New York: Wealthy tenants occupy a surprising share of the rent-stabilized housing market

For most New Yorkers, living in a luxury apartment in Manhattan with rent half the market price, alongside a six-figure salary, sounds like an urban legend. But for a small group of tenants, this is reality, thanks to the city's rent stabilization law.

According to a Wall Street Journal analysis of 2023 data from the New York City Housing and Vacancy Survey, the most recent available data, the most affordable rental deals in the city go to some of the wealthiest tenants.

One-quarter of the highest earners living in rent-stabilized apartments in New York pay a median rent that is $1,000 a month lower than the rent for free-market apartments. This is a 33% savings on rent. Among the top 10% of earners, the savings reach $1,300 a month, a 36% discount.

In contrast, tenants in stabilized apartments belonging to the bottom three income quartiles pay only $300 less per month compared to market prices, saving 15%–22%.

No income verification

The increased savings enjoyed for years by affluent tenants in rent-stabilized apartments is one of the unusual features of New York's rent stabilization system, the largest of its kind in the USA.

Part of this discount gap is due to market forces. Affluent tenants tend to live in more expensive neighborhoods, where market prices are higher. Therefore, rent-stabilized apartments in these areas are significantly cheaper relative to market prices, even if they are still expensive for the average tenant.

"There are tenants who pay $5,000, $6,000, and even $8,000 a month for rent-stabilized apartments," said Aliyah Muhammad, CEO of rental data company Openigloo. Another part of this gap is a result of how the system is designed. New York's rent stabilization mechanism generally does not check the income level of tenants, and therefore it is not intended to prevent affluent tenants from benefiting from it.

"I cannot imagine a situation where they would have to perform income verification for a million apartments," said Brad Greenburg, executive director of the Furman Center at New York University. "Administratively, it seems almost impossible."

These tenants are expected to benefit even more from the rent freeze promoted by New York City Mayor Zohran Mamdani, which will take effect in October.

360,000 apartments have been removed from the rent stabilization mechanism in New York since 1994.
200,000 rent-stabilized apartments is Mamdani's goal by the end of the next decade.

A Wall Street Journal analysis shows that the median rent in rent-stabilized apartments in Manhattan is about half the market price, while in the Bronx, stabilized apartments are only 12% cheaper. In Queens, the rent in these apartments is 13% lower than the market price, and in Brooklyn, the discount is 24%.

There are factors in the real estate industry who see affluent tenants living in rent-stabilized apartments as a sign that the system is not functioning properly. According to them, stabilized apartments should reach people who could not afford to pay market prices.

"These data show that the system is not functioning properly," says Massimo D'Angelo, a New York real estate attorney who represents private landlords. "These apartments should be allocated to people who really need them."

On the other hand, tenant rights organizations do not see a problem with the fact that a small part of the tenants in rent-stabilized apartments are affluent. From their perspective, this is actually evidence that the city needs more such apartments, not fewer.

"This is not a welfare program. That is not the goal of rent stabilization. We are not only looking out for the most needy," says Daryus Khalil Gordon, executive director of the Metropolitan Council on Housing. "The goal is to ensure that people can afford to live in the city they love."

Rent-stabilized apartments are the holy grail for apartment seekers in New York. They are different from rent-controlled apartments, where rent is subject to caps set by the state. Rent-stabilized apartments, on the other hand, are subject to decisions by the Rent Guidelines Board, an independent city body that sets the maximum rent increase rate that landlords are allowed to charge annually.

The vast majority of tenants in rent-stabilized apartments are low-income, and most of these apartments are concentrated in the Bronx and Washington Heights, along with certain areas in Queens and Brooklyn.

Mamdani's promise

With a million rent-stabilized apartments scattered across the city's five boroughs, economists say that even affluent tenants are expected to benefit from the system. In neighborhoods like Midtown East, the average monthly rent for a two-bedroom apartment is about $7,500, a 17% increase from last year according to data company Zumper. These price increases have caused tenants to view rent-stabilized apartments as a kind of essential insurance policy.

Apartments usually enter the rent stabilization regime if they were built before 1974, the year the law took effect, or if they benefit from public funding or some tax benefits. During his election campaign, Mamdani pledged to create 200,000 additional rent-stabilized apartments in the next decade.

According to an analysis of 2023 data conducted by the Citizens Budget Commission, high-income households occupy about 10% of all rent-stabilized apartments. More than 86,700 of these households earned over $200,000 a year.

In the past, landlords could convert rent-stabilized apartments to free-market apartments if the tenants living in them earned more than $200,000 for two consecutive years. They could also raise the rent after making certain improvements to the property, following the departure of tenants.

According to the city's Rent Guidelines Board, since 1994, more than 360,000 apartments have been removed from the rent stabilization mechanism. However, in 2019, the state significantly limited these options, and since then, the real estate industry has been working to restore them. "Today there are no annual checks of tenant incomes," said D'Angelo, the real estate attorney. "That must change."