The $20,000 Stove: How Fraudulent Rent Increases Undermine New York's Affordable Housing

Abstract

New York is city of renters, with 2.1 million rental apartments. The majority of those apartments -- 1.4 million -- are regulated under the laws of Rent Stabilization and Rent Control. One of the key benefits of rent regulation for our city is that it keeps rent levels predictable, an important benefit for working- and middle-class neighborhoods.There is a major loophole in the system called the "1/40th program". This loophole allows a landlord to raise the rent on an unoccupied apartment by passing the cost of physical improvements to the next tenant by raising the monthly rent an amount equal to 1/40th of the total cost of the improvements. There is no oversight of any kind of the 1/40th program. Landlords are allowed to unilaterally impose 1/40th rent increases without prior approval, or even documentation. As a consequence of this lack of oversight, fraudulent abuse of the 1/40th program is increasingly common. This includes, for example, claiming a rent increase based on $40,000 when only$10,000 was actually spent on improvements. The lack of oversight of the 1/40th program has led to widespread fraud, and a significant loss of affordable housing. The state housing agency must accept a more active oversight role of the 1/40th program by using its current authority to audit increases and inform tenants residing in apartments where the landlord has filed a 1/40th increase. Additionally, tenants and housing advocates are calling for legislative changes that would extend the amortization formula from 40 months to 84 months and give the state housing agency a stronger oversight role by authorizing it to approve rent increases. These changes are necessary to discourage fraud, ensure that the law is upheld, and preserve affordable housing