No one ever said living in New York City is cheap. But surging expenses in recent years are threatening to squeeze home owners even more.

Fees paid to cooperatives and condominium boards have soared almost three times faster than the rate of inflation. Ever-tougher rules on inspections, escalating insurance premiums and preparations for a strict new climate law are adding hundreds or even thousands of dollars to monthly bills for residents already paying some of the world’s highest housing costs.

While the charges may be little more than an annoyance to the wealthy owner of a Park Avenue penthouse, they could force New Yorkers of more modest means – from families to seniors on fixed incomes to young first-time buyers – to give up on their hard-won foothold in the city.

“When you put it all together, we’re going to end up being a city of the very rich and the very poor,” said Ms Mary Ann Rothman, executive director of the Council of New York Cooperatives and Condominiums. The people in the middle who “want to make a commitment to the city by buying into co-ops and condos are going to be pushed out”.

Co-ops, or cooperative housing, are usually seen in more affordable apartment buildings, which residents collectively own and govern.

At one Riverside Drive co-op, the bill for two recent inspections was US$28,000 (S$38,400), followed by fixes that totalled US$1.4 million. The cycle of near-constant repairs and construction across the city is pushing up insurance expenses, which have jumped over 300 per cent for some properties. Upgrades to outdated heating and cooling systems could amount to US$25,000 for each home owner at certain buildings, according to an estimate from a supporter of the new carbon-emissions limits.

After years of steep inflation in the United States, New Yorkers are not alone in paying higher prices for everything from taxes to water, gas and electricity. As routine expenses have surged, so have the fees the city’s condo and co-op boards charge unit owners. Those bills – meant to cover utilities, labour and basic building maintenance – jumped about 54 per cent between the first quarter of 2020 and the third quarter of 2023, according to real estate appraiser Miller Samuel. Across the economy, US consumer prices rose 19 per cent in the same period.

Piled on top of that are costs related to complying with the city’s stricter building standards. Some home owners and real estate professionals complain that the rules are excessive, and speculate whether special interests that stand to profit might be behind them. Advocates argue the mandates – strengthened after a falling piece of terracotta struck and killed a pedestrian in 2019 – are needed to keep New Yorkers safe in their homes and on the city’s streets as properties age. 

“All these regulations are really putting a severe financial strain on these buildings where the shareholders really don’t have the resources to pay for everything,” said Mr Gustavo Rusconi, vice-president and director of management at Argo Real Estate. “I understand they’re in place for safety reasons, but they really are squeezing everyone.” 

‘Everything’s a cost’

By law, the exterior walls of every property of more than six storeys must be examined every five years. With each cycle, the city has added more requirements, which in turn have raised compliance costs.

Inspecting a 100-unit building in Brooklyn with about 61m of perimeter walls would cost roughly US$30,000, said Mr Peter Varsalona, principal and vice-president of Rand Engineering and Architecture. It would have been cheaper five years ago, before the city mandated that close-up inspection from scaffolding or other platforms must be done at every 18m – at a cost of roughly US$7,500 each. If it is a post-war building with cavity walls that need to be probed, another US$20,000 is added to the price.

In Mr Varsalona’s example, each unit would be responsible for a proportional share of the cost. While an additional US$500 or so for an inspection may not be a huge burden, the repair bill often can be. 

In the wake of the pedestrian’s death, the city now bans repairs to damaged terracotta elements and instead requires that they be fully replaced. The tab could reach US$2.5 million as pieces are recast and other repairs are made, pipe scaffolding is rented, the project is insured and a consultant advises on the process, Mr Varsalona said. That would translate to US$25,000 on average that each owner in a 100-unit building would have to pay, on top of existing maintenance or common charges.

“Everything’s a cost. How much can you put on co-op shareholders? There are limits,” said Mr Varsalona, who is also president of the Council of New York Cooperatives and Condominiums. “Many owners are going to have to figure out if it is affordable to live in the city or not.”

Insurers are ‘bleeding’

When it comes to insurance, boards are paying more and getting less.

Long-time providers are leaving the market, forcing buildings to stitch together multiple policies to get anywhere near the coverage they had just a few years ago. One affordable co-op in the Bronx, for example, is paying 45 per cent more for just 15 per cent of the coverage it had previously.

While natural disasters have sent the industry reeling nationwide, much of the pressure in New York is coming from multimillion-dollar “nuclear verdicts” payouts, which are sometimes more than what plaintiffs sought in accidents involving construction work.

Insurers are increasing prices to make up for their losses, said Mr Sean Kent, senior vice-president at FirstService Financial, an insurance broker that works with 600 co-op and condo buildings in the city. Annual premiums at those properties rose as much as 300 per cent in 2023, though the average rise was about 25 per cent, he said.

Traditionally, buildings would pool together to buy so-called umbrella policies, with better coverage at lower rates than they could secure on their own. But now that carriers are “bleeding”, those plans are disappearing, said Mr Chip Stuart, North American real estate practice leader at insurance brokerage Hub International.

The Amalgamated Housing Cooperative, a complex of 11 buildings near Van Cortlandt Park in the Bronx, paid US$2.4 million in 2022 for US$650 million of coverage, the level required by its mortgage lender. Now its bill is US$3.5 million for just US$100 million of coverage, cobbled together from 10 different insurers.

The board is still working to make up the difference, according to its treasurer Ed Yaker, who said skyrocketing insurance costs are a surprise to residents.

“The average guy who just lives in the building, who doesn’t think about it and doesn’t serve on the board, doesn’t understand why it’s happening,” Mr Yaker said.

Climate costs

For all but the most energy-efficient buildings, the largest expense on the horizon will come from Local Law 97. The measure requires properties of at least 25,000 sq ft to begin reducing their greenhouse gas emissions by January 2024, though proposed changes could give two more years of leeway to building owners that show a “good faith effort” to comply.

A study commissioned earlier this year by the Real Estate Board of New York estimated that nearly 15 per cent of co-ops would be out of compliance with the emissions limits, facing average annual penalties of about US$57,000. Without updates, 72 per cent of co-ops will face similar fines beginning in 2030, when the city’s rules become more stringent.

Overhauling a residential building’s heating and cooling systems comes with “a significant cost”, generally amounting to US$20,000 to US$25,000 for each unit, which can be spread out over several years, said Mr Pete Sikora, a campaigns director at New York Communities for Change, a group that advocated for the law’s passage. 

Buildings will be able to apply for grants to make upgrades less onerous, and heating with electricity instead of gas or oil would ultimately save money, Mr Sikora said – two reasons why he and others are optimistic about compliance. 

“There is no serious threat to affordability in any large-scale way,” he said. 

But critics have been vocal in arguing it would put a heavy burden on home owners. Mr Warren Schreiber, co-president of the Presidents Co-Op and Condo Council, and his allies are suing to stop the law’s implementation while supporting city council Bills to water it down. 

“Yes, we should do something about the climate,” Mr Schreiber said, “but the burden should not be put on the shoulders of co-op and condo owners.” 

He estimated the tab for modernising his building, the Bay Terrace Cooperative in north-east Queens, at as much as US$5 million. That would leave each of the complex’s 200 units with a US$25,000 bill, which he said is unrealistic to expect his fellow shareholders to pay. 

“We have young families that are just starting out and struggling to make ends meet. We have civil servants, we have teachers, firemen, police,” he said.

“We don’t have a lot of those millionaires – as a matter of fact, we don’t have any, as far as I know.” BLOOMBERG