How badly would a rent freeze affect New York City landlords? One credit agency now has an estimate.
A five-year rent freeze in New York’s stabilized apartments would drive about 6 percent of multifamily loans to default by 2030, according to a new analysis by Moody’s Ratings.
But that universe includes multifamily properties with no stabilized units. For buildings with at least one rent-stabilized unit, the rent freeze would cause more than 8 percent to default, with high rent growth in market-rate apartments helping some properties buoy their finances.
As New York’s Rent Guidelines Board this month considers enacting a rent freeze championed by Mayor Zohran Mamdani, the numbers illustrate the potential fallout for a distressed segment of the housing stock.
“There are a lot of other buildings that will lose NOI and feel financial stress, especially if their expenses increase faster than what we’re projecting,” said Darrell Wheeler, head of CMBS research at Moody’s.
Moody’s researchers used two tests to determine if New York properties would be financially strained by a freeze: if a debt service coverage ratio dipped below 1.0, indicating that net operating income is less than debt service; and if a net operating income dipped below 6 percent of the total loan amount at any time.
In a high inflation scenario, they assumed expenses growing at 4 percent per year, with growing at 3 percent per year.
In that high inflation environment, more than 14 percent of loans associated with rent-stabilized properties would fail at least one of the tests by 2030.
However, researchers from Moody’s found that many of the loans on the properties were already in trouble before this year. They concluded that of the 51 loans that would be financially strained, in only 29 cases could that failure be specifically attributed to a rent freeze. That works out to 8.3 percent of loans defaulting in buildings with at least one rent-stabilized unit.
Most of those loan defaults were in properties where more than 90 percent of the units are rent-stabilized. For properties more than 90 percent stabilized, debt service coverage ratios would decline 0.11x on average, according to the analysis.
New Yorkers are more rent-burdened than any other major city analyzed. The bottom fifth of New Yorkers by income spent about 133 percent of their income on rent, according to the analysis. Those in the 40th percentile of wage earners spend 62 percent of their income on rent.
The Rent Guidelines Board is likely to consider that rent burden as it weighs a rent freeze. Moody’s researchers said low affordability was spurring tougher rent regulations nationally.
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