With little fanfare, last February (2019), Hoboken passed a bill 8-0-1 that “closed a rent control loophole.” Prior to the bills passage, property owners could pass the pro-rata share of the increase in property tax (since 1988) to tenants in the form of a property tax surcharge, above and beyond the legal market rent. The bill changed the basis to 1988 or the date when the current owner purchased the property, whichever is later. The mayor’s office touted “closing a rent control loophole” but all they really accomplished was shifting more of the property tax burden on multi-family homeowners. Property tax in Hoboken, while comparatively low from a rate perspective relative to surrounding towns, is still outrageously high – ours runs nearly $21k per year. It’s only fair that the pro-rata share be accounted for in legal rent.
For Homeowners, like my Wife and I, who purchased our 2-family in 2018, the impact was significant – we lost the ability to pass along a $500+ per month share of the property taxes to the rental unit that we were in the middle of renovating so that we could maximize the rental value. The City would likely point out that there is a process to increase the legal rent associated with renovations; however, the increase is amortized over 10 years, and the process is arduous – it involves a board hearing and requires you to prove all expenses for the renovation. As we renovated the entire building and the quote was not itemized at the unit level, we decided it simply wasn’t worth the bureaucratic hassle. Like many other Hoboken owners, we opted to try our luck with AirBnB and i have to say, while it’s more work, the income far exceeds market rent rates. As niche services such as TurnoverBnB and Short Term Rental Property Management Services become more commonplace and reduce the Administrative burden on Homeowners, we’re likely to see more and more owners shift inventory towards the short-term rental market (AirBnB / VRBO). Tightening rent control rules to unreasonably favor tenants at the expense of Homeowners will only accelerate this shift and create a supply shortage in the rental market.