Rent—and how to keep it in check—is one of the central, if often unacknowledged, issue in the ongoing mayoral race and a source of worry for many New Yorkers. As Bushwick Daily recently reported, local residents have long suffered at the hands of predatory landlords.
The COVID-19 pandemic threw the city’s rental market into disarray and it had forced landlords to get creative to maximize profits. A quick survey of listings on StreetEasy confirms the proliferation of one recent particular tactic: offering one or even several months of free rent and allowing tenants to pay a reduced “net effective rent” instead of the advertised rent.
In early April, a group of tenants living at 1209 Dekalb Avenue challenged this practice in the New York state level courts, arguing that it allows landlords to quickly increase rent prices while meeting the requirements to qualify for an affordable housing program tax relief from the city, under its 421a tax abatement program.
A massive gray-blue checkered housing complex on Bushwick and Dekalb, 1209 was initially called “The Colony” and gained attention in the mid-2010s for a Manifest Destiny-themed marketing campaign that called on “settlers” to fill the “frontier” of Bushwick.
New York Judge Arlene Bluth’s ruling earlier this month in their case provides an illustration of how the practice works.
On the rental listing, building management companies that operate leases on rent-stabilized apartments will advertise rent at a certain price, which is the same rent that it registers with the city’s Rent Guidelines Board. Rent stabilized apartments can only raise their rent by 1-2% on a year-to-year basis.
In the case of a building managing 1209 Dekalb, the company advertised that a $3,000/month rent with one month free, leading to a net effective rent of $2,750/month, if the discount were spread over the course of the year. But at the end of the year, the company is allowed to raise the price starting a $3,000/month, instead of the $2,750/month that its tenants were effectively paying.
While this might seem like a sweet deal for some tenants at first, these sorts of concessions often allow landlords to raise rents faster than tenants can recover from whatever it was that drove the market down in the first place.
This is the question at the core of the lawsuit over 1209 Dekalb: what is the true market price of the apartment? Tenants argue that the true market price is the rent actually paid, rather than the pre-pandemic market rate registered with the city.
In theory, the point of a rent increase cap is to keep rent stable, not only year to year but also to prevent short term market shifts in favor of tenants (like the ongoing COVID-19 pandemic) from being followed by massive rent hikes. In an ideal world, stopping outsize rent hikes should slow gentrification.
According to the suit, the company operating 1209 Dekalb circumvents those legal barriers because it can start increasing the rent again from pre-event levels. Jumps on rent-stabilized units can be even more intense for tenants whose leases had included even deeper concessions.
As real estate industry publication The Real Deal noted last week, the ruling now gives tenants the chance to take action against other landlords who are using their versions of this strategy to pump up their portfolio value.
“This decision is a colossal setback, not just for the landlord in this case, but for the real estate lobby who tried and failed to get it dismissed,” Housing Rights International founder Aaron Carr said. “The real estate lobby is concerned that if this class action is successful, our organization will investigate every single landlord that is cheating on their 421a tax benefits. And they are correct.”
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