I remember New York City ten years ago. While prices were high back then, they were never outrageous. The same cannot be said about rental prices today. There’s a serious problem in the New York rental market that many are talking about, but nothing appears to be changing. Experts and commentators inconceivably try to dismiss the problem by saying that high rent is “just the way New York has always been.” But, for the time being it does not make sense. Rental prices are out of control. It most certainly is not a good market practice nor is it good for New Yorkers. The rent really is too damn high!
I recently read an article on my daily commute titled “Number of Manhattan rentals declines, as move-in incentives continue to grow,” and it discussed the incentives landlords have been giving out to people so that they will be interested in renting an apartment. Some of the concessions offer applicants one month of free rent if the applicant signs a 2 year lease and so forth. Over the years, I am traditionally used to seeing concessions being offered from November to March. Once the weather starts to warm and those suffering from allergies feel the effect of pollen in the air, rental concessions tend to disappear. Interestingly enough it is the month of May and I am seeing far more rental concessions than in previous years. Prices are so high that landlords need to put something else on the table to bring in clients. According to the President of Citi-Habitats, people are not renting because the New York rental market is “out of touch” with the financial state of New Yorkers. New Yorkers pay nearly 60% of their income in rent. This means money that could be spent on sending kids to decent schools goes to rent, vacations have to be cut short, saving money to buy a home is nearly impossible, and spending on food needs to be rationed. We can bring incentives in all we want, but if New Yorkers cannot afford it, they will not rent it. This practice hurts renters, it hurts landlords, it hurts real estate agents and it hurts our real estate market. So why does the rent keep increasing?
There are a number of reasons. For one, foreign and local investors are buying properties all cash, buying out tenants, renovating the buildings and doubling the rent as a means to make their money back. One can argue that the root cause of this phenomenon at the local level is because the Federal Reserve is lending money to banks and financial institutions at extremely low interest rates. The banks and financial institutions turn around and lend to investors/developers at a low rate as well. I am seeing this practice in working class neighborhoods like Bushwick, Brooklyn. It is my belief that the residents of these neighborhoods cannot afford these severe rent hikes. Yet, many investors argue with me and say they have “hipsters,” “yuppies,” and students whose parents are paying their rents. Or low wage unskilled workers converting a two-bedroom apartment with a living room into a 3 bedroom and make the rent work. But, for how long will this last? It appears to be unsustainable.
Another reason for rising rents is that the population of New York City continues to increase. 55,211 new people moved to New York in 2015. So yes, there is limited space, but this is nothing new in Manhattan. NYC housing laws have also been harmful to the market, and property taxes are soaring. It is not sustainable for many reasons. Some of the major ones are because of low wages, high debt, and student debt. Income disparities have become so pronounced that America’s top 10 percent now average nearly nine times as much income as the bottom 90 percent . 1 out of 7 Americans are living with student debt. Around 11% of Americans with student loans were in default by the end of 2015. Many of these people are Generation X and Millennials. Most importantly these generations are of home buying age. If they can barely pay the rent, how likely are they to afford the down payment on a home in New York City on their own? How many 28 year olds do you know of are living with a roommate?
Interestingly enough, the average price of a home in NYC just surpassed $1 million dollars. As a real estate broker and an investor these developments are very troubling. I’m looking forward to converting my renters into buyers long before they hit 40 years old if possible.
Here are a few more facts. New York City stretches further than just Manhattan below 96th Street. We’re talking Upper Manhattan, the Bronx, Brooklyn, Queens and Staten Island where the vast majority of low and middle-income people reside. Almost half of New York City’s population was struggling to get by last year. Believe it or not, it is these groups of people who make up your average New Yorker. Obviously, that is not to say that New Yorkers are “average,” that is to say that not everyone who lives in the city can afford the lifestyle of those on Park Ave. In fact, the average New Yorker cannot even afford to live 5 train stops away from Park Avenue with the wages they earn. There is virtually no city neighborhood where minimum wage workers can reside unless those apartments are rent-stabilized. “Neighborhoods like mine have to remain affordable and support the middle class. They are being squeezed out,” City Councilman James Vacca has said. People cannot afford these increasing rents if wages stay stagnant. Maybe that is why vacancies in New York were the highest they’ve been in 9 years at the end of 2015.
As if this issue is not enough cause for concern, New Yorkers are also facing increasing inflation with these increasing rents. Only recently Mayor Bill DeBlasio referred to this real estate crisis as “the brink” and began unraveling a plan to create a more affordable housing market. What we are seeing is that these factors are adding on to each other leading to an overpriced rental market. Surely by now people are beginning to realize the unfortunate truth, that continual rent increases in NYC’s rental market, in the near future, is unsustainable.
Some other brokers might argue that I’m being a bear. Stop with all the despair. If you focus on the renters with high income potential you will be laughing all the way to the bank. But, the question now becomes an issue of whether these high-income earners can afford high rent even though it’s gift wrapped in renter incentives such as one month free. The data indicates that the answer is trending towards being unpleasant. Being rich in NYC is not enough; you are going to have to be wealthy if you want to live in the city if these trends continue. It is just not economically sound. As someone who has been in the real estate business for over 10 years and has experienced the ups and downs of the market, I know one thing. This rate of rent increases does not make sense. Something has got to give, otherwise, we are looking at a ‘new’ New York City – the wealthy person’s playground and there are not enough wealthy folks to inhabit every building in New York City.