Research shows landlords have control in NYC
After the country’s “housing bubble” burst late last decade, homebuyers and renters seized control of the market. Prices were slashed to meet their needs, and houses were foreclosed and auctioned off to them. Real estate agents and homeowners threw incentives at the buyers to lure their business. To gain their interest, banks offered no interest. The buyers have held the power, the influence, and the ability to make the real estate market flourish or freefall.
In New York City, landlords scoff at today’s buyer’s market. They control their city’s housing market, and though it momentarily slipped from their grasp in the late 2000s, they have regained the upper hand and are clenching it into a fist.
“It's somewhat surprising, the extent to which the rental market in New York has recovered, when compared with the nationwide economic recovery,” says Nathan Sheard, a senior associate at Citi Habitats. Real estate agent Juan Rodriguez believes the city’s unrelenting attitude explains the resurgence. “NYC is a resilient city that rolls with the punches and routinely rebounds from downturns in the economy,” he says.
Unfortunately, a victory like this produces winners and losers. The housing market’s resurgence, and the historic price spike that followed, has pushed middle class New Yorkers out of downtown, where renting prices are now unaffordable. These tenants move outwards, and are forced to rent in neighborhoods that have long been viewed as undesirable, such as Harlem or Upper Manhattan. “The cost of rents will only skyrocket, and there will be only rich people living in Manhattan,” says Valerie Fadul, an agent at Rapid NYC. “All the others will live in the outer boroughs where the rents are more affordable.”
As middle class tenants are pushed outward to areas like Harlem, it creates demand in the area and apartment prices go up. Working class families who cannot afford these spikes are forced to leave their homes, and like the middle class residents who were pushed out of downtown, they have to move further out. It’s a domino effect until low income renters in the outermost boroughs have to leave the city altogether.
Norman Shabot, senior vice president at One Manhattan Real Estate, predicts that the city’s renting market has not yet plateaued. “I think we are still looking forward to additional increases in rental prices,” he says. “The sales market in Manhattan is still very strong, and the supply on the rental market is still short.”
The supply and demand aspect of the real estate market is reflected in the city’s vacancy rate, which measures how many of the apartments are on the market. Recent trends have shown that the space for renters is shrinking every month. In 2011, the vacancy rate of apartments in NYC was 3.12%. In March of this year, the rate fell to 1.25%. Jay Walker, a Realtor for Best Apts NYC, estimates that May’s rate has decreased even further, and is somewhere between .6% and 1.2%. He predicts that over the next two years, the rate will fluctuate between .5% and 1.5%. A low vacancy rate doesn’t just drive up prices, but also creates a fierce market. “The toughest part of finding an apartment is the competition,” says Walker. Once an apartment hits the market, it’s usually sold within a day or two. If it’s a bargain in a desirable neighborhood, it can disappear in hours.
“Renters need to be ready with their paperwork and checkbook in hand to immediately take the apartment off the market when they are there viewing it,” says Nate Connor of Halstead Property. Most prospective renters like to tour a few different places so they have a handful to choose from, but in the city’s current renting climate, their first option will be taken away before they even look at a second place.
“The most frustrating thing I can imagine a client going through would be to find the space that really has a great blend of the key factors, and then hearing that you've lost the space because someone beat you,” says Sheard. Renters should have all of their documentation with them when they tour a property, and must be ready to begin negotiating as soon as they finish looking at it.
This negotiation is one-sided, as the landlords here have all of the power. Demand is high, and supply is low. The days when they offered concessions to the buyer, like free utilities or a free month of rent, seem like decades ago instead of years. Now, landlords can sit back and choose whomever they want to be their tenant. They expect all their prospective renters to “have a credit score of at least 620, make at least 40x the rental price, or have a guarantor,” says Fadul. So, not only does documentation have to be ready, but it also has to be flawless.
The landlords raise prices, increasing class divides and gentrifying neighborhoods. They encourage competition, creating a cutthroat housing market. Then, they choose only the most qualified tenants. They won’t change their ways because they know they don’t have to -- people can’t receive the bank loans they need to buy a home anymore, forcing them to rent. And when they do, vacancy rates plummet and demand skyrockets. This is the landlord’s market, and it’s only growing stronger.
-- Nick Dumont
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