Dollars for Bedrooms: Milk Subsidy for Maximum Value

Forget “location, location, location.” Real estate is basically ‘location, bedrooms and bathrooms’.

When I bought a condo unit in Brooklyn in a converted single-family home, I noticed that the developer had placed the bathrooms back to back in the middle of each floor. Why? Having two baths is good for marketing.

But we were left with a small kitchen – and we rarely used the second bathroom. So my wife tore it out and expanded the kitchen.

The following year she had twins. Luckily they were boys, so one bathroom was enough.

I thought of this story when I heard that landlords are getting creative with renovations to maximize revenue from rental vouchers.

Voucher payments are linked to the number of bedrooms. But adding legal bedrooms takes much more than moving mattresses.

Bedrooms in New York City should have natural light, which means at least one window. (This increases the cost of housing, especially when a building with large floor plates is converted into apartments.) The CityFHEPS voucher program also requires bedrooms to be at least a certain size.

But with a good architect, a landlord can overcome these obstacles.

Diego Rios (LinkedIn)

Diego Riosa real estate agent and mortgage lender with Home Global Realty in Cypress Hills, said he sees this especially in top-floor apartments. Owners move a living room or kitchen to the center and install a skylight above it. This creates space at the front or back of the furniture – or both – for bedrooms.

“In this way, the requirements for windows in every bedroom are met,” says Rios. “These units barely meet room size requirements, but pass inspection.”

If you go from one bedroom to two, increase the CityFHEPS payment from $2,762 to $3,058. Over a year, that amounts to $3,552 – usually not enough to warrant a renovation.

However, if you go from two bedrooms to three, the monthly rent for a voucher unit rises to $3,811, an annual gain of $9,036. (At CityFHEPS, tenants pay 30 percent of their income for rent, and the voucher makes the difference.)

One thing that bothers Rios is that rental vouchers are paid strictly based on the number of bedrooms. It seems to him that the quality of the unity must count for something.

“Some landlords don’t care as long as the city keeps paying,” he told me. “Others are doing everything they can to make the apartments more than habitable.”

Rios believes apartments should be graded at the initial voucher inspection and periodically thereafter, with higher grades resulting in more money for the owner. That would encourage some to make improvements. But he acknowledged the city would struggle to implement such a program.

I would also worry that the prospect of repeated inspections would deter landlords from renting to a voucher holder in the first place. Numerous inspections may result in a unit being disqualified after it is initially approved for a voucher user.

The loss of a voucher can immediately put a tenant in arrears and cost the owner crucial revenue. Therefore, it is crucial to consider all regulatory implications before introducing new regulations, no matter how well-intentioned they may be.

One idea I haven’t heard much about lately is changing the light and air requirements for a room to qualify as a bedroom.

Berkshire Hathaway billionaire Charlie Munger offered to donate an initial $200 million to build an 11-story, 1.7 million-square-foot dormitory with “virtual” windows in 94 percent of the bedrooms. Disney cruise ships also have virtual portholes in interior cabins, so why not for students?

Unfortunately, Munger’s plan was met with severe backlash, entirely from people who did not offer to donate $200 million for student housing. The plan was demolished in August 2023. Munger died three months later.