the table in Albany right now? A lot of Senate Democrats are trying to get through a complete repeal of vacancy decontrol.
I think on vacancy, units should be quote-unquote mark to market, and I’ve said that before, so I obviously don’t agree with the thrust of eliminating vacancy destabilization.

Between this or any other kind of larger reform, do you think there’s any chance of anything getting passed?
I think the likelihood, which is the history of rent regulatory reform, is that if it’s going to happen, it’s going to happen in a year that the overall regime expires and people have to deal with it in a more wholesale fashion, which I believe is 2011.

If we were to wipe this slate clean, and install a new system generally for affordability and for length of tenure, what would it look like?
I think it’s a system I described: Protect the tenant in occupancy, a one-year lease system that passes through costs; that those who can’t afford costs as defined by society at large would be subsidized. I think that’s the basis for a very rational system.

What do you think New York would look like if the free marketers got their way, and got rid of all rent regulations?
You’d have a wholesale displacement. There are many, many people who are in stronger neighborhoods who are paying below-market rent, and that doesn’t trouble me because of the need for stabilization in neighborhoods and what have you. So the system—I’m not in favor of wholesale, just lift it … it would create a sense of trauma in the city that would be very unfortunate.

ebrown@observer.com

Rent Board Chief Marvin Markus Pleads for ‘Rationality’