The Rent Racket

New York City was supposed to have a rent freeze, but a loophole allowed many landlords to side-step the limits.

Not news: New York City is an expensive place to live. Rent increases have far outpaced wage growth in recent years, even as city officials have forgiven billions in property taxes to landlords who agree to limit rent hikes on their tenants in exchange for the tax breaks.

News: The city never bothered to check and make sure that landlords were holding up their end of the bargain, and when it did, enforcement was so weak that owners could simply ignore regulators and keep collecting millions in benefits while overcharging their tenants.

The result: Soaring rents that have lined unscrupulous landlords’ pockets, contributed to what Mayor Bill de Blasio acknowledges is a “crisis,” and left tenants, building workers and taxpayers holding the bag.

That is what I discovered when I led a project at ProPublica to dig into New York City’s soaring housing costs. Titled “The Rent Racket,” the long-running series (Nov. 2015-April 2017) showed how well-intentioned policies can quickly turn into wealth-transfer programs if governments do not keep watch over them. My reporting documented this breakdown – and made regulators and lawmakers pay attention.

You can find all the Rent Racket stories on the series landing page at ProPublica. Here are a few highlights:

  • The first story in the series, “Landlords Fail To List 50,000 N.Y.C. Apartments for Rent Limits,” (Nov. 5, 2015) did something regulators should have been doing all along. I cross-checked the city’s tax rolls to see which properties receiving the 421-a and J-51 benefits had actually registered their buildings for rent stabilization as required by law. The data analysis showed that landlords were collecting more than $100 million a year in tax benefits while flouting the rent-stabilization law. About 50,000 apartments were missing from rent-stabilization rolls, often for years.
  • “Tenants Take the Hit as New York Fails to Police Huge Housing Tax Break” (Dec. 4, 2015) provided New Yorkers a vivid illustration of the failed oversight of the 421-a program, which costs the city more than $1.4 billion a year in lost revenue. Jed Walentas, one of the city’s most prominent real estate developers, had pocketed more than $10 million of property tax savings on a signature Brooklyn building despite serially overcharging tenants and doing virtually nothing required of him under the city’s 421-a program.
  • “NYC Lets Luxury Building Owners Stiff Workers and Still Get a Tax Break” (Dec. 30, 2015) exposed another failure of the 421-a program. Building owners collecting the benefit were required by law to pay “prevailing wages” to doormen, janitors and other service workers. These wages – based on comparable union rates – are significantly higher than the minimum wage. But no one was minding that rule either. At one building getting a nearly $1 million-a-year tax break, a doorman I interviewed needed food stamps and rent subsidies of his own to get by because the owner paid him far less than he was supposed to earn.
  • In “New York Isn’t Telling Tenants They May Be Protected From Big Rent Hikes” (July 6, 2016) I documented how New York state’s housing agency buckled to pressure from the real estate lobby and misinterpreted a key provision of the J-51 tax break. Owners are only supposed to get the tax benefit if they limit rent increases on tenants, but the housing agency allowed owners to charge market rents. The error made a permanent dent in the city’s supply of affordable housing. Twenty years later, when Gov. Cuomo sought to finally enforce the law, his effort was so toothless that the state housing agency didn’t even bother telling tenants they may be protected from big rent hikes if they live in a building receiving J-51 benefits. I profiled the story of one family, the Piedras, who nearly lost their home because of this.
  • In “The Fateful Vote That Made New York City Rents So High” (Dec. 15, 2016) my colleague Marcelo and I took readers back in time to 1994, when the New York City Council took the first step toward weakening rent laws by implementing “vacancy decontrol.” That’s the measure that allows landlords to take apartments out of rent stabilization once they cross a certain threshold. It was billed as a small change that would only affect a small number of wealthy tenants who can afford to may more rent. It didn’t turn out that way.
  • “Why Developers of Manhattan Luxury Towers Give Millions to Upstate Candidates” (Dec. 30, 2016) was one of my favorite stories in the series. Co-reported with The Real Deal’s Will Parker, this story followed the money trail from New York City’s real estate industry to Albany by individually mapping thousands of campaign donations from various LLCs controlled by the city’s property tycoons. The result was a technicolor illustration of how the real estate industry uses those donations to win influence with state lawmakers and prevent any tenant-friendly bills from ever getting a vote on the New York Senate floor.
  • The final mainbar in the series was “New York Landlords Exploit Loophole to Hike Rents Despite Freeze” (April 25, 2017). It was an exposé of how property owners exploit “preferential rents” to boost rents by more than allowed under state rent stabilization laws. The loophole originated in typical midnight lawmaking in Albany dressed up as a technical change that wouldn’t impact anyone. Fast-forward to 2017, and it’s impacting almost 30 percent of the city’s rent-stabilized housing stock, which is already shrinking rapidly because of the vacancy decontrol law we profiled in our Dec. 2016 report.

I’m forever grateful to ProPublica for giving me the runway to report on this project on-and-off for nearly two years. It was the reporting experience of a lifetime, taking me from far-flung industrial corners of the Bronx to the living room of a family in a gentrifying corner of South Slope, community meetings and tenants’ association meetings, protests and countless hours logged canvassing buildings and neighborhoods to hear people’s stories.

Best of all, the series had impact. Lawmakers have introduced legislation at the city and state level to boost oversight and stiffen penalties on landlords who ignore the law, in addition to holding hearings at which state and local officials have been grilled about the lax oversight. The stories have also inspired tenants to seek justice, as I wrote in this profile of the founder of Housing Rights Initiative for The Wall Street Journal.