A Christmas Tale Of New York's Housing Follies

If you are looking for a heartwarming story to savor this Christmastime, perhaps you will enjoy the tale of Ms. Noelle Penraat of Manhattan.  Ms. Penraat's tale illustrates the results that New York has been able to accomplish by putting in place an array of housing programs designed to achieve perfect fairness between and among all people through government direction.  

Ms. Penraat, 62 years old, occupies a four-bedroom duplex apartment overlooking Central Park at 315 Central Park West, corner of West 91st Street.  Those familiar with the most expensive sub-markets of super-expensive Manhattan real estate will recognize this address as something quite close to the very top of the food chain.  Yes, a similar apartment a little further south on CPW in the 60s or 70s would command yet a higher price, and maybe something on Central Park South would go for even more still.  However, even without being given the square footage of the apartment, we can be sure that its monthly free market rental value would be at least $10,000, and likely even $15,000.  In other words, Ms. Penraat is a top member of the New York real estate nobility.

But despite her status as a top member of the real estate nobility, somehow New York City has decided that Ms. Penraat should be entitled to a massive rent discount.  She is a beneficiary of a New York City program called "rent control," which limits rent increases to minimal amounts for a now small class of tenants who have occupied their apartments continuously since 1971 (or earlier).  (Today there are fewer than 40,000 "rent-controlled" apartments in New York City.  Another program called "rent stabilization" regulates the rents of another one million plus apartments.)  And then there's another New York City program called "Senior Citizen Rent Increase Exemption," or "SCRIE," under which those 62 and older with incomes less than $50,000 can claim exemption from any further rent increases for the rest of their lives, and the taxpayers pick up the increases through credits against the landlord's real estate taxes.  Ms. Penraat has also claimed the benefit of this program.  

According a December 23 article in the New York Law Journal, Ms. Penraat's controlled rent is $4477 per month, minus another $284 per month for her SCRIE exemption, leaving a net of $4193 per month.  In other words, by virtue of New York's rent regulation efforts, Ms. Penraat receives discounts off market rent of something in the range of about $6000 to $11,000 per month, or $72,000 to $132,000 per year -- none of which, of course, counts in her "income."  Somehow, this is what the City of New York has determined to be "fair" in the case of Ms. Penraat, although it is not really possible to explain exactly why she is the one out of all of New York's 8.4 million residents who gets the premier CPW park view apartment at a huge discount. 

With lots of extra space in the apartment and great Central Park views, Ms. Penraat then did what any self-respecting American would do with the opportunity, namely she listed various bedrooms in her apartment on Airbnb to make a buck.  By early this year she had quite a business going.  According to the Law Journal, she averaged $6500 in monthly rental income in the period January to June 2014 -- well in excess of her $4193 monthly rent outlay.  

Somehow, though, all this did not meet Ms. Penraat's landlord's concept of "fairness."  He has filed a case in New York State Supreme Court against Ms. Penraat asserting that she is taking unfair advantage of New York's rent regulation programs.  A decision in the case by Justice Carol Edmead got coverage on December 23 here in the New York Law Journal and here in the New York Post.  Per the Law Journal, Justice Edmead has granted a temporary injunction against Ms. Penraat, prohibiting further use of her apartment as a B and B:

The judge, who issued a temporary injunction against Noelle Penraat, said records Penraat presented indicated she made substantial income from renting to visitors arranged through Airbnb in 2013 and 2014 in an "incurable" violation of Rent Control Laws.

Well, but if she has committed an "incurable" violation of the Rent Control Laws, does she lose the massive rent discounts, or for that matter, get evicted from the apartment?  No word on that in this decision.  My bet is she will neither lose rent-controlled status nor get evicted.  In New York there is virtually no such thing as a lease violation sufficient to cause a person to lose out on rent control status.

And you are probably asking, how does Ms. Penraat get the SCRIE exemption -- supposedly available only to those with income under $50,000 -- when she gets a minimum of $72,000 in annual rent discounts, let alone $65,000 in revenue from the Airbnb rentals in just the six months from January to June 2014?  Clearly the $72,000 does not count for these purposes.  And I guess the $65,000 didn't count either, at least in the flexible mind of Ms. Penraat.  Hey, she's New York housing nobility!  She's just got the system figured out better than the rest of you saps who make cash income at a job and pay full taxes before taking most of what's left to pay your rent.