Press Release: The BRI Comments on the 2022 MCI Reasonable Cost Schedule
Comment on the 2022 MCI Reasonable Cost Schedule Per Update to Operational Bulletin 2021-1
January 25, 2022
(ARMONK, N.Y.) We appreciate the opportunity to present some commentary and feedback on the 2022 schedule of reasonable costs for Major Capital Improvements (MCIs).
It is worth remembering that the MCI program has been a critical part of ensuring that rent stabilization works for everyone, landlord and tenants alike, by providing an incentive to encourage more than just regular wear and tear maintenance on rent-stabilized apartments, but to truly invest in the upkeep of these properties for the safety and dignity of residents.
There are 34,221 ETPA units in 1,773 buildings in Westchester County. Well over a third of those buildings were built before the Second World War. These buildings periodically require the usual major repairs of any building – boilers, entrance ways, roofs. They require electrical upgrading. They are particularly vulnerable to energy inefficiencies which must be corrected at a time when Westchester is facing the dual energy crunch of the Con Ed natural gas moratorium and the closure of Indian Point. Finally, the communities of Westchester are struggling with a housing shortage, are trying to find ways to allow seniors to age in place, and are trying to present more housing options for those with disabilities. It is more important than ever to keep the rental apartments that already exist in our area safe, secure, livable, and comfortable for the residents who inhabit them, and to finance the repairs that will keep them so.
This challenge has lately been made even more difficult by a combination of policy and circumstance.
On the policy front, the Housing Stability and Tenant Protection Act, with its reduced incentives for the MCI as well as the IAI program, combined with successive allowable rent increases passed by the Westchester Rent Guidelines Board that fell far below the cost increases necessary to maintain the buildings, and added to some challenging circumstances brought on by tenants who were unable or unwilling to pay their rent during the COVID-19 pandemic that was only partially alleviated by the Emergency Rental Assistance Program (ERAP), has made the financing of repairs and improvements difficult, particularly for smaller landlords with ETPA units.
In terms or circumstance, many of the cost inflation that the region and the nation is now experiencing were first noticed in the surge in lumber prices in April 2020. After a brief period of stabilization, the cost of lumber has once again skyrocketed. According to Random Lengths, as of December 29, 2021 the price of framing lumber topped $1,000 per thousand board feet — a 167% increase since late August.
Other building materials are currently surging as well. An analysis by the National Association of Home Builders found the following building materials all increased by 30% or more since the previous year: steel mill products, building paper and building board mill products, asphalt, plastic water pipe, thermoplastic resins and plastics materials, wood window and door frames, and copper pipe and tubes.
Inflation projections for 2022 vary, but even the most optimistic estimates assume there will not be a “return to normal” in the range of 2.2-2.6% until the second half of 2022. There is also not a guarantee that a broader decrease in inflation will apply to building materials specifically. After all, the surge in lumber prices predated broader inflationary concerns by over a year. Lumber prices are tied to major issues of lack of supply from local lumber mills combined with tariffs on Canadian lumber that may not dissipate when most inflation recedes.
With this in mind, our first recommendation would be for DHCR to consider a mid-year review and, if necessary, adjustment to the pricing for the types of repairs that would be most susceptible to a continued surge in building material prices, especially Doors, Exteriors, Parapets, Plumbing/Repiping, Rewiring, Roof, and Windows.
Our second recommendation is that the Windows section ought to be revised to take into account one of the major factors that leads to variation in price – specifically panes of glass, which is an important contributor to energy efficiency in all buildings and a major need of renovation for pre-war buildings. At a time when there is an increased focus statewide on reducing energy consumption and carbon emissions, we would urge DHCR to create a pricing structure that encourages property owners to make the investment in multi-pane windows as much as in specific window frame materials.
Our third recommendation is to keep a watchful eye on escalating labor costs in future years. Even prior to the pandemic, we had many concerns that labor costs in our area and much of New York will continue to be on an upward trajectory that may not keep pace with the schedule before us. Some of this is driven by a well-documented labor shortage among construction and contractors, as well as by external factors such as the continued roiling of insurance markets as more carriers elect to drop coverage in New York rather than keep up with the cost-driving effects of the Scaffold Law. In addition, HSTPA requires a licensed architect or engineer to consult on the project, a requirement that is cost-prohibitive in small buildings and which some of these cost estimates couldn’t possibly recoup over time. It is a major cost driver that warrants continued vigilance.
As always, we appreciate the serious and data-driven approach the Department brings to these cost schedules, and we appreciate the opportunity to offer these comments.Timothy Foley
CEO and Executive Vice President The Building & Realty Institute
The Building and Realty Institute of Westchester and the Mid-Hudson Region (BRI), based in Armonk, has more than 1,800 members in 14 counties of New York State, including home builders, commercial builders, renovators, property managing agents, co-op and condo boards, and owners of multifamily apartment buildings in many communities, as well as suppliers and service providers with a special focus on real estate. The BRI’s mission is to improve the relationships among builders and real estate business owners to the mutual advantage of the industry. For additional information, please visit https://www.buildersinstitute.org.