Many apartments in some of America’s biggest cities, including San Francisco, Los Angeles, Washington, DC, and of course New York, are subject to rent control. DC has nearly 80,000 rent-controlled apartments; San Francisco has about 172,000 units (about 75% of its rental housing), Los Angeles has about 638,000, and NYC’s system covers up to almost half of the city’s rental housing stock, more than a million units.
Being ensconced in an apartment with a regulated rent can feel like the Holy Grail of housing in any high-priced metropolis; but perhaps especially in New York City, where the average home price in Manhattan recently hit $1.87 million.
The median rent for a rent stabilized or rent controlled apartment in New York City, including all boroughs, is about $1,155. In Manhattan’s core, it’s $1,460.
In each city, authorities establish allowable rent increases for apartments under rent control. These are typically pegged to inflation and local costs-of-living. New York is unusual in that landlords of rent-regulated units have to offer tenants the choice between one-year and two-year leases. The increases have ranged over time from 0 - 11% for a one-year lease; and 2 - 14% for a two-year lease; with occasional additions for tenants whose landlords pay for heat.
Tenants facing this decision often wonder: which lease should they choose? We crunched the numbers to find out.
Two-Year Leases are Generally a Better Deal for Tenants with Rent Stabilization
As a general rule, if you’re renting an apartment in NYC, and you don’t need to leave it anytime soon, you’ll end up saving money over time if you choose a two-year lease every time you renew.
Example 1: You snagged a rent-stabilized apartment for $700 a month back in 1995, and you always chose:
|1-year leases||2-year leases|
|In 2015, your rent is:||$1,256 per month||$1,202 per month|
|You’ve spent a total of:||$245,854||$230,832|
Let’s say you’re a real old-school New Yorker, and you (or your family member who passed the apartment to you) moved into your apartment back on October 1, 1975 at a monthly rent of $275 and you’ve been there ever since. Here’s how the choice between one and two-year leases would have played out.
|1-year leases||2-year leases|
|In 2015, your rent is:||$1,358 per month||$1,016 per month|
|You've spent a total of:||$388,187||$296,569|
The difference over your 40-year tenancy? A cool $91,618.
Because New York City’s Rent Guidelines Board stopped giving two-year renewers such a good deal in the mid-1990s, the renter in the first scenario would have only saved about $15,000 over 20 years.
In both scenarios, you’ll also end up with a slightly lower monthly rent if you regularly choose two-year leases, which will save you money on future payments (and rent increases.)
How to Get an Even Better Deal on Your Regulated Rent (as if you need one)
There’s at least one way New York’s rent-stabilized tenants could have done much better over time, compared to always choosing a 1-year lease, or always choosing a 2-year lease. They could have taken advantage of the fluctuations of the allowable rent increases from year to year.
The average allowable rent increases for rent stabilized apartments in New York City since 1995 have been just under 3% for one-year leases and a little less than 5.5% for two-year leases. But some years come in much lower, like 2015’s first-time-ever rent freeze for one-year leases. (Two-year leases can still increase by 2%.) And some years are much higher, like 2008 when they were 4.5 and 8.5%.
A renter could compare their current options to the recent averages. If the current options are much higher than average, he or she should choose a one-year lease, betting that the allowable increases will be lower next year. If the allowable increases are lower than average, she should choose a two-year lease, locking in that relatively low rate.
A renter using this strategy with their $700-in-1995 rent-stabilized apartment would have seen their rent rise to only $1,141. They would have saved $9,317 compared to a two-year renewal strategy; but $24,339 over a 1-year renewal strategy, which we’ve already found to be the most expensive approach.
Average Rent Savings for Rent-Regulated Tenants
Despite the legends of longtime New Yorkers living in palatial digs for a few hundred of dollars, the typical rent-regulated apartment only rents for about $355 less per month compared to the typical market rate unit.
A person would have to bank that difference for almost 88 years before he could afford even the standard 20% down payment on the average apartment for sale in Manhattan.