There are three types of rents in NYC: Rent Stabilization, Rent Controlled, Market Rent – There are huge differences between the three of these.
An apartment can be rent controlled. If the person currently on the lease has been on the lease since 1970ish, the apartment rent is fixed. It will not increase or decrease. This is why you hear of giant apartments in the village for $400. However, when that person leaves, the apartment is no longer rent controlled. The landlord can increase the rent to the next tenant. The next tenant will then pay market rent.
An apartment building can be rent stabilized. This is for most pre-war buildings. Even when tenants change, the apartments remain rent stabilized. Rent stabilized apartments can only increase by the amount decided by the New York Rent Guidelines Board each year. It can be a 1% increase or a 4% increase. The landlord does not have control over this and it is non-negotiable. Also, the tenant of a rent stabilized building cannot be evicted for no reason. They have to be given the option to renew.
Market rent is simple. This is rent decided by the landlord, essentially controlled by the market. This is where rents can increase by several hundred dollars year to year. And where it’s common to negotiate your rent. You can be evicted on a whim regardless of how long you’ve been there.
Lease Renewal on a Rent Stabilized Apartment
I originally wrote about rent stabilization in nyc several years ago when I was deciding to sign a one or two year lease. At that time, a 2% increase for a one-year renewal, was my choice. Unfortunately, the risk didn’t exactly pay off. The following year, a one year renewal was 4%. So I lost a little bit of money. Not much. But it did show me just how fickle the NYC rent policy is.
The chart above shows this year’s rent increase and historical rates. Because of last year’s 4% increase, the 2014-2015 year is better. One year leases increase by 1%, two year leases increase by 2.75%.
Mathematically, signing the two-year lease will only save me money if the 2016 rent increase is 4.5% or higher. That’s not quite a risk I want to take, though. Especially considering this year’s increase is so low, at 1%.
Signing a one-year lease has the advantage of flexibility, if you want to move out at the end of that year. At the same time, a two-year lease will give you comfort in knowing you don’t have to worry about all this for at least two years.
Your long-term plan for living in your apartment should also be factored into this decision. If you live there for 5+ years, your savings in rent on a two-year lease will show more. If you know you’ll be there for a while, it’s not a bad choice. Especially for your comfort. Either way though, we’re still not talking about a huge difference in money throughout the years.
Running the Numbers on Stabilized Rent
For my rent, signing a two year increase will bring my rent up to $1,460. It might as well be infinity. This is still below 50% of my monthly income but not by much. Paying the 2.75% increase adds up to an extra $937 over the course of two years. If I sign a one-year lease, then the second year will have to be 4.5% to make that increase add up over $950. Either way, it’s not that much of a difference. Less than $50 total. And I just spent that in my time calculating all this out.
Rent stabilization doesn’t have to be complicated. Forget about money for a second and think about comfort. If you love your place and don’t want to gamble, then sign the two-year lease. Chances are, you won’t lose anything on it. But if you aren’t sure about your place, not taking the risk likely won’t hurt you either.
The first year here, I took the gamble and it didn’t really pay off. I would rather have the assurance of two years. And not have to worry about another increase. Thankfully, I don’t actually have to worry about this until February 2015. But currently, I am planning on signing the two-year lease for an increase of 2.75%, $1,460/mo total. This is for a 650 sq ft 1br apartment (3 rooms: living room, bedroom, foyer) in nowhere Brooklyn, 10 mins from a subway and not really close to bars/restaurants.
This is what it’s like to live in nyc.