Opinion: The rent gamble

By former Assemblymember Steven Sanders

With all the changes made last month by the State Legislature in tenant protections and rent regulations, the nine-member New York City Rent Guidelines Board (RGB) appointed by the mayor remains intact. That is the entity which sets rent increases for leases expiring in any given year.

For hundreds of thousands of tenants facing lease renewals between October 1, 2019, through September 30, 2020, the RGB has set the increases at 1.5% for a one-year lease renewal and 2.5% for a two-year lease renewal.

The question for tenants is, which one is best? It’s all about short-term and long-term dollars and cents. But it is not that simple.

To some extent clairvoyance is required, but that function does not appear on any calculator. What do I mean?

One thing is a certainty: you will save money in the first year if you opt for a one year renewal. But what about the following year? Well, if the guidelines remain the same next year, then a tenant will be spending more money in the second year if they opt for consecutive one-year renewals as opposed to a two-year lease renewal at 2.5%.

Moreover, the charged rent, which predicates what the next percentage rent increase will be based on in the third year and beyond, will be higher if a tenant opts for successive one-year renewals. So this is where clairvoyance is needed… but alas not available. If the guidelines for a one-year lease is lower than 1% next year, then taking consecutive one-year lease renewals is the smart move.

However, if the guidelines in 2020 reflect a rise from this year, then taking the two-year lease extension will prove to be the smarter move. It’s sort of like buying and selling stocks. Nobody knows what might happen with the trading values in the future.

But if the past history of decisions made by the RGB are clues then perhaps tenants can make educated guesses. When Bill de Blasio was facing re-election, he campaigned on lowering rent increases in 2016. That year, the RGB passed a 0% increase for a one-year lease renewal. Anybody who thinks that was a coincidence and that politics does not factor into the equation needs to think again.

There are three factors that mitigate against lower guidelines next year:

First… by historical standards this year’s percentages were amongst the lowest ever. Will that be duplicated again next year? Doubtful.

Second… next year Mayor de Blasio will be one year closer to being an ex-mayor at the end 2021. His influence and his interest seems to be waning. He seems less and less interested in the day-to-day job of mayor and more interested in auditioning for a new political office, be that president or something else. Consequently, his views are less relevant.

And third, by most indications the rate of inflation will edge up next year, which will cause landlord costs to rise. That is one of the key factors in setting rent guidelines.

So while circumstances next year are fluid and unknown in so many ways, these are factors to weigh in arriving at an informed decision. In the absence of a crystal ball, that’s the best we can do.

If it were me, I would take the two-year lease option and the almost-certain savings in the second year and importantly, the lower rent base that future increases will be predicated upon. The caveat is that I could be wrong.

It’s a little like betting on a race horse. You try to get an edge by learning the horse’s history and tendencies. I lose more than I win when I make my annual visit to The Saratoga Race Track. The good news is that I have been more successful at predicting government actions than horse racing results. But any way you slice it, it’s a gamble!

3 thoughts on “Opinion: The rent gamble

  1. While the second year is cheaper in the 2 year scenario the total rent paid would be lower taking the 1 year option. If your current rent is $2,000 and you opt for a 1 year lease in consecutive years at a 1.5% increase each year your total rent paid will be $49,085.40 ($24,360 for the first year and $24,725.40 for the second year). If you choose the 2 year lease at a 2.5% increase you will pay $49,200 ($24,600 each year). You also get to earn interest, as little as it is these days, on the money saved in the first year.

  2. I’m one of the fortunate ones. My lease renewl date is Sept 1 – late enough that I know the rates for the next two years. I opted for the one-year renewal because I am more concerned with cash flow than total spent. Unlike the text presented, I also included the effects of inflation (Future value) and a (small but likely) range of changes to income (raises, COLAs, etc). It shows that the percent of income I pay in rent will be lower in the second year on a one-year lease even if the RGB votes a 2.5% increase.

    That said, your results may vary. Just make sure that when the RGB announces hearing for rent increases next year that you lend your voice (or at least your emails) to challenging the landlords lies and threats if they don’t get the excess increases they demand every year.

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