New York City, a metropolis known for its vibrant culture and bustling lifestyle, has faced a paradox in its rental market. Despite a dip in population and a slower economic recovery post-pandemic, rents in Manhattan and Brooklyn have continued to soar. In this article, we explore the multifaceted reasons behind the high rents, drawing insights from Albert Dweck, a prominent figure at Duke Properties in NYC.
Shifting Population:
The dynamics of New York’s population underwent significant shifts during the pandemic. Traditionally, young couples would leave the city when their children approached age 5, seeking better schools or more space. However, the pandemic accelerated this trend, causing a premature exodus. Upon returning to the city, people found fewer available units, as the typical supply from those leaving for the suburbs had diminished. The increase in suburban home values also led older couples to downsize in the suburbs, further reducing the housing supply.
Remote Work:
The rise of remote work has added a new layer of complexity to the housing market. The demand for larger apartments increased, driven by a long-term trend of smaller household sizes in NYC. The need for home office space and the influx of digital nomads who chose New York as their home base contributed to the demand for more spacious accommodations. Sectors like finance and tech, which pay higher salaries, saw an increase in headcount in the city, impacting affordability for many.
Over the past ten years, New York City has experienced a slight reduction in average household size, decreasing from 2.57 to 2.55, as reported by the Department of City Planning. Although this decline may appear modest, it translates to an additional 70,000 individuals requiring accommodation within the current housing inventory, highlighting the growing demand for space within households
Emboldened Landlords:
Landlords, emboldened by the disruption caused by the pandemic, seized the opportunity to raise rents. While some tenants initially benefited from “COVID deals,” landlords anticipated a return to higher rents once the crisis subsided. This speculative approach mirrors historical trends seen after the 2008 financial crisis. Real estate speculation, coupled with the city’s supply-constrained housing market, contributed to the continued rise in rents.
Economist James Parrott of The New School conducted a census data analysis supporting this notion. His findings revealed a decrease in the number of workers aged 25 to 34 from early 2020 to late 2022, particularly marked among parents with children aged 4 or younger.
This demographic shift initially led to a surplus of vacant apartments, causing a dip in rents. However, as individuals began returning to the city in 2021, 2022, and the current year, they encountered a scarcity of available units. This scarcity can be attributed to the usual supply of apartments, typically released by those migrating to the suburbs, not entering the market. The majority of parents predisposed to seeking suburban living had already made their move, leaving a diminished supply of rental properties in the city
Changed Rent Laws:
Changes in rent laws have also played a role in the housing market dynamics. The withholding of rent-stabilized apartments from the market, whether due to warehousing or preferential rent reductions, has further limited the available rental stock. The inability of tenants to negotiate affordable terms in a market favoring landlords has intensified the pressure on rental prices.
Short-Term Rentals and Skimpy Supply:
The prevalence of short-term rentals, particularly on platforms like Airbnb, has kept thousands of units offline. Additionally, the supply of new housing in the city has become anemic, with a decline in the construction of multifamily buildings. The expiration of the 421-a tax abatement, offsetting high taxes on NYC rental apartments, has exacerbated the housing supply crisis. Mayor Eric Adams suggests a need for tax breaks to stimulate housing construction.
Conclusion:
The high rents in NYC are a result of a complex interplay of factors, from shifting population dynamics to the impact of remote work and changes in rent laws. Albert Dweck of Duke Properties, along with other experts, sheds light on the intricacies of the situation. While the city anticipates stabilization in rents, addressing the housing crisis requires a comprehensive approach, including policy changes and incentives to boost housing production.